By: Michael Gunning
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Ready to Retire? Consider These 3 Retirement Tips
To protect yourself from some of life’s unexpected surprises, we’ve detailed several retirement tips you can use ahead of your decision to stop working. Starting at 10 years prior to your last day of work, five years before, and then one year prior to your retirement date.
Some of the biggest threats to your financial security probably won’t come from the stock market, rising interest rates, or even the security of your job. It will usually be a lack of planning, or a sudden and unexpected event, that usually leaves an individual reeling when markets swoon. If you still haven’t created a plan to protect yourself from the many possible drawbacks in your life, then it’s going to be exceedingly difficult for you to maneuver when something you didn’t anticipate, strikes.
Some new numbers from the Employee Benefit Research Institute’s Retirement Confidence Survey indicates there is almost certainly a prevailing lack of preparation among our seniors when it comes to retirement planning. According to their annual study, 66% of folks 55 and older reported they were confident that they had saved enough money to live securely throughout their retirement. However, 48% of respondents within this same age range still haven’t determined their own specific retirement needs.
You should always try to understand exactly where you are now financially, and then consider what you’ll need and want for your own retirement – as well as what decisions you’ll need to make to protect your portfolio throughout your post-work life. If your plan is to retire at age 65, then ideally at 55 you should try to get ready to make some particularly important decisions.
Below are 3 retirement tips we recommend for folks to use within the last decade of their working years so you can weave a healthy safety net that will be capable of seeing you through a lengthy retirement.
Retirement Tips – #1
10 Years Out – Diversify Your Tax Exposure
If you’ve worked at many different companies or organizations in your career, then it may be likely that you have a large portion of your personal portfolio tucked away into an employer sponsored 401(k) or into various IRA’s. These types of tax-deferred accounts currently offer many benefits because you’re not being taxed on your contributions.
Once you reach age 50, you can decide to make catch-up contributions, which allows you to put aside a maximum of $26,000 in 2020 into your 401(k) account every year. You are likely going to pay a lower tax rate in retirement, once you begin to take taxable withdrawals, as this also provides a substantial tax advantage.
In the years leading up to your own retirement, you may also consider building up your assets in tax-free accounts. Why is this beneficial? It’s mainly for maximum flexibility, so that you are able to keep tax costs down while in retirement.
Retirement Tips – #2
5 Years Out: Create A Health Care Plan
You should always plan for substantial health care costs in retirement. No one is 100% healthy and the unexpected tends to happen to the best of us. You will need a well-designed plan in place to assist you when one of these unexpected costs comes calling. By taking advantage of a health savings account (HSA), you can save for many of the out-of-pocket expenses that Medicare won’t reimburse you for.
If you believe you may need long-term care insurance, 5 years from retirement is a great time to consider purchasing it. Even if you purchase a plan with a minimal amount of coverage for a 60-year-old, this will cost you 30% less, on average, than attempting to buy the exact same plan 5 years later at age 65. By preparing for these things ahead of time, you can save a great deal of money.
Retirement Tips – #3
1 Year Out: Spend Like You’re Retired
One prevailing idea is to put enough away in your retirement portfolio to take 4% out every year along with any existing Social Security benefits to cover most of your retirement living expenses. Please note that using the 4% rule is useful for high-level planning decisions, but life is almost always more complex than you can ever plan for, so be cautious when relying on a simple rule of thumb. Talk to an estate planning professional so they can help you create a customized plan for your unique situation.
In the year leading up to your route away from work, be sure you can still live comfortably while spending an average yearly amount. If you’re still trying to save, don’t include this figure in your estimate. You want to ensure you’re not going to feel stressed out by the sum you’re allowed to spend on daily life expenses.
You can’t predict the future, but you may be able to limit the impact of shocks to your nest egg. Adding in these extra layers of security at least 10 years before you step away from the workforce, may help you safeguard your retirement objectives. Call our office at 509-328-2150 to learn more about your retirement options or use this contact form to send us a message.