6 Must-Dos in the Last 10 Years Before Retirement
It used to be that retirement was something nebulous, a “someday” event far into the future. But now you have realized that it is just 10 years away or even less, and you want to make sure your finances are prepared. Here are six must-dos for the last 10 years before retirement.
Focus on Savings
We know, we know. Every retirement preparedness article out there says to focus on your savings, but that is because it is so essential. The nest egg you build now will support you for the rest of your life, so it is important to make sure the nest egg is well-feathered.
In this decade before retirement, work with a financial advisor with retirement planning expertise to project how much you should have in your retirement fund. You can also do this on your own using online retirement calculators, but a financial advisor can provide more specific calculations and model various scenarios that may affect your outlook.
Whether you work with a financial planner or go the DIY route, now is the time to adjust how much you put aside based on your target retirement savings amount. Consider increasing your contributions to retirement accounts such as your 401(k), IRA, or brokerage account. Assuming you are over 50, you will be able to take advantage of “catch-up contributions” to save even more.
If you are contributing to a health savings account (HSA) to pay for health costs in retirement, that is another contribution you might consider maxing out.
Adjust Your Portfolio
As you approach retirement, you will likely want to adjust your investment accounts so that you are exposed to less market risk. Your stomach for risk (or risk tolerance) will need to be balanced with your portfolio return goals.
If you own a target-date mutual fund, these portfolio adjustments will be made for you. Even so, you may find the “one size fits all” approach doesn’t work for your situation. For example, if you want to retire early or you have a spouse who is significantly younger than you, you may need a larger equity allocation than normally recommended for someone your age.
Target Your Debt
You want to enter retirement with a low debt burden, particularly high-interest rate debt such as credit cards. In the 10 years before you retire, focus on the highest-interest-rate debt and pay it off. Then move on to the next debt and repeat.
If you have a mortgage, assess whether it makes sense to pay off the mortgage before you retire or to continue paying it in retirement.
Build and Test a Budget
Our Greenwood Village, CO fee-only financial planning firm has seen people who wait until retirement to determine if they can afford it. But waiting until you retire is too late because you won’t have the time to adjust.
Instead, we recommend that you do a test run of your retirement budget while you are still working. Determine your retirement income sources and amounts, including Social Security benefits, retirement accounts, pensions, and rental income. Factor in your retirement expenses, such as Medicare premiums or health insurance, utilities, and taxes, as well those big-ticket items you have been dreaming of.
Once you have a balanced budget, try to live on it for a few months. If it isn’t working, determine where the problem is and adjust. It is better to find out now that your retirement budget is not feasible than waiting until you retire and are living on a fixed income.
Get on the Same Page as Your Spouse
Many couples don’t discuss their retirement plans, only to find out their retirement visions are incompatible. You can increase harmony with your partner by making sure you have a shared vision for retirement.
Questions to ask yourselves include:
What does daily life in retirement look like?
What are the activities you will do independently? Which ones will you share?
What are the big-ticket items and experiences that you need to save for?
Will you move or stay in the same home?
What is the retirement date or age you each would like?
Do you plan to work part-time once you retire?
Have this conversation early on and revisit the topic regularly to help ensure you stay on the same page.
Talk with a Financial Advisor
If you are not already working with a financial advisor, consider talking with one now.
A financial advisor can help build a retirement plan that integrates all areas of your personal finances, including cash flow, taxes, investments, and estate planning. They can help you understand any potential problem areas and how to address them, as well as any opportunities to improve your finances and achieve your goals.
With the right financial advisor, you can worry less about retirement and look forward to it as an exciting new life chapter.
Discuss your financial situation with a fee-only financial advisor. Schedule a complimentary discovery call.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.
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