It's no secret that the earlier we start planning, the more confident and prepared we will be. Retirement planning is no different. Starting early can significantly reduce stress about potential future scenarios. In this blog post, I'll explain ten essential steps you should take within ten years of retirement to ensure a well-rounded plan.
The first step in preparing for retirement is to visualize what you want to do. Many people only start thinking about this a few months or a year before retiring. Instead, start now by imagining your day-to-day life in retirement. Consider spending more time with family, picking up a new hobby, traveling, volunteering, or other activities. Understanding what you’re retiring to, not just what you’re retiring from, is often overlooked but so important.
Once you have a vision for your retirement, create a budget or a spreadsheet to estimate your expenses. Include all possible costs, from healthcare and housing to discretionary spending like travel or hobbies. Don’t forget to factor in one-off expenses such as weddings or large purchases. This comprehensive budgeting will help you understand your financial needs better. Be sure to exclude bills that you'll no longer have in retirement too - like maybe a mortgage that will be paid off, or a car loan.
The next step is to determine how much you’ll need to retire confidently. A simple method is to estimate your annual expenses, subtract any fixed income sources like Social Security or pensions, and multiply the difference by 25. This gives a rough estimate using the 4% rule in reverse, providing a baseline for your savings target. Remember to account for inflation when calculating future expenses.
Evaluate your investment strategy to ensure your portfolio is allocated to outpace inflation while managing risk appropriately. If you’re around ten years from retirement, maintaining a significant portion in equities may be beneficial to achieve long-term growth. Always tailor your strategy to your risk tolerance and financial goals. (This should not be considered personalized investment advice)
If you’re not on track, consider maximizing contributions to retirement accounts. After age 50, you can make catch-up contributions to 401(k)s, 403(b)s, and IRAs. Additionally, building up a taxable brokerage account can provide flexibility and tax advantages in retirement.
While not everyone needs to be debt-free by retirement, paying off high-interest debt, like credit cards or personal loans, is generally advisable. This can free up your budget and reduce your reliance on investment withdrawals.
Understand Medicare eligibility and costs, especially if you plan to retire before 65. Factor in marketplace health insurance premiums and potential ACA subsidies. Long-term care is a significant expense, so consider including this in your budget or exploring long-term care insurance options.
Create an account on SSA.gov to get an estimate of your Social Security benefits. If you have a pension or deferred compensation, get detailed estimates of those benefits. This information is crucial for calculating how much you’ll need from your portfolio.
Unexpected expenses don’t stop in retirement. Keep an emergency fund for significant expenses like home repairs or car replacements. This prevents the need to dip into your investments during market downturns.
Ensure your estate documents are up to date. This includes your will, power of attorney, healthcare directives, and any trusts. Regularly review and update beneficiary designations on retirement and bank accounts to avoid probate and ensure your assets are distributed according to your wishes.
By following these steps, you can create a comprehensive and confident retirement plan. If you have any questions or need personalized advice, feel free to reach out. And if you found this post helpful, consider subscribing to my YouTube channel for more retirement planning tips and insights.
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