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This is the second installment of a two-part series on retirement planning for older workers. Read Part 1 here.
Are you planning to retire in the next few years? There are important steps you can take now to smooth the transition into your golden years.
As we discussed in the first part of this series, prudent would-be retirees can pinpoint the age they plan to retire, ramp up their savings and, if necessary, cut back costs to help them budget for life on a fixed income. Beyond these basic steps, however, there are other measures worth considering to improve your financial footing ahead of retirement.
Pay off high-interest debt
Adding to your nest egg is a critical part of preparing for retirement, but shoring up your retirement accounts can be difficult if you're spending large sums on credit card bills, which are notorious for having high interest rates. If you've successfully cut costs, as advised in Part 1, then it may make sense to pay off your high-interest rate loans next. Dispensing with such debt may save you thousands in interest expenses in the future, freeing up more of your cash for retirement savings.
Not all debt is created equal, however. While some might prefer to enter retirement without a mortgage hanging over their heads, home loans today often come with low interest rates -- making it debt that you shouldn't necessarily rush to pay off.
Since individual circumstances vary, consider consulting a financial planner to discuss the best strategy for managing your debt.
Educate yourself on Medicare
Would-be retirees planning to enroll in Medicare would be wise to learn how Medicare premiums and costs differ from those of their existing insurance plans so that they can budget accordingly.
"They need to be very clear on what Medicare does cover and what it does not," said Diane Oakley, executive director of the National Institute of Retirement Security. "It's not as if at age 65, everything's taken care of."
It's important to remember that, unlike employer-sponsored health insurance, Medicare premiums are paid with after-tax dollars. Medicare also doesn't cover long-term care services, such as nursing home care (see "Consider your long-term care plans" below).
Consider your long-term care plans
As unpleasant as it is to imagine, there may come a day when you can no longer care for yourself.
Someone turning 65 today has nearly a 70% chance of needing help with activities ranging from grocery shopping to bathing during some point in their lives, according to the U.S. Department of Health and Human Services. Should that be the case, you may be among the many who turn to loved ones for free help; some 80% of the care provided to older adults in their homes comes from unpaid caregivers.
Other retirees, particularly those without family or friends close by, may find they benefit from purchasing long-term care insurance that could ultimately fund nursing home care or other services. Learn more about long-term care, including how to pay for it, at LongTermCare.gov by the Department of Health and Human Services.
Consider part-time work
Visions of retirement differ from person to person. While some anticipate a quiet life in their homes, others yearn for travel around the globe. The latter, of course, will typically require more savings, and the former, less.
But there's a third way: Some intend to find part-time jobs that both help support their lifestyles and also offer a degree of fulfillment or just plain fun.
"Someone might say, I'm tired of being an accountant in Buffalo, I'm going to work at Disney World and that'll be my retirement," said Michael Herndon,vice president of Financial Resilience at AARP.
Tips for job-seekers age 50 and over, including information on part-time jobs, are available at AARP's Work & Jobs page.
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