Countdown to Retirement...5 Years or More

Countdown to retirement blog imageThere’s a lot to consider as you prepare for retirement, so it’s wise to begin planning well ahead of time. Here are some items to consider to help you stay on track for the retirement you envision.

Five Years to Retirement
Set your target date. Before making any plan, it’s important to have a clear goal in mind. Setting a target retirement date will help you create a timeline and guideposts you can measure your progress against. This doesn’t mean that the date is set in stone, however. In fact, many people prefer a phased retirement, which allows you to transition from full-time work to reduced hours. Before considering a phased approach, talk to your employer about how reduced hours will affect your pension, health insurance, and other employee benefits.

Envision your retirement. To determine when you can afford to retire, you need to consider what you want to do in your golden years. When envisioning your retirement lifestyle, be as realistic as possible. What interests do you want to explore that you may not have had time for while you were working? What additional expenses might you incur? Do you want to start a business, travel, relocate, or help fund your grandchildren’s education? A clear retirement vision will help us understand where your accounts should be as you move through your pre- and post-retirement years.

Calculate your number. Once you know when you want to retire and what your life will look like, you can better estimate the amount of retirement savings you’ll need to support your lifestyle. When calculating your number, it’s also important to consider the financial risks you may face in retirement. Here are a few factors to keep in mind:

  • Expect to live longer than your parents. As life expectancy for many people stretches into the 90s and older, retirement assets must last longer.
  • Inflation will reduce your spending power over time. Plus, some costs, such as medical care, have historically increased faster than the Consumer Price Index.
  • An overly conservative portfolio can be just as risky as an overly aggressive one. If your portfolio grows at a rate slower than inflation, you could eventually have to dip into your principal.
  • Keep your withdrawal rate under 5 percent of your retirement investments. Conservative withdrawal rates can decrease your risk of running out of money.
  • Medicare won’t cover all your health care expenses. A survey by Fidelity Investments found that a couple age 65 will need approximately $285,000 to cover medical expenses in retirement, excluding long-term care.

We have programs that can help us calculate the amount of retirement savings you’ll need and to test that number against various hypothetical scenarios. Although it’s impossible to predict the future, this analysis can provide a range of possible retirement account withdrawal options that your portfolio should be able to sustain over time.

Position yourself for a better retirement. Now is the time to eliminate the gap between your current retirement resources and your ideal amount of savings. Increase your retirement savings by taking advantage of the higher contribution limits for those age 50 and older. You can contribute an additional $6,500 per year to a 401(k) and an extra $1,000 per year to a traditional or Roth IRA. You may need to supplement your savings with other investments, such as brokerage accounts, annuities, and bank savings vehicles.

Consider purchasing long-term care insurance, if you haven’t already. People today are living longer but not necessarily in the best of health. Many individuals will require long-term care at some point in their lives. Medicare, Medicare Supplement Insurance plans, and retiree medical insurance pay very little, if any, of the costs for this type of care. According to Genworth’s latest Cost of Care Survey, the price tag for long-term care can range from $52,620 per year of at-home care to $102,204 per year for nursing home care. Given those costs, it makes sense to devise a strategy to help manage the long-term care risk.

Pay off outstanding debt. Interest payments can have a draining effect on your retirement income. If possible, consider paying off your long- and short-term debt, especially loans against your 401(k) account. Loans from your 401(k) that are not paid off shortly after you leave your employer will be taxed as a distribution from your retirement plan.

If you need help preparing for your retirement, please reach out to me. Together, we can come up with a plan to help you reach your retirement goals. 

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This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

finances, financial management, financial plan, Personal Finance, Financial Well-Being, market, investments, 401(k), retirement plans, retirement planning, saving, investment strategies

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