- What to do When Retirement is 10 Years Away
- What Do I Do If I’m On Track With My Retirement?
- What Do I Do If I’m Behind on My Retirement?
- Things You Need to Do No Matter What
- 3 Ways to Make Your Post-Retirement Plan Last
- 1. Before you retire, pay off all debt including your mortgage
- 2. Ease into retirement
- 3. Know what you have in retirement savings
- Work With a Financial Advisor
- 3 things people in their 30s can do right now to retire comfortably, according to a financial planner
- Start small
- Front-load retirement savings in your 30s before having children and cash flow is tight
- Balance debt payoff with retirement investing
What to do When Retirement is 10 Years Away
When people are looking to the horizon and seeing retirement at the crest of the hill, they want to know the answer to one question: What should I be doing to be ready? It depends on where you are in your retirement planning.
If you’re 10 years away from retirement, there are things to do if you’re on track, but there are different actions to take if you’re behind.
And depending on your age, there are some things you need to be doing no matter how much money you have in the bank.
What Do I Do If I’m On Track With My Retirement?
Congratulations! All that hard work, focus and dedication are paying off! With your dream in sight, make sure you take these actions to guard that retirement dream.
1. Sharpen your retirement budget. Sit down with your spouse or a friend and create a mock retirement budget using your current monthly budget. Some expenses will go down (dry cleaning, commuting and clothing, for example), but other items may go up, utilities. Be sure to add in a little extra for inflation—about 3% a year.
2. Be on the lookout for stupid. This decade can be tricky. You can see your goal in sight, so it’s easy to let off the gas a little and reward yourself for your hard work.
If you hear yourself saying the the words “I deserve . . .”, you’re treading on thin ice. A fancy vacation or a speedboat aren’t too far away. Get that territory—you’re close to Stupid Land.
Stay focused on your retirement dream and don’t let anything get in the way.
3. Take advantage of the catch-up option. At age 50, you can put an extra $6,000 in your 401(k); you can put $1,000 more in your IRA. There are also catch-up contribution options if you have a SIMPLE IRA or 401(k) or a 403(b). Throw as much as you can into your investments. A decade of supercharging your savings will pay off in the long run!
Now, keep reading on. There are more action steps below that you might want to consider even though you’re in a good spot—and some you need to do in your 50s no matter what. Knowing that ahead of time puts you at the front of the pack.
What Do I Do If I’m Behind on My Retirement?
Take a deep breath. You may not be where you want, but there’s still hope. You can take some steps to shore up your retirement fund and put yourself in a better financial position. But I have to be honest: You need to get cracking!
1. Get debt. If you haven’t paid off all debt, including your house, you need to get rid of your debts quickly! Any debt will drain your retirement fund quicker than streaming a movie on your cell phone will eat up your data plan. If necessary, take a second job. Sell everything that doesn’t breathe and cut your budget to the bone. Debt is that destructive.
2. Make investing your top priority. Once you’re debt, throw everything you can into your investment fund. Take advantage of catch-up contributions the IRS offers for those 50 and above. If you max out your 401(k) and IRA, then put any extra money into a mutual fund.
3. Think about relocating. Some areas of the country are expensive to live in! If you’re behind on saving for retirement, you need to evaluate the pros and cons of living in another region or state. You might even want to live there during retirement for the lower cost of living.
4. Downsize. I know your home holds a lifetime of memories with those you love. But those memories won’t pay the heating bill in 10 or 20 years. If you’re seriously behind on saving for retirement, you need to downsize to a smaller home and put the profit in your retirement fund.
5. Work longer. You may need to keep working longer than you’d planned. That’s okay. Lots of people are choosing a longer career. If a few extra years on the job means a solid and secure retirement, then the extra work will be worth the payoff.
Some of these decisions will pull at your heartstrings. I get that. But consider the long-term implications. Making serious sacrifices now could literally save your retirement later on.
Things You Need to Do No Matter What
If you’re 10 years or so from retirement, chances are you’re in your 50s. If that’s the case, then there are some specific steps you need to take no matter how much money you have in your retirement account.
1. Check in with your dream team. By now, you need to have your dream team in place—that group of professionals who are helping you grow and protect your wealth and your legacy.
Now is a good time to check in with them. Your estate plan or will may need to be updated. You need to check in on the tax implications of your investments. You need to evaluate your insurance.
It’s time to huddle together and get a game plan for the coming years.
2. Learn about and sign up for Medicare.
It’s a confusing program (hello, it’s from the government), so being informed is crucial! If you turn 65 in the next 10 years, learning about it should be on the top of your list.
There are some rules about sign-ups around your 65th birthday, so make sure to read that section carefully. Be sure to get in touch with your private health insurance administrator before you start the enrollment process.
3. Check into your Social Security benefits.
The Social Security Administration has an online tool that estimates how much money you’ll get each month when you apply for Social Security retirement benefits.
This number may change a little, but knowing the amount is helpful when planning a monthly budget. Remember, though, this money is icing on the cake. Don’t rely on it as your sole source of income in retirement.
4. Research long-term care (LTC) insurance. Getting LTC insurance is non-negotiable.
It helps pay for the cost of assisted living, nursing home care, in-home care, or associated costs. With people living longer, you’ll probably need LTC insurance at some point.
Use this decade to find a policy that meets your needs. The premiums go up the older you get, so sign up at age 60.
Your retirement is in sight. Your plan is in place. Take advantage of the next 10 years to make supersonic progress to reach your financial goals. Don’t let up on the gas. Keep charging ahead. Cross the finish line knowing you did everything possible to build a secure future. You can do it!
Get help with your financial goals with the aid of a SmartVestor pro.
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3 Ways to Make Your Post-Retirement Plan Last
You’ve worked hard over your wage-earning career to accumulate a nest egg you’re proud of. You’ve saved, invested and planned, and now it’s time to think about the next step: withdrawing your savings. If you’re close to retiring—and even if you have a decade or two to go—be sure to set yourself up for financial well-being all the way through your twilight years.
Here are three ways to make the most of your retirement savings.
1. Before you retire, pay off all debt including your mortgage
A recent survey by the Transamerica Center for Retirement Studies found that Americans born between the years 1946 and 1964—known as baby boomers—are heading toward retirement still carrying a significant amount of debt. The survey found that 75% of baby boomers have some form of household debt, including credit cards, mortgages and car loans.1
Debt in retirement will shackle you to payments, which can bust your post-retirement budget. If you’re nearing retirement, slash your debt now with gazelle intensity. That’s right—car loans, consumer debt and even your mortgage need to go.
Be confident about your retirement. Find an investing pro in your area today.
Start by listing out all your debts smallest to largest to determine how much you owe. Next, calculate how long it’ll take to pay off the debt and how many years you plan to continue working. If you can get rid of all your debt before you retire, great! Get busy and clear the debt!
However, if you think there’s no way to clean up the debt before you retire, you might need to make some drastic changes.
First, consider working a few more years so you can retire debt-free. That can be a tough call if retirement is just around the corner, but retiring without the financial and mental burden of debt will be well worth the effort.
Another option to consider: Downsize your home. While your home is your biggest asset, it could be your biggest roadblock to becoming debt-free before retirement. In fact, the average baby boomer is carrying more than $178,000 in mortgage debt.2
Now keep in mind, selling your home to pay off debt is not the right solution for everyone. If you love your place and you’re close to paying it off, or if your mortgage is a small percentage of your post-retirement take-home pay, by all means keep the house! But if you have a lot of debt and a big mortgage, downsizing to become debt-free before retirement could be worth it.
Another word to the wise: Never cash out your 401(k) or other investments to pay off debt. You’ll get hit with taxes and penalties—in some cases 40% of your savings.3 At this stage in the retirement savings game, you need to keep your cash and not give it away in taxes and penalties.
2. Ease into retirement
According to a recent study, 45% of workers envision a phased transition into retirement.4 They plan to exit the marketplace gradually by intentionally reducing their work hours to enjoy more free time. Only 21% of workers expect to stop working immediately when they retire.5
Easing into retirement is a great way to generate income and bridge potential savings shortfalls. Here are a few tips on how to ease into retirement:
- Consider a conservative withdrawal rate the first few years. A withdrawal rate is the percentage of money you take your retirement savings. Try to take out less than what you earn through growth so you don’t drain your savings. A recent report studied the history of potential outcomes of withdrawal rates and landed on this: Aim to withdraw no more than 4% to 5% of your savings the first year of retirement. From there, adjust the amount every year for inflation.6
- Take on side work. If you’re ready to leave the workforce but want to earn extra cash to use for vacations and fun money, take on a side business you enjoy. According to the Transamerica report, 65% of workers dream of traveling, followed by spending time with family and friends (57%).7 So take on an enjoyable hobby that can generate a little revenue to cover extra expenses. That’s less money you’d have to use from your savings!
If you take out a lump sum, stay conservative with your withdrawals. If you have $500,000 saved for retirement and you take out $60,000 a year, you’d have enough money to last over 11 years. However, if you took out $48,000 a year, you’d have enough money to last over 18 years.
Keep in mind, every situation is different. Each investment comes with its own unique tax implications and withdrawal fees, so be sure you check with your advisor to understand what’s required when you withdraw your funds. Bottom line: Create a plan with the help of your advisor that makes sure you have enough savings for a comfortable retirement.
3. Know what you have in retirement savings
It’s important to have a comprehensive understanding of how much you have saved for retirement, as well as how much you’ll need for the future. The Transamerica study found that only 1 out 4 workers have a written financial strategy for retirement while almost half (44%) are guessing how much money they’ll need in retirement.8
Your retirement future is too important to leave to a random guess, people! If you’re not sure how much you will need to have the kind of retirement you’ve always dreamed about, you can use my Retire Inspired Quotient (R:IQ) assessment to find out what your number is.
But don’t stop there! Get with a financial advisor, if you don’t already have one, to compare the amount you have saved for retirement to the amount of savings you’ll need to carry you through your golden years. An investing pro will help you gain a clear picture of what you need to do now to get those numbers to line up by the time you retire.
If you’re a few years away from retiring, you can estimate your monthly Social Security benefits. Otherwise, if you’re decades away from retiring, you’ll need to save and invest as if Social Security won’t exist in the future. If it does exist, treat it a bonus.
Keep in mind that as it stands now, the average Social Security monthly benefit for retired workers is $1,543.9 That means if your pre-retirement annual income is $55,000, right now Social Security will only replace around $18,500. You’ll need another $36,500 per year to maintain your pre-retirement income. Ideally, that gap would be covered by your retirement savings.
A simple calculation shows that $36,500 multiplied by 20 years of retirement comes to $730,000—the amount you’ll need in savings to bridge the gap between Social Security benefits and your pre-retirement income.
Realistically, retirees will most ly need 70% or more of their pre-retirement annual earnings to maintain their lifestyle throughout their golden years. Keep in mind, there are many complex financial variables market volatility, inflation and cost-of-living adjustments that will impact your overall personal retirement savings equation.
That’s why it’s important to talk with your financial professional. They’ll walk you through those variables and help create a custom plan for your retirement. Check out my book Everyday Millionaires to read more about building wealth and retiring a millionaire.
Work With a Financial Advisor
If you’ve saved your money for years in preparation for retirement and are unsure about how or when to start using your investments, a professional can guide you through the process. The right advisor will empower you to make the best decisions for your future and keep you in the driver’s seat.
If you need help finding a financial advisor, find a SmartVestor Pro near you. SmartVestor Pros are qualified investing professionals who can help with your retirement needs.
3 things people in their 30s can do right now to retire comfortably, according to a financial planner
In my experience, most people in their 30s are facing the daunting task of balancing large student loan payments, saving for a down payment on their first home, deciding when they can afford to have children, and trying to figure out how they might be able to put aside something for those children's education.
Amidst all those daunting and conflicting priorities comes the most important task that is easiest to put on the back burner: saving for your own retirement.
If this sounds you, here are a few considerations for readers in their 30s who want real, practical tips for creating a retirement plan around the ebbs and flows of life (even though retirement might be 30+ years away).
Compound interest is oftentimes referred to as the “eighth wonder of the world,” with good reason. Small contributions and investments in retirement accounts in your early years allow you to grow your portfolio substantially simply by allowing time to work its magic.
It can be tempting to say that you won't contribute to a 401(k) account because your employer doesn't match, or you will begin retirement savings “someday when you have additional money,” but the truth is that years can fly by and you will have saved almost nothing for your future if you aren't mindful. By prioritizing retirement as early as possible, you can ensure that you have a solid base of contributions that will continue to grow if invested appropriately.
The consensus is that you should contribute 10-15% of your income to retirement accounts. Don't let that higher number scare you if you haven't gotten started, though. For now, at least contribute up to the company match to start with. After all, if you're not doing that, you're giving up free money!
Front-load retirement savings in your 30s before having children and cash flow is tight
One of the most common sentiments I hear from clients is that they want to control their money and their life, instead of the reverse. Essentially, most people in their 30s want their money to give them the life they've actively chosen and not be forced into a corner by their financial circumstances.
Since many people in their 30s have the benefit of two incomes in the home and may not have children yet, it is the perfect time to really lean into retirement savings.
By contributing substantially to retirement early, while you have relatively more budget flexibility, you give yourself the flexibility to save less later.
Essentially, you are buying yourself options by leaning heavily into your retirement savings as soon as you can.
Ideally, this would be before you have children and have to contend with high childcare costs or even before you purchase your first home. If you go this route, I recommend targeting 20-30% of pre-tax income to retirement through whichever retirement-savings vehicles you have available to you, such as a 401(k), 403(b), IRA, or HSA, just to name a few.
Balance debt payoff with retirement investing
I often hear from people who feel as though they cannot begin saving for retirement before they pay off debt. I completely recognize the struggle to pay off student loans and balance other priorities, because that was a struggle I faced for many years, too.
However, I really believe saving for retirement needs to be a nonnegotiable for people in their 30s. The truth is that there will always be conflicting priorities in your finances, and the longer you wait, the more you will have to save.
For those of you who are trying to decide how to balance paying down debt and saving for retirement, I recommend following a simple rule.
In general, I recommend people allocate 20% of their income towards financial priorities including debt.
If you are struggling with high-interest credit card debt many Americans, then contribute to your company retirement plan up to the point that your company matches and divert as much as possible of the aforementioned 20% to accelerate the payoff of your high-interest debt.
If you are looking at student loans or other debt that is less than a 5.5% interest rate, then I recommend prioritizing retirement and putting as much of your income as possible towards that 20%. Your future self will thank you, I promise.
Your 30s are an incredible time to really lean into strategically thinking through retirement saving and investing.
By leaning into this far-off goal, you really buy yourself additional budget flexibility in the future — to have another child, upgrade your home, or start that business you've always wanted to.
Essentially, you are allowing time and compound interest to do most of the heavy lifting to achieve your goal of a secure and abundant retirement on your terms.
Anna N'Jie-Konte is a passionate believer in the empowerment of women and minorities in America. She is the founder of Dare to Dream Financial Planning, a fee-only, virtual financial planning firm.