By Joel Dansby* on Jul 19, 2022
This is it. You’re zeroing in on your retirement years. You’ve been planning this for decades, but are you really ready? If you’re five to 10 years away from retirement, it’s time to start getting specific about your plans after exiting your career. Here’s what you should be doing to prepare.
Invest for Growth and Cut Down Debt
Many believe that the two most important things to do for your financial health at this point in your life are investing for growth and cutting down your debt. Wherever possible, maximize your 401(k), IRA, or other retirement plan contributions—and be sure to assess your risk tolerance and diversify your investment portfolios accordingly (a financial professional can help you with this!).
Debt is the last thing that you want hanging over your head in retirement, so it’s a good idea to pay it down now, before living on a fixed income. Focus on paying off high-interest loans and credit cards first and foremost, even if it means not maximizing your retirement plan contributions for the time being. Once your highest-interest debts are paid off, you can start contributing more to your retirement savings plans while paying off any other low-interest debt. Have a goal for all debt to be paid off by the time you retire.
Determine a Retirement Budget
By this point in your life, you probably have a good idea of the level of income that makes you most comfortable. While your income might decrease in retirement, it’s important to start thinking about your lifestyle and expenses now, so you can properly plan for the funds that you’ll need to stay financially secure.
Be specific about your budget. Will you have mortgage or rent payments to make? What will the cost of living look like in your location, or are you planning to move in retirement? Are there unnecessary expenses that you can cut, if need be? Honing in on these details will make it easier for you to set and reach retirement savings goals before you get here.
Even if you already have retirement savings goals that you’ve been working toward throughout your career, it’s a good idea to revisit them and reevaluate. Did you plan for all the expenses in your retirement budget or are there new and unexpected funds you’ll need? Think about some of the things you may not have planned for early in your career, like medical expenses, mortgage payments, or higher education funds for your children.
Consider some of the life goals that you’d like to achieve in retirement. Are there destinations you’d like to visit or large purchases you’d like to make? These are things that should be built into your budget and set as specific savings goals. Over the next five to 10 years you can continue to build your retirement nest egg while also saving for the things that you haven’t been able to do while working a full-time job.
Establish a Legacy Plan
Planning your budget and goals during pre-retirement also provides a good opportunity to start your legacy plan. This means planning how to distribute your property and assets to your loved ones after your death. Start by creating a list of your assets and where they’re kept—this can include things like investment accounts, real estate, and insurance policies.
Once you have your list of assets, you should think about who you want to leave them to, or if there’s anything you want to donate to charity. Also, think about any preferences you have for medical care to record in an advance directive. Lastly, contact an expert, either a financial professional or an attorney, to walk you through the steps of setting up your legacy plan.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2022 Advisor Websites.