Are you within a few years of retirement? If you are, this month’s article is for you! (It might also be useful for the younger folks so that you can determine what shape you’ll be in when you do approach retirement.) I’ve written a number of articles to help people prepare for retirement. It might be useful to look at the list of articles. Of particular interest might be the one called Retirement Checklist. This month, we’ll focus on steps people might consider when they’re a mere 1-3 years away from retirement. A sound approach for this type of planning is to think about where I am, where I want to be and how to get there.
Where I Am
To see where I am, nothing beats expense tracking. Minimally, I encourage clients to track their expenses for the year prior to retirement. (Doing it even longer has many additional benefits!) It’s important to consider both essential (housing, healthcare, utilities) and non-essential expenses (travel, hobbies). Naturally you’ll have a greater ability to adjust the non-essential expenses to facilitate your plans. Healthcare expenses deserve special attention because they are so important to your wellbeing and are such a significant portion of your spending. So, be sure to research and plan for healthcare costs in retirement. Understand how Medicare works and consider additional insurance if needed.
Of course, you’ll want to evaluate your income sources to see how they match up to your expected retirement expenses. For most of us, retirement income will include Social Security and our personal investments. Some of us may have a pension and some of us may have income from part-time work.
Where I Want to Be
Each of us has our own idea of what retirement looks like. It might be working part-time instead of full-time. It might be traveling more. It might be time with the grandchildren. It might involve going back to school to learn another language or learn more about some particular area of interest. Where you want to live is really important too. If you want to stay where you are, you’re already pretty familiar with the costs of doing that. If you want to move near your kids, will that increase or decrease you expenses?
How to Get There
Okay, when we’re this close to retirement, this is where the rubber meets the road. If there’s a huge gap between where we are and where we want to be, something has to give since there’s little time for your investments to grow. It might be that we have to consider downsizing our retirement plans. Or, we might have to step up our savings by cutting back on discretionary expenses, taking a second job or even delaying our retirement date. Even if you’re in pretty good shape for retirement, there are a number of actions you should probably take. Here are some of them.
- Investments. You’ll want to take a look at asset allocation. Your profile will probably involve less risk than before, but it still needs things such as market investments to manage the very real risk of inflation. You’ll also want to protect your nest egg through diversification.
- Debt Management. It’s so much better to enter retirement with little to no debt. If possible, this should include eliminating or at least significantly reducing your mortgage. This lets you spend your constrained income on what you really want to.
- Emergency Fund. This kind of preparedness is just as important in retirement as it was before retirement.
- Life Insurance. Do you still need it? Do you have term insurance that will soon become very expensive? Has your employer offset significant insurance costs? Is it part of your legacy planning or is it important for estate expenses?
- Health Insurance. If you’re retiring before you’re Medicare eligible, what options do you have? Does your employer offer COBRA insurance?
- Estate. Are your estate documents up to date? It can give you real peace of mind to know you’re covered in this area.
You can see that there are quite a few important steps to take as we approach retirement. And some of them can significantly affect your financial health during retirement (such as when to start taking Social Security). Beyond that, each situation is unique in terms of goals, savings, expenses and so forth. This is one of those times where it really makes sense to invest in professional advice. To get started, we can review your retirement situation, or go over any other financial matter, during a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.