If you are planning on retiring within the next ten years, you’ve probably already given some thought to what it might be like when you make this major change in your life. What will you do with all that time?
- Travel, or maybe relocate altogether?
- Learn something new or draw on your old passions to explore a new venture?
- Spend more time with family and friends?
You may also have wondered about how practical it will be to finance these plans. Maybe you’ve been saving through a 401k or IRA and question whether it will be enough. Maybe you are thinking about working in some capacity after retiring from your primary job. In any case, your income and tax status will change and it can be daunting to determine how much you’ll receive from the variety of potential sources and try to calculate how far it will go.
- Is it enough to keep up with inflation?
- Is it enough to fund those travel plans and finance your new hobbies?
- Will there be anything left to help out the kids and grandkids?
These kinds of questions can make even the most financially-savvy among us anxious. At Safe Harbor Financial, we suggest that clients in 50-60 age range start by focusing on these six key points as they start to think more seriously about retirement.
1. Assess Your Current Living Expenses Every Six Months
In the 2016 Retirement Confidence Survey conducted by the Employee Benefits Research Institute (PDF), over 35% of retirees faced expenses they hadn’t anticipated. It’s never too early to start listing out all the daily, monthly or annual expenses that will change when you retire. For example, you may no longer be commuting to your job but you’re likely to spend more each year on health care, especially as you get older.
Write down all the things you’re paying for now, whether you can expect the expense to increase, decrease or disappear altogether when you retire, and repeat this process every six months or whenever you think of a new item to add to your list. This will get you thinking more carefully about how to set financial targets as retirement approaches.
2. Consider Your Income Streams
Start with your expected Social Security payments; the amount you receive each month depends on your earnings history among other factors. You can check your estimated benefits on the Social Security website and begin to compare your options in terms of what age to retire. Full retirement age is 66 or 67 depending on your birth date, but the benefit is greater if you wait longer; you can wait to start drawing on your Social Security benefits up until age 70.
Next you should assess your other retirement vehicles. Maybe you have a company pension plan or military retirement benefits. Likely you have a 401k, IRA or other retirement savings account. Don’t forget other sources of income, like any rental properties.
3. Ditch Your Debt; Fund Your Nest Egg
The biggest obstacle that keeps many pre-retirees from saving or investing enough to pay for their retirement is carrying too much debt – especially credit card debt. The goal is to enter retirement debt-free so that your income isn’t being doled out to monthly bill collectors. Making monthly debt payments in retirement doesn’t leave enough leeway for emergency expenses that may arise – or for pleasurable things, like enjoying more frequent vacations.
Get rid of debt as quickly as possible. Once it’s gone, redirect the money that was being paid toward the debt into whatever retirement accounts you have available to you. If you have an employer-sponsored 401k then start putting more of your pre-tax earnings into it now, while you are still on salary — especially if the company matches your contributions. The years leading up to your retirement are likely to be your highest earning years, and if you’re over 50 you can take advantage of “catch-up” contributions which allow you to save a little more of your pre-tax income.
4. Those Tricky Taxes
As you get closer to your retirement date you’ll want to start reviewing your strategy with a tax accountant. He or she can help you assess what the potential impact of withdrawing money from your various income sources will have on your taxes. Safe Harbor partners with a number of tax professionals across Alabama to provide you with the insights and guidance around retirement tax planning.
5. Don’t Forget Your Health!
One thing you can count on: as you age, the percentage of your budget going to health care costs will only increase. Medicare will pay a portion of them, but unless you have some supplemental insurance plan, like Medicare Advantage, it’s likely you’ll have co-payments and deductibles that you’ll have to pay out of pocket. In addition to routine healthcare expenses, you need to plan for the what if’s – what if you or your spouse needs long term home care or full nursing facilities?
6. Let Save Harbor Financial Help You
Most people don’t realize how important it is to pick the right retirement income tools and vehicles when planning for retirement. Where you elect to place your hard-earned money can affect the level of your income distribution, your future income taxes, your capital gains taxes and even taxes on your Social Security income.
We’re committed to the financial independence and well-being of each and every client we serve. That’s why it is our responsibility to thoroughly understand your goals and objectives, so that we can leverage our experience to help you realize them.
We provide a realistic assessment of your financial needs to lay the groundwork for a genuine plan of action that can help you achieve a confident and independent retirement. Our review process is about problem solving and driving toward your goals to help make the process a success. Based on your needs, we consider a number of areas, including tax strategies, money management, asset protection, insurance planning and legal documentation.
Or contact us at 251-625-1226 (Toll Free at 877-251-1984) today to speak directly to a representative.