Retirement is a destination that many hard-working Americans anticipate reaching one day. But retirement is not just something that happens on its own. In addition to working in order to garner enough income to be able to retire, you must also plan to hit specific targets along the way to make sure that when you are ready to retire emotionally and physically, you are also ready to retire financially. If you achieve these four financial goals before retirement, you should be in pretty good shape.
- Eliminate credit card debt. Credit card debt should not be something you carry around with you throughout life at all if you can help it, but when it comes time to retire, it becomes even more important that you get any outstanding debt off your back. Paying off debt is difficult as it is, but imagine doing so when you no longer have steady income from your job. If you can help it, do not stop working until you have eliminated your credit card debt.
- Pay off your mortgage. Paying off your mortgage before you retire is not only a good idea because it will be an expense you no longer have to worry about, but also it will leave you with more money to spend on home repairs as your house ages. Though mortgage debt is representative of an investment (unlike credit card debt), it is still an expense that will become more difficult to pay off on a limited stream of income.
- Establish a three-month cash reserve. Separate from your overall nest egg, you should have a cash emergency fund that can cover you for at least three months of living expenses. This emergency fund is one that you would rely on in the event that unforeseen circumstances arise. In a pinch when you need access to a significant amount of money, liquidating money in your IRA or 401(k) may take too long, or you may be adversely affected by cashing out of those investments too early.
- Be able to account for at least 80 percent of your yearly income. As a general rule of thumb, your nest egg should be large enough that you can live on 80 percent of the annual income you live on now (if you do not want to sacrifice the lifestyle you are accustomed to). To decide how large your nest egg should be, multiply 80 percent of your yearly income by the number of years you expect your retirement to last. Keep in mind that your nest egg does not have to be completely comprised of money that you yourself have saved. Other sources of income could include your Social Security benefit, or an income-generating product like a fixed index annuity, for example.
If you have achieved these four financial goals before retirement, congratulations! If you are thinking about retiring soon, then use this list as a guide to determine whether or not you need to work longer, or identify additional sources of income to support you in retirement. It pays to be prepared during a time when your income will be limited.
For more insight into the world of retirement finances, continue to follow Ty J. Young Inc.’s Retirement You Earned blog! To learn how our team can help set you up for a secure financial future, call us at 877-912-1919.