Whether you’re planning your own retirement or worried about your aging parents, there are some important things that should be done in the last decade of your working years. In a recent survey, 71% of Americans said that their financial planning needs improvement. Here is your chance to improve. These ten things will put you ahead of the game and give you confidence as you near the finish line.
1. Start Dreaming
The first step in preparing for something is knowing what it is you are preparing for. You would pack very differently for a ski trip than you would for a day at the beach. Your destination determines your preparation. Everyone knows that it’s wise to prepare for retirement, but do you even know what retirement is?
You need to set aside some time to consider what you want your life to look like in retirement. Are you going to be traveling the world, making up for all your time spent in a cubicle? Or are you going to be watching grandbabies while their parents work? Are you going to leave your current career to go into ministry now that you are financially independent? Maybe you don’t even want to leave your job, just cut back on your hours. Almost half of Americans want to keep working past age 65 because they simply enjoy their jobs and the social aspect of being in the workforce.
Retirement looks different for each person, so you need to decide what you want your retirement to look like. For many, these later years in life are a great opportunity to be involved in activities that serve others and serve the Lord, as you may have more time, financial resources, and wisdom than at any point in life prior. Take some time to dream about the future and get a clear picture in your mind of how you want to spend it. Only then can you prepare adequately.
2. Track Your Spending
Now that you have an idea of what you want to do in your golden years, how much is it going to cost? The best way to figure that out is to get a good grip on what your current lifestyle costs you. You need to start tracking your spending. In detail. Having a vague idea of your expenditures isn’t going to cut it anymore.
If you build out a retirement plan based on spending $4,000 a month and instead spend $5,500 a month, you could run out of money several years earlier than planned. Several years may not sound like a lot, but when you are 85 and your health is failing, it matters.
The opposite is also true. If you think that you need $5,500 a month in retirement but can live happily on $4,000, you may be able to retire several years sooner! As you can see, it’s really important to track your spending well so that you can make accurate plans for retirement.
3. Rethink Your Housing
As you track your expenses, you’ll see that housing is one of the biggest ones. Many Americans spend a third of their income on housing expenses. That begs the question, will you still have the same housing needs in retirement that you do now? If the answer is no, then that could make a huge difference in your retirement budget.
It is common to downsize in retirement. After all, you don’t need as many bedrooms when your kids are grown and gone and the older your knees get, the less you’ll want to face a flight of stairs every day. It is also common to relocate. Once your career isn’t dictating your location, you can move to a warmer climate, a cheaper area, or closer to family. Because housing costs are such a major part of your budget—both before and after retirement—it is essential to think through the kind of home you want during retirement in order to have an accurate projection of your costs.
4. Review Your Investments
By the time you are within ten years of retirement, you likely have some investments that you’ve built up throughout the years. When you are in your 30’s, the stakes aren’t as high because you have such a long time horizon. There is a lot of margin for error. Not anymore, though. Now, a big market drop can have a significant impact on your retirement or even your ability to retire.
It’s a good time to review your investments and your comfort with taking on risk. You may find that as you age, you prefer to shift to more conservative investments. The right investments and asset allocation for you will depend on your own unique circumstances, but it’s wise to review them as you near retirement.
5. Check Your Social Security Benefits
In addition to your investments, you’re probably counting on having some Social Security benefits to cover your costs in retirement. Research has found that Social Security benefits are the top source of retirement funding for Americans, amounting to about 27% of total retirement funding.
How much are you expecting to receive from Social Security? You can set up an account at ssa.gov/myaccount/ to find out what benefits you are eligible for and the amount. When you go there, you’ll see several different estimated retirement benefit amounts. Why is that? Because when it comes to Social Security retirement benefits, you have options. You can claim benefits any time between age 62 and age 70 and when you do so will determine how much you get. Married couples have even more to think about when it comes to Social Security if they want to time things in order to maximize both retirement and survivor benefits. If you are in your 50’s, you don’t need to stress about the details right now, but you should start educating yourself on how the system works. Once you get into your 60’s, it is wise to consult with a financial planner who can complete a full Social Security analysis for you.
6. Save More
Being in your 50’s means you’re finally eligible for some important benefits. Not only can you start to claim senior discounts at places like McDonald’s and with several cell phone providers, but you can save more into tax-advantaged accounts as well.
This year, those over age 50 can save an additional $1,000 into an IRA ($7,000 total) or an additional $6,500 into a workplace 401(k) or 403(b). Health savings account owners over age 55 can contribute an extra $1,000 in 2021. If you’re trying to make up for lost time or just want a big nest egg, you should definitely take advantage of these “catch-up contributions” to get more of your money into tax-advantaged accounts.
7. Get Out of Debt
Wondering where you are going to find the money to put extra into your IRA? Try paying off some debt. Not only will paying down debt free up cash to save for retirement, but it will also lower your expenses, which means you won’t need as much for retirement.
It can be a hard transition to go from being an income-earner with control over your cash flow to being on a fixed income in retirement. Having as little debt as possible in retirement makes that transition easier. The less debt you have in retirement the more peace you will have, especially high-interest consumer debt.
8. Think About Health Care
Another big thing you will have to think about in retirement is health care. As our bodies age they need more care, so it is during retirement that you will likely have the highest health care costs of your entire life. Fidelity estimates that a couple that turned 65 in 2020 could expect to spend approximately $295,000 on health care over their remaining years.
As an American, you will sign up for Medicare for your health care once you turn 65. Now is the time to start learning about the program, the different options available to you, and the cost. If you plan to retire before age 65, then you need to figure out what you will do for insurance until you are old enough for Medicare. You may want to stay on your employer’s health plan through COBRA or prefer to purchase an individual policy on a health care exchange. Either way, the sooner you start thinking about it, the better decision you are likely to make.
One final thing to consider is long-term care insurance. Medicare does not cover long-term care. Statistics show that a person turning 65 today has almost a 70% chance of needing some kind of long-term care services during their lifetime. How will you pay for it? Your options include self-funding, long-term care insurance, a long-term care rider on a life insurance policy, or Medicaid. Now is the time to start thinking through your options and determining what makes the most sense in your own particular situation.
9. Don’t Forget Taxes
While no one really likes to think about taxes, you’ll be better off if you do. It’s important to develop a tax strategy for retirement if you want to maximize your nest egg and minimize what you have to send to the government.
Diversification goes beyond just the investments you purchase. Having different kinds of tax-advantaged accounts, both tax-deferred and tax-free, provides you with flexibility and more control over your tax situation in retirement. If you will have a few low-income years, you may want to take advantage of a Roth conversion strategy to pay the taxes on your savings in a lower tax bracket. The sooner you start planning, the more opportunities you will have to minimize your taxes in retirement.
10. Consult a Professional
Does this seem like a lot? It is a lot! Retirement is a major life milestone, perhaps the biggest one from a financial perspective. There are so many moving parts that can impact your retirement in a significant way that many people seek professional help as they near the end of their working years. If you want a plan for your retirement, or just the peace of mind that comes from knowing that your current plan is solid, you should meet with a financial planner.
Be careful, though, when choosing a financial planner. People calling themselves financial advisors represent many different business models. Look for a financial planner that doesn’t just sell investment or insurance products. Find one who will act in your best interest because they aren’t being paid by anyone but you.
How We Can Help
At Guide Financial Planning, we are legal fiduciaries, which means we always act in your best interest and not doing so would be breaking the law. We will not sell you products or earn commissions on our recommendations. We don’t even require a long-term commitment or insist on managing your money for you! (Though if you like us, we can do both of those.)
If you want to get a plan in place for retirement, we can build a completely customized, comprehensive financial plan that incorporates every area of your financial life and reflects your priorities and values. It’s the kind of plan that you can take and implement on your own or we can guide you through it on an ongoing basis. If you don’t want a full plan but just have a few questions, we can help with that, too. Our Quick Start sessions are the perfect opportunity to get some professional advice with minimal time and financial commitment. Get a jump on your retirement planning and schedule a free introductory phone call today!
About Guide Financial Planning
Guide Financial Planning is led by founder Ben Wacek, who is a Christian fee-only Certified Financial Planner™ and Certified Kingdom Advisor®. He has a passion to help people of all income levels make wise financial decisions and steward their resources from an eternal perspective using Biblical principles. Based in Minneapolis, MN, he works with clients both locally and virtually throughout the country and abroad. You can follow the links to learn more about Guide Financial Planning and our team and the services we offer.