Pre-retirees dream of spending their retirement in various ways. Some may want to sell their homes, buy RVs and travel the country. Others may not want to go much farther than their front porches. Despite the diverse options for spending time in retirement, there’s one thing that every pre-retiree has in common: the need to prepare. Preparing for a period of your life when you no longer have steady income is critical if you want to live free of financial worry. Here are seven financial steps to take as you prepare for retirement.
- Reduce debt. Or ideally, eliminate it entirely. Carrying bad debt into retirement can prevent you from being able make gains on your investments. Bad debt includes debt you acquire for a depreciating asset, like a vehicle, or debt that is accompanied by high interest rates, like credit card debt. The idea is to carry the least amount of bad debt into retirement as possible.
- Downsize your spending. As you prepare for retirement, you should reduce spending in your lifestyle where you can in order to maximize the amount you are able to save. Downsizing your home is one of the most straightforward ways to reduce spending. If you no longer need all of the space, then get rid of it—and put the extra money in a place where it can compound. You should also eliminate wealth leakage by eliminating unnecessary regular expenses.
- Take advantage of catch-up contributions. If you are 50 or older, you can make additional catch-up contributions to your retirement accounts. For example, the IRS sets an annual contribution limit of $18,500 on 401(k) accounts, but those 50 and older can contribute an additional $6,000. For traditional IRAs, the IRS’ annual contribution limit is $5,500, but people 50 and older can contribute an additional $1,000. Use these catch-up contributions as you prepare for retirement.
- Decide when to take Social Security. There’s a simple thing you should know about Social Security: the longer you delay taking it (up to age 72), the larger your Social Security checks will be. That’s not to say that delaying until age 72 is right for everyone. If you need the money as soon as you become eligible (age 62), then you will likely opt to file early. However, even waiting until full retirement age (66) will maximize the amount of your benefit. Read more about how Social Security is calculated.
- Consider healthcare costs. Saving to support yourself in retirement is one thing, but you should specifically address saving to cover potentially steep healthcare costs—including long-term care. Medicare does not cover the cost of long-term care, so think about obtaining long-term care insurance to financially protect yourself and your family in the event that you need it. The earlier you start with long-term care insurance, the lower your premiums will be.
- Consolidate your accounts. Another step to take as you prepare for retirement is to take inventory of your retirement accounts and consolidate them. This will make them easier to manage and will give you a better idea as to the actual size of your nest egg. Consult a financial advisor to determine the best way to consolidate your accounts.
- Assess your risk. Risk tolerance naturally fluctuates as you get older. The amount of risk you should have in your investments depends solely on your personal risk tolerance. But think about the fact that when you are 60, you do not have as much time to make up for a major dip in the stock market as you did when you were 30, for example. Find a level of risk that is comfortable for you for the age that you are currently, and make adjustments as time goes on.
Being prepared for retirement means more than just having your new RV gassed up and ready to go. Take these financial steps to give yourself solid peace of mind as you enter this new chapter of life.
For more retirement-related advice and insight, continue to follow Ty J. Young Inc.’s Retirement You Earned blog! If you are interested in a retirement investing vehicle that guarantees to keep your money protected and growing, call our qualified Ty J. Young Inc. team today at 877-912-1919!