When you were in your 20s and 30s, retirement seemed like a distant dream. But now that you’re in your 40s or 50? It sure looks a lot closer, and it’s fast approaching.
To make your retirement the best experience possible – and to enjoy the lifestyle you want once you step out of your full-time career — it’s essential that you plan properly.
As the saying goes, failing to plan might as well be planning to fail. Before you retire, here are some things you should do and think about sooner rather than later to ensure you can get more of what you want from this next stage of life.
1. Make Sure You’re Still on Track
You set a few goals a few years ago, and maybe even set your investments and automatic contributions to savings based off the steps you needed to take to meet those goals.
If you’ve done this, you’re ahead of the game – but not out of the woods yet. When’s the last time you actually looked at those goals and that plan to ensure you’re still tracking to the kind of retirement you want?
Plans tend to become outdated the moment they go down on paper, which is why it’s important to make the steps you take before you retire more of a process than a static set of instructions for what to do next.
2. Get a Review of Your Retirement Plan — and Put It to the Test
It’s also helpful to get a second set of eyes on your plan or process to ensure you’re taking advantage of all opportunities available to you — and not missing anything that could cost you money down the road.
This is true even if you’re not worried about running out of money or having enough to retire. Having a big pile of money is obviously great — but do you know how to use it when the time comes? Do you have the right withdrawal strategies in place? Do you have someone to coach you through the process of responsibly spending that money you worked so hard to save?
And more importantly, has someone stress-tested your plan to see if and when it will break?
It’s not enough to have a lot of money and wing it. Know exactly how far your current retirement account balance and savings rate will take you, and whether you need to up your contributions or mitigate risks that you’re currently exposed to.
A financial advisor can help review what you’ve been doing so far, and work with you to optimize everything so your money is working as hard as possible for you as you work through the last of your career years.
3. Think About How You’ll Spend Your Time Once You Retire
A significant part of your retirement budget may depend on how you plan to enjoy your time on the other side of the workforce.
For example, do you want to buy an RV and explore the country, or see as much of the world as you can? Or would you prefer a relaxing life at home with your family?
It doesn’t really matter what you choose, and it’s entirely possible that your interests will change by the time you retire.
But at least allow yourself to think and dream a little bit — and maybe even start digging into some serious research about what a new or different lifestyle could look like to make sure it aligns with what you want.
Thinking about this now, before you retire, gives you a chance to make adjustments or changes to your investments as needed.
You still have time to put your money to work for you and have it earn a big enough return to enjoy the retirement you want. Don’t squander that opportunity by failing to act until you’re already retired and trying to live off your portfolio.
4. Make Use of Tools like HSAs Before You Retire
Healthcare costs may be the biggest threat to your retirement savings. A 65-year-old couple retiring in 2018 will likely shell out at least $280,000 for medical expenses throughout their retirement.
Yet only 12% of working Americans take healthcare costs into consideration when they think about what kind of budget they’ll need for their next act. That’s not a statistic you want to find yourself part of.
Before you retire and while you’re still working, think about making use of a Health Savings Account (HSA). These accounts are seriously underutilized, but they offer some great benefits to help you stretch your healthcare dollars a little further.
You can use an HSA to save on a tax-free basis for eligible medical expenses. And that’s a triple tax advantage you can enjoy: money you put into an HSA is tax-deferred, earnings can grow tax-free, and you’re not taxed on withdrawals so long as, again, you use the funds on qualified medical expenses.
Considering you might have $280,000 worth of those, an HSA makes a great retirement planning tool if you can contribute to it now while you’re working — and then use it as a healthcare nest egg in your later years.
As another nice bonus, HSA funds can be used to pay for health insurance premiums once you reach 65.
5. Eliminate as Much Debt as Possible
Retirement is a time to enjoy the fruits of your labor, and it can be frustrating to still have monthly debt payments. Get rid of credit card debt and other balances before you retire. That shouldn’t be part of your budget once you leave the workforce.
When it comes to your mortgage, paying it off or not becomes a more complex question. A financial planner can help you run various projections to see the impact of paying off your mortgage — or other options, like selling and downsizing, becoming renters, and more.
(But again: Credit card debt? Other high-interest rate loans? No question. Get rid of it.)
6. Make a Distribution Plan and a Strategy for Social Security Benefits
Whether or not you’re on track for your retirement savings goal, it’s critical that you know exactly how you’re going to withdraw from your savings once you’re in retirement.
The prevailing rule is that you withdraw 4% of your total retirement savings balance each year. But that’s just a general rule of thumb — and you’ll likely want a more specific, customized, personalized answer to fit your lifestyle, needs, and goals.
Part of the process should include lots of discussions around deciding when to take Social Security payments. While you can start taking them at age 62, your monthly payments will be less than if you waited until your full retirement age.
That’s about the only straightforward thing to know when it comes to Social Security. The system is vast, confusing, and complicated.
It’s best to work with a professional who deeply knows the ins and outs of the SSA — including when conventional wisdom doesn’t work (and you should take your benefits before full retirement age or even before you retire. Yes, there are some scenarios where this could make sense!).
Even if you feel retirement is still a decade away, the time to think through these issues and more is before you retire. Right now, time is still on your side and you have the ability to make changes and explore opportunities that could increase your wealth.
Even more importantly, acting now could allow you to spot mistakes or holes in your plan before they become a reality you need to deal with, and you can proactively make sure you address those problems before they derail the retirement you want.