Thinking of Retiring in 2024? Do This First

If you're hoping to finally hand in your notice and become a retiree in 2024, you were probably counting down the days until the new year. Before you give up a regular paycheck for good, though, there's something you absolutely need to do first to avoid financial disaster (or having to return to work after you've gotten used to a life of leisure).

Here's what it is.

Don't even consider retiring in 2024 unless you have a budget

Before you retire in 2024, you must sit down and make a budget so you can see exactly what your spending will look like. If retirement is imminent, you should be able to do this with a reasonable degree of accuracy. Just make a list of what expenses you'll have and be sure to take into account major categories like:

• 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, including Medigap or Medicare Advantage premiums
• Healthcare expenses, including Medicare coinsurance costs
• Groceries
• Emergency savings
• Travel and leisure expenses

You can look back at your credit card and bank statements to get an idea of what you're currently spending on many of these things. Then, think about how your expenses will change in retirement. You can and should research things like Medigap plans and taxation of Social Security benefits so you have a very clear idea of how much income you'll need in retirement to live comfortably while paying for the essentials.

Once you've made your budget, be sure you can cover your expenses

After you've made your detailed budget, you'll want to be sure you can cover all the expenses you're expecting with the income you'll have coming into your household once your paychecks stop. You'll likely be getting Social Security benefits unless you don't plan to claim those right away. You can figure out how much those benefits will be by signing into your mySocialSecurity account. They likely won't be enough on their own to support you, though, as Social Security replaces only about 40% of pre-retirement income.

Chances are good you'll be relying on withdrawals from your 401(k) or other retirement accounts to cover the expenses Social Security won't. And you don't want to take too much out of these accounts at once. Typically, your goal should be to withdraw about 4% or less of the principal balance in your account during your first year of retirement and then adjust the amount upward for inflation each year.

If you find that you cannot cover everything in your budget with the income from Social Security and your savings at a safe withdrawal rate, you'll need to reconsider a few things. You can try to rework your budget so you'll spend less, but be sure you're being realistic if you go this route. You don't want to create unsustainable spending limits you can't stick to over the years.

Alternatively, you may decide you aren't really ready to retire in 2024 after all because your current level of savings isn't going to provide the income you need to live the life you want. If that's the case, it's far better to find that out before leaving work, when you still have time to earn and save more so you can have the retirement you deserve.

Learn more about planning for retirement and make an appointment with an Old National Banker to discuss your options.

This article was written by Christy Bieber from The Motley Fool and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.