Retirement is one of those things that feels like it's a long way off, right up until it's not. It often feels like the day may never come. Nonetheless, being proactive and having a plan can make all the difference when it comes to living out the retirement you’ve always imagined.
The importance of being sufficiently prepared cannot be overstated. You've put in decades of hard work. For many, this has meant spending considerable time away from loved ones - family, friends, and significant others. But the reward of that hard work is indeed on the horizon.
We all know you don’t simply get to clock out for the last time and hit the links or head to the beach. With reward comes potential risks. Lack of proper planning can be costly, literally.
Start gathering a pre-retirement checklist that you revisit often. This will help you create goals, determine a realistic timeline, and keep your finances front of mind. Here are a few ideas to get you started.
Know your needs
According to the United States Department of Labor, in order to maintain your standard of living, you’ll need 70% to 90% of your pre-retirement income. For most retirees, social security benefits alone won’t be enough.
Using this statistic, a person making $70k per year should target generating at least $49k per year during retirement. Now, this is certainly just an estimate. Where some dream of gardening and meandering Sunday drives, others have a bucket list they’re determined to conquer. The cost of these 2 visions of retirement will differ drastically.
Putting the pen to paper and crunching some numbers is a great way to estimate your annual needs. Start by adding up your monthly expenses. Then take some time to really think about what you’d like to accomplish in your golden years. Associating high-level costs to your entertainment, expected large purchases, or travel desires is helpful in estimating your annual needs.
2. Create a budget to stay on track
Plan the work and work the plan — this old adage is perfect for getting into the right mindset for budgeting. While it may seem tedious, creating a budget will bring visibility to your true monthly spending habits. Implementing your intended retirement budget prior to retirement will help you avoid surprises and may lead to extra savings before the big day.
Thanks to the many online resources, creating a retirement budget is easier than ever. From paper trackers to apps, there are options for everyone. These tools are often free, can help you stay organized, and are great at helping you stick to your budget.
3. Eliminate as much debt as possible
Something that goes hand-in-hand with budgeting is debt. You want to avoid carrying debt into retirement at all costs. Recent studies showed the average American has over $90k in debt. That is far from an insignificant amount.
This means credit card debt, auto loans, even your mortgage, anything that could negatively affect your monthly retirement budget. Start chipping away today — your budget will help you identify wasteful spending that can be applied to your outstanding loans.
4. Maximize savings opportunities
Save, save, save. The earlier you start the better, but it’s simply never too late to stash away a little extra each month. While it takes a bit of discipline, you won’t regret it down the road.
Here’s where to start:
Cut back on daily spending
Max out your retirement savings accounts if possible
Consider taking advantage of catch-up contributions
Catch-up contributions are for individuals over 50-years-old. The current laws allow you to contribute an additional $1,000 to an IRA or an extra $6,500 to a 401K above the standard contribution limit. Exploring other opportunities with a qualified investment advisor is another avenue to explore.
5. Educate yourself
All the pieces to your retirement plan come with their own timelines. While we don’t doubt you’re informed on your personal finances, taking some time to dig into the details can really pay off. Take some time to refresh yourself on the following:
Social security: Knowing what year you’ll reach full retirement age and how deferring can lead to higher payouts.
Medicare & health insurance: Planning to retire before you’re eligible for Medicare? You’ll definitely need to review your options and the associated costs of health insurance if you’re leaving an employer-sponsored policy.
Retirement savings accounts: Are you fully vested? Are you contributing enough to receive your full employer match?
Taxes: Your various saving and investing tools come with their own tax implications. Don’t overestimate their value by forgetting to account for taxes.
Whether these finer details are new to you or you’re refreshing your memory, having the knowledge is so important when it comes to making the best decision for your personal scenario.
Final Thoughts
According to a 2017 report by the US Government Accountability Office, in 2016 about 48% of Americans age 55 or older had no retirement savings. Note that they did not include pensions as retirement savings, however. Still, that is a staggering statistic.
Adding these tasks to your pre-retirement to-do list will certainly play out to your advantage in the long run. Regardless of your current age or financial situation, start planning for your retirement today.
With appropriate preparation, knowledge, and planning, you will have the tools in place to maintain a high standard of living post-retirement. This is our goal for each client at Integrated Wealth Management. Whether you’re approaching retirement or are already there, our advisors would be happy to review your personal financial scenario to bring added peace of mind to your retirement journey.