On your marks, get set… RETIRE! If you are in your 50s or
60s, you are probably about 10 years from retirement (give or take). Maybe you
are even just a year from retirement. Regardless of the exact timing, you are
in the home stretch of a lifelong race to this exciting time of your life.
The following are
things to do now if you are 5–10 years from retirement to improve your future.
1. It Is Now or
Never: Find More Money and Save It
As a pre-retiree,
this is your last chance to amass the savings you need to retire comfortably.
You might be surprised by how much you can save when you are a few to 10 years
from retirement.
Pre-retirees should
use the motivation of their looming retirement date to buckle down and save as
much as possible.
Cut expenses.
Bank all tax
returns, raises, bonuses, inheritances, or other surprise money.
Consider a second
job.
Explore ways to
create passive income.
Save as much as
possible.
2. Max Out
Catch-Up Contributions
If being just 10
years from retirement is not enough incentive, know that pre-retirees get extra
tax incentives. The government encourages workers age 50 and older to save more
than younger employees by increasing the contribution limits to 401(k) and IRA
accounts.
According to the
IRS:
Anyone over 50 can
add catch-up contributions up to $6,500 to their 401(k) savings. That is in
addition to the $19,500 contribution limit. So the total you can contribute to
these accounts in a given year is $26,000
For an IRA, the
annual contribution limit is $6,000, or $7,000 if you’re age 50 or older.
3. Don’t Rely on
Just a 401(k) — Open an IRA Too (or Vice Versa)
Did you know that
you can max out your contributions in multiple kinds of retirement accounts?
Go for it! Can you
set a goal of $33,000 if you are single or $66,000 if you are married?
After 50 you can put
in $26,000 to your 401k and $7,000 into an IRA. Are you married? Double those
amounts to save $66,000 in tax-advantaged accounts each year.
But, your savings
don’t need to stop there. If you can save more, go ahead and sock the money
away in taxable savings. You will be happy to have the cash later.
4. Expecting an
Inheritance? Check in With Your Parents
According to
research from Charles Schwab, more than half of young adults (53%) believe
their parents will leave them an inheritance, versus the average 21% of people
who actually received an inheritance of any kind between 1989 and 2007.
If you are banking
on an inheritance to help you with retirement, you might want to have a frank
conversation with your mom, dad, aunt or uncle. Medical costs have risen
tremendously and it is easy to find stories of families who have used up every
last dime because they live longer than expected or they need to go into
assisted living which can be tremendously expensive.
You might also want
to take steps to protect the inheritance. You could consider purchasing a
long-term care insurance or life insurance policy for your parents.
5. Get Rid of
Debt
Debt can be a
problem for retirement. It is best to split from the masses and try hard to pay
it off before you stop working.
According to the
Employee Benefit Research Institute (EBRI), 77% of families headed by people
ages 55 and over have debt. And the average amount of debt is $108,011.
In retirement, your
income is normally reduced to a fixed level, derived from Social Security,
pensions, and other retirement savings that have been amassed over the years. A
fixed income means that you will not have more money tomorrow to pay off the
debt than you do today. You will simply be paying more interest — wasting money
every month you carry the debt.
Being 5 to 10 years
from retirement means that you have time to tackle your debt. Now is the time!
6. Talk with Your
Spouse
A survey from
Fidelity Investments found that finances and retirement planning are extremely
difficult subjects for married couples.
In fact, the survey
found that less than half of couples make routine financial decisions, such as
budgeting and paying bills, together and only 38 percent jointly discuss their
investment and savings strategies for retirement.
Other research finds
that couples might not even be on the same page with how they want to spend
their time in retirement.
This lack of
communication is likely to prove problematic. Use the Retirement Planner to
facilitate a conversation about what you want out of retirement and what you
will be able to afford.
When you are 10
years from retirement you’ll still have enough time to make adjustments and
compromises to get together on the same page for a happy future.
7. Budget:
Inventory Current Spending and Project into the Future
Predicting exactly
how much you are going to spend in retirement can help you go a long way toward
achieving financial security. And, the less you spend, the less you need to
have saved.
When budgeting your
retirement, consider that your costs will likely vary. Most people spend a
little more when they first retire, less as they age, and a lot more as health
declines.
8. Plan for
Out-of-Pocket Medical Costs and the Potential for a Long Term Care Need
If you are somewhere
around 10 years from retirement, you really need to think carefully about your
future healthcare costs. There are three categories of spending you need to
consider:
Early Retirement
Healthcare: If you retire before age 65, funding healthcare before you
become eligible for Medicare can be expensive. Explore 9 ways to cover
healthcare for an early retirement.
Medicare: You
are sorely mistaken if you think Medicare will pay for everything. According to
Fidelity, a 65-year-old couple retiring in 2021 will need an estimated $300,000
to cover health care costs in retirement.
Long Term Care:
Not everyone will require long term care, but everyone needs a plan for how to
pay for it if they do need it. Here are 10 alternatives to long term care
insurance.
9. Maintain the
“Right” Asset Allocation and Start Thinking About Income Planning
Some experts
recommend that your investments become more and more conservative the older you
get. However, most advisers suggest that you try to at least earn returns that
will enable you to keep up with inflation — or even get ahead.
The right asset
allocation for you will depend on your goals, time horizon and overall
financial profile. Explore simple ways to develop the best asset allocation
strategy for you.
However, beyond
asset allocation and being concerned about your returns, now is the time to
start thinking about retirement income planning. How are you going to turn your
assets into income?
10. Consider Your
Own Needs (Current and Future) Before Helping Your Kids or Aging Parents
When you are 5-10
years from retirement, you often face a lot of mouths to feed — your own today,
saving for your future, kids in college, and parents with financial or medical
issues, or who are in long term care.
If you cannot afford
to fund it all, you will need to prioritize and make trade-offs. Many financial
advisers will advise retirement savings over spending on family since there are
loans for college and some options for public assistance for long term care,
but no financial options for paying for retirement beyond working and savings.
11. Know What You
Are Going to Do in Retirement
It is easy to get
wrapped up in the financial aspects of planning for retirement. However, a plan
for what to do in retirement is perhaps more important. The happiest retirees
have a purpose and focused interests.
It is time to start
dreaming!
12. Consider
Where You Want to Be in Retirement
Think carefully
about where you will live in retirement. This is the one time in your life when
you are not tethered by your connections and a job and you can choose a place
to live that completely suits your temperament and interests.
Relocating can also
help your finances and even enable an earlier retirement if you can release
home equity to add to your retirement savings.
13. Set a Date.
Plan a Celebration!
Make your future
concrete. Set a specific retirement date and start actively imagining the
future you really want. Tell your friends and family. Plan a retirement party!
These are all proven
tactics for helping you achieve a goal.
14. Be Happy Now
Transition times can
be tricky for happiness. You are leaving something behind and looking forward
to the future, but happiness gurus suggest that contentment comes from being
very rooted in the present.
15. Actively
Plan: Don’t Let it Just Happen to You!
If you are preparing
for an event, there is a lot you can do before stepping up to the starting line
to ensure success.
Retirement is no
different, and as a pre-retiree, now is your chance to do the things you need
to do for a secure future. Use the deadline as motivation.
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