If you are planning for retirement, you need to have a fluid strategy that can not only accommodate your diverse needs and wants but also adapt to changes in your personal situation - marriage, having kids, divorce, losing a loved one, health emergency, etc. With each change, your retirement planning checklist also undergoes a revision. This holds true for a change in your professional status as well. If you have received a hike, bonus, stock options, or more, it must be reflected in your retirement plan. On a similar note, if you have suffered a reduction in pay, job loss, etc., you need to modify your retirement goals.
Time horizon also plays a critical role in setting your future goals for retirement. At a young age when you are at the cusp of starting your career, you have fewer responsibilities. This is an ideal time to hedge your bets and invest in equity. You can invest in riskier investments since you have the advantage of a long investment horizon that can allow you to build a substantial retirement corpus. With growing age, your responsibilities and liabilities increase. This affects your ability and capacity to take risks leading to a shift towards debt instruments that carry lower risk and let you preserve capital. Your focus shifts from capital appreciation to capital preservation. If you wish to boost your savings and build a considerable retirement corpus that will enable you to live your retirement years comfortably, get in touch with a professional financial advisor who can guide you on the same.
If you are 10 years away from your retirement, you need a specialized retirement plan. At this time, your focus should be two-fold - to be able to make enough money to cover your retirement expenses but also to ensure the security of your retirement funds to avoid losing them at such a critical time. Herein, we will discuss how you can navigate this phase of your life by creating a retirement checklist to secure the golden years of your life.
Why should I plan for my retirement?
If you choose not to work on a part-time basis during your retirement, you would forgo the surety of a monthly check that you banked upon during the working years of your life. With no steady stream of income coming in, you will have to survive on your retirement savings. As per a recent survey, Gen Y plans to retire at an average age of 59, Gen X at an average age of 60, and baby boomers plan to work till they are 68 years old. The average life expectancy of an American adult is 78.99 years. The same study reported that the average American wishes to retire by the age of 62. If you take early retirement, you may be looking at 30 years of life ahead of you. Also, you need to consider deteriorating health as well due to advancing age which would lead to increased expenses for you. Hence, it is essential that you start planning for retirement at the earliest.
Retirement planning offers the following benefits:
Stress-free life:
Financial planning for retirement affords you peace of mind where you feel secure that you would have enough money to live comfortably in retirement. Money is important as it dictates the way you live your life, your lifestyle and provides you with security. Being on top of your finances grants you the opportunity to make decisions and investments that play a critical role in securing your future financial security.
Liquid funds:
Having liquid funds to bank on can help you sail through any unforeseen emergencies. Investing a part of your portfolio in liquid assets ensures that you have enough funds to meet your expenses without having to liquidate your fixed assets or stock options.
An emergency fund:
If you have followed retirement planning advice, you would have allocated funds to an emergency reserve. The amount of money that you should maintain in the reserve varies, however, you should ideally have sufficient funds to cover three to six months of your household expenses. This would come in handy if you ever suffer a job loss, your home needs urgent repairs, etc.
Better distribution of your assets through an estate plan:
Even though no one wants to think about death, it is considered prudent to prepare for your eventual demise or physical or mental incapacitation. Estate planning forms an integral part of your retirement planning checklist wherein you should devise an estate plan that takes care of the financial safety of your loved ones. An estate plan comprises a will, a trust, health care directives, power of attorneys, and more. Its main purpose is to ensure that your accumulated wealth reaches your beneficiaries without a major chunk of it being subsumed by taxes.
Effective tax savings strategies:
With proper retirement planning, you can employ strategies and pick savings and investment instruments that help lower your taxability. You also need to consider the timing of your withdrawals, how to maximize your Social Security check, switching to a Roth account, etc. Doing so will help ensure you do not end up in a higher tax bracket during retirement when you start making withdrawals from your retirement account.
Buffer against health costs:
As said beforehand, health costs can be a major source of expense for a lot of folks in retirement. Through retirement planning, you can ensure that you meet your expenses via insurance, savings account, long-term care plan, etc.
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What items should be on your retirement planning checklist when you review your investment plan 10 years before retirement?
As you approach 10 years till the retirement time phase, you can make significant moves to either strengthen or weaken your finances. If you make the right calls, you can either ensure your future financial security or come to terms with the fact that you may have to live your retirement years with fewer means. Let us go through certain things that you can do if you are planning to retire in the next ten years.
Examine your retirement savings and investments:
As most people retire in their 60s, it is safe to assume that you would be well in your 50s, ten years before your retirement. By this time, you would have accumulated significant savings already. There is no magic number that you should have saved by now as every person has a unique set of financial needs. But your savings should align with your retirement goals and be sufficient to cover your current lifestyle. If your savings can support your present monthly expenses during your retirement years, you are good to go. If not, you need to re-evaluate your strategy. Consult with a professional financial advisor on how you can make up for the shortfall in savings and what actions you can take to get back on the right track.
Boost your savings:
As soon as you reach 50 years of age, your main focus should be the maximization of your retirement savings accounts. The IRS allows you to make additional catch-up contributions if you are 50 years old or more enabling you to save more for retirement. For example, in a traditional or Roth IRA, you can make a $1,000 catch-up contribution over the limit of $6,000 annually. By maximizing your contribution limit, you can save an additional $10,000 over the course of the next 10 years. If you contribute to a 401(k) account, you can make an annual contribution of $20,500 each year. However, you can also make an additional catch-up contribution of $6,500 bringing your total to $27,000. These contribution limits are for the year 2022 and may be revised in the future allowing you to contribute even more.
Eliminate all debt:
Buying a home is an important dream for most folks. Those who do not buy one earlier in life, end up purchasing one in their 50s. They are in a better position in their life financially and feel they can finally afford one. However, doing so may leave you saddled with a high-value loan or mortgage very close to your retirement years. Parents also take out loans to finance the higher education costs of their children. They can also use savings from their retirement accounts such as an IRA to finance their children’s education. Doing so also raises your dependence on debt such as credit cards, personal loans, etc. This, in turn, has a detrimental effect on your retirement corpus since a part of your income would go towards reducing your debt rather than towards your savings. Paying high-interest loans can be especially damaging to your retirement planning when you are nearing retirement in the next ten years. Moreover, if you have taken out a student loan for your child, its repayment will most likely take many years and may spill over into your retirement years. Avoid taking on fresh debt 10 years from retirement. This can have a detrimental effect on your financial status. Additionally, if you have prior debt, your focus should be on settling it as a priority.
Ensure that you have an estate plan in place:
A lot of people do not undertake estate planning. There is a misconception that estate planning is only for the wealthy. If you have assets, you need to ensure that you have an estate plan to ensure your wishes are fulfilled after your demise. Estate planning comprises several things most important of which is the drafting of a will. A will refers to a legal document that states how a person wants their property and assets to be distributed among their legal heirs and beneficiaries after death. The absence of a will can result in family feuds. Also, your estate may be dragged to court if you fail to draft a will stating your wishes. This may result in your heirs having to fight against the lengthy and expensive process of probate. You can also set up a trust if you have minors or children with disabilities or you want to place restrictions on your child’s access to your assets up to a certain age. In addition, you can take measures against mental or physical incapacitation by adding health directives to your estate plan. An estate plan also includes the power of attorneys which gives a person the power to act on behalf of another person, the principal. Further, you can lower your taxes by giving gifts or contributing to a charity when bequeathing your estate to your beneficiaries.
Try and establish multiple streams of revenue:
Having several sources of income in retirement acts as a failsafe for you and allows you to stay afloat for a longer period of time. It gives you peace of mind and puts your mind at ease. It also allows you to live comfortably as you know you have multiple sources of income to bank on. The most common revenue stream for retirees is the money they receive from their investments in the form of capital gains, cash flow from dividends, etc. There are alternate sources of income as well such as pensions, Social Security benefits, etc. You can also try and set up a side hustle to make extra bit of money. Despite the official retirement age, a lot of folks either retire before they reach retirement age or continue working beyond it. Having an alternate means of income can be considered as beneficial if you wish to retire at a younger age. For example, you could try and establish rental income for yourself if you invest in a real estate asset. You could also work on a part-time basis to earn extra dollars. You can lay the groundwork for these kinds of assets or income streams around ten years before you retire. Doing so would allow you to not only establish your side hustle, but also build something that can provide you with a steady flow of income in retirement. You should consider consulting with a professional financial advisor on how to create alternate income sources during retirement while planning for the same.
Set up a fund for emergencies:
An emergency can come unannounced any time and if you are not adequately prepared, it can be a source of considerable stress for you. When you are making your retirement planning checklist, it is critical that you make a plan for setting up an emergency fund. Ideally, an emergency fund should have enough money to cover your monthly expenses for 4 to 6 months. Ensure that you use your emergency fund only for emergencies and for no other purpose. As you approach retirement, there may be a lot of things that are happening around you. Your kids may be coming of age and may require funds for college tuition, travel or for establishing a business, etc. With advancing age, you may develop health issues that may lead to hefty medical bills. An emergency reserve can help you sail through these issues without having to dip into your retirement savings. Moreover, if you do not end up using this fund, it can prove useful in your post-retirement years. An emergency fund offers peace of mind as you feel safe in the knowledge that you have adequate funds should you need them in case of an emergency. Further, it also reduces the chances of you having to rely on others or take on fresh debt to meet your needs.
To conclude
By creating a 10-year investment plan for retirement, you can assess where you stand and how ready you are for retirement. By preparing a retirement planning checklist, you would be able to implement strategies that can safeguard your retirement savings ensuring you have enough money saved up to maintain your current lifestyle. 10 years before retirement should be a time for tying up loose ends and ensuring that you have all your bases covered so that you are not left high and dry in your golden years. Ensure that you study these points thoroughly and consult with a professional to chalk up a retirement plan for your needs.
To get in touch with a fiduciary advisor who may offer you personalized retirement advice on how to create a foolproof retirement corpus, use the free advisor match service. Answer a few simple questions about yourself and the match tool will help connect you to 1-3 financial advisors based on your financial requirements.