If you want to retire earlier, you probably already know to invest as much of your salary as you can and work with a financial planner to determine if your assets will support your future cash flow needs.
However, there are a few not-so-obvious moves to make as you get closer to retirement. While you are working and your cash flow is coming from your salary versus withdrawing assets, take care of a few things.
If you plan on selling your home in retirement and need to make repairs or upgrades that will help your home sell faster, why fix up the home for just the new owners to enjoy? Make those needed repairs now.
Use a home equity line of credit if you don’t want to pay out of pocket. If you itemize your tax return, you can likely still write off home equity interest if used to make major home repairs.
According to an IRS News Release in 2018, “Interest on home equity loans may still be deductible.” If the loan is used for a remodel or to upgrade your home, it may be deductible. If the loan is used for personal reasons, such as paying off credit cards or taking a vacation, the deduction for the interest is not allowed.
Starting in 2018, taxpayers can only deduct interest from loans on personal residences up to $750,000, including both the primary residence and home equity loans combined (couples who are married filing separately can deduct $375,000 each). Check with your tax advisor about whether or not you can deduct the interest from your home equity loan on your taxes.
While free time is more plentiful in retirement, money may not be. I’ve found retirees have a money mind-shift when they go from paying for expenses with a salary versus depleting assets. When you have to withdraw a large lump sum of money to pay for something like a home repair, you tend to balk.
When you live off a nest egg, psychologically, it’s tough to spend it. Make it easier on yourself and get going on repairs or a remodel project now while you have a salary coming in. If you decide to pay with a home equity line of credit rather than cash, create a plan to pay it off before you retire.
- Pick up a new hobby or rekindle an old one
When you are working, you may dream of long days with nothing to do. But in retirement, many people experience boredom after a while unless they plan ahead. As you transition to retirement, go ahead and start up a hobby.
Was there something you loved to do as a 12-year-old but haven’t had time for as an adult? What have you always wanted to experiment with?
Many hobbies have some initial costs to get started, and you may want to purchase those items while you are working. If you don’t try it now, you don’t know what you truly need, so it’s hard to know where to put your money.
I took up skiing five years ago, and initially purchased some basic ski equipment at ski sales and used equipment swaps.
Once I knew I loved the sport, I tested out different brands, shapes, and sizes of skis before making an investment in new ones. Now, even though I am working full time, I ski at least 25 days a season and have lots of ski buddies to go with when I retire.
When you have hobbies you enjoy, life is more fun. While you are transitioning to retirement, it’s nice to unplug on the weekends and play around with your new hobby. You’ll come back to work refreshed on Monday morning, and your transition to retirement could be smoother.
- Dramatically improve your health
If you aren’t healthy, you can’t fully enjoy your life and retirement. Retirement is also more expensive when you have medical bills to pay.
Researchers at Fidelity Investments estimated that a 65-year-old couple who retired in 2018 would spend an average of $280,000 on medical expenses during their golden years.
If you can handle some of those expenses while you are still working and get in great shape so you enter retirement as healthy as possible, you can reduce those costs, or at least contain them.
Consider getting medical procedures taken care of before you retire. For example, because one side of my nose was completely blocked, whenever my allergies kicked in or I had a cold, I’d get a sinus infection. Earlier this year, I had rhinoplasty surgery so I can now breathe through both sides of my nose.
The nose surgery has given me a new life! Now that I can breathe so much better through my nose, I am less fatigued. I no longer need as much sleep, take fewer naps, and have more energy. I wish I’d done it years ago!
Since I hit my deductible after my nose surgery and was getting close to my out-of-pocket maximum, I thought, “What else do I need to have done?” There was something I’d been putting off — fixing my feet!
The bunions are gone — the right foot was done in June, and the left was done this week. These foot surgeries and recovery treatments will only cost me about $1,300, since I will hit that out-of-pocket maximum this year. I’ll be able to walk, run, ski, and hike without foot pain for the rest of my life.
Get your BMI into a healthy spot, too. Research shows that even modest weight loss can greatly improve your overall health. According to ObesityAction.org, a 5-10% loss in weight can:
- Increase good (HDL) cholesterol by five points
- Decrease triglycerides significantly
- Decrease blood pressure
So get a Fitbit and bump up your steps, change your diet to increase fruits and veggies and decrease calories, and meet with your doctor for a physical to get her advice on the above.
While you may not realize it now, retirement can be stressful! The more things you can pay for now and take care of ahead of retirement, the easier it will be.