To many of us, retirement may still look very distant—almost like the pot of gold at the end of the rainbow. When you’re getting up and working every morning and still have years to go, it can seem like that day is never going to arrive!
Yet as that planned leave date finally approaches, people may start feeling a little nervous or even panicked about the many changes to come. One major concern is likely to be financial preparation—or, possibly, the lack thereof.
If this is on your mind or the minds of those you work with, here are some reminders and things to consider when entering that “home stretch”: the last 6 months to two years before retirement. While these concerns will not apply to everyone, and every situation is different, these basic reminders may help.
Make a budget
Those retiring within the near future should start thinking about likely monthly expenditures and how they line up with what they have saved and expect to receive in pensions, Social Security, investment earnings, and so on. Lifestyle in retirement will be a big consideration. How often do they want to travel? What will they be doing with leisure time? Can they cook more, or will they be eating out more? How will clothing and gas costs change?
Wipe out debt
If there’s any debt to be paid off, especially high-interest debt, this is the time to get it done. This may require penny-pinching now, but it will be worth it later.
Reduce financial obligations
Most retirees will be living on less after the transition. This is a good time to take a hard look at bills and obligations and consider what one can begin to cut out. Done now, it won’t feel like so much of a shock later.
Decide when to take Social Security
The majority of Social Security retirees opt to start receiving benefits as early as possible (currently, age 62)—before “full” retirement age. But if they wait till 67 to 70, monthly benefits will be significantly greater. This is the best choice for many, especially those who think they will live a long life or are still earning any income (since SS benefits can be taxed depending on how much you are making). However, others will want or need to take the benefits earlier.
Consider downsizing your home
Speaking of debt, this is one major way to eliminate it. While selling a home is a major decision, it can certainly put money in one’s pocket, reduce financial obligations, and simplify life. Downsizing to one car is also a possible for some couples.
Make catch-up contributions to retirement savings funds, if needed
Those over the age of 50 have the right to make additional “catch-up” contributions (over and above the usual tax year limit) to traditional and Roth IRAs, SIMPLE IRAs and SIMPLE 401Ks (generally held by the self-employed), and 401K and 403B plans. They should not assume that this isn’t worth it…. retirement can be very long. Get more information from the IRS here.
For those who haven’t looked much at their investments in a while, now is certainly the time—but it’s important not to get too nervous. It’s still key to accumulate more wealth for the years to come, which will entail some continued risk. This may be a very important time to consult a certified financial planner.
Consider whether or not part-time work or freelancing might be the right choice
If a budget shortfall looks like a possibility (and even if it doesn’t), it may be worth thinking about paid work of some kind. Today’s “gig economy” offers many interesting choices. This can be a time to explore options that weren’t a possibility before.
Don’t panic or give up
Even those who feel significantly behind shouldn’t feel they have to “work till they drop” or that there’s no point in even trying to catch up. Progress is possible, especially when combining increased saving with decreased spending. If generalized “you need X sum for retirement” estimates create feelings of panic, keep in mind that depending on lifestyle and expenses, they may not be accurate.
Spend time thinking about goals…and not just the financial ones
As retirement approaches, it’s definitely time to take stock of goals, dreams, and desires, while also keeping in mind that feelings may change. (For instance, some discover that they don’t like “taking it easy” as much as they thought they would.) Retirement is an emotional adjustment, not just a practical one.
Join our 3-day learning event June 6-8 to learn about retirement resources, planning and enjoying the post-working years. More information available here.