Retiring in 2024? Make These 6 Money Moves Before You Do
Written by
Adam Palasciano
Edited by
Travis Woods
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If you’ve finally reached the moment in your career when you’re ready to retire, kudos to you. Further, if you’re planning to retire next year, you’re probably looking forward to the next phase of your life filled with more free time and leisure. Yet retiring these days has become increasingly expensive thanks to rising costs and continued high inflation.
The Motley Fool and the U.S. Department of Labor recently shared some tips on smart financial decisions to make now ahead of retirement in the new year. While you may feel ready to retire, you’ll want to make sure you make these crucial money moves now before retiring next year so that you’re well prepared for all of your monthly expenses.
1) Don’t Consider Retiring Without a Budget
This should go without saying but creating and sticking to a strict budget in retirement is of paramount importance. If you’re truly going to enter retirement in 2024, you should be able to reasonably organize a budget that you’ll follow once the income from your job stops. Expenses include (but are not limited to) the monthly cost of housing, utilities, transportation, taxes (including any taxes you may owe on Social Security benefits if your income is high enough that you’re taxed on part of your retirement checks), insurance, healthcare expenses (including Medicare coinsurance costs), groceries, emergency savings, travel and other leisure expenses.
A good idea is to go back and look at your bill history to see what your average monthly expenses have been up to this point. From there, you can determine the expenses you can cut back on and formulate a reasonable monthly budget that at least covers the essentials.
2) Be Sure You Can Cover Your Expenses
Once your paychecks stop, you don’t want to be blindsided by expenses that exceed your reduced monthly income. After creating your retirement budget, you’ll want to be sure that you can cover all of the expenses you’ve calculated both with money you have saved up plus your monthly Social Security benefit payments. The earliest that Social Security payments can be claimed is at age 62 and for the majority of Americans, Social Security benefits only cover about 40% of monthly expenses.
In addition, it’s important to not withdraw more than 4% of the principal balance from your retirement account during the first year. Some experts estimate that you’ll need 70-90% of your pre-retirement income to maintain your same standard of living when you stop working.
3) Don’t Stop Saving Money
Although you’re about to retire, it’s wise to continue saving as much money as possible each month leading up to the time you retire. If you’ve already set monthly savings goals before retirement, keep them up as long as possible to ensure more compounded growth of your investments and savings. It’s also smart to continue saving money (if possible) even after you’ve entered retirement. If you’re feeling unsure, delaying retirement for several more years to save more and prepare for a retirement that you deserve may be a more responsible choice.
4) Know Your Lifestyle
While the idea of no longer receiving a paycheck seems scary, identifying the type of lifestyle you lead, or the lifestyle you’ll lead once you enter retirement, is key. If you’re accustomed to dining out often, going on lavish vacations, and spending lots of money overall, it will be crucial to ensure that your retirement budget will support this type of lifestyle. On the other hand, if you already live below your means and spend less money in general, then creating a budget to continue this lifestyle might already be well within reach.
5) Keep Contributing to your 401(k) and IRA Accounts
Although you’re approaching the end of your working career, contributing as much money as you can to both your employer-sponsored 401(k) plan and/or your IRA will ensure more financial security in your golden years. Consider contributing the maximum annual limit to your accounts the year before entering retirement to pump up your savings and ensure more compounded growth after you stop working.
6) See How Much Your Social Security Benefit Will Be
Social Security benefits typically consist of a good chunk of monthly retirement income, 40% for most Americans as mentioned earlier. Knowing what your monthly benefit will be once you start collecting is very important when creating your retirement budget. You can create an account and log into mySocialSecurity to see and estimate your monthly benefits. Currently, the earliest age you can start collecting benefits is 62 years old, but you’ll only get 70% of your full monthly benefit amount by electing to receive your benefits at this age. If you wait until age 67, you’ll get 100% of your monthly benefit amount until death.
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