Is retirement just around the corner? Investors in their 50s and early 60s are in the last stretch before retirement, which of course can mean many things to many people. Will you be spending your time on the golf course, taking care of your grandkids, focusing on a favorite hobby, or maybe even doing volunteer work? Or are you worried about being financially unfit in those golden years?
Beyond the all-important "how" you’ll spend your time, the last stretch before your retirement is an essential time to fine-tune a financial plan.
6 Tips to Fine-Tune a Retirement Plan
1. Pay Down Consumer and Mortgage Debt. If you have high-interest credit card debt, develop a plan to pay it down quickly. Not only is it costly, but it can derail your retirement savings goals. Consider making a goal of going into retirement debt-free.
2. Calculate Your Spending Needs in Retirement. Take a look at your budget right now. Track what spending costs will disappear in retirement (commuting costs, work wardrobe, lunches out, and so on) and make a new budget with your estimated monthly costs in retirement. Take into account that health care costs are somewhat of an unknown, with many experts forecasting they’ll continue rising in the year ahead. Compare your spending needs to your retirement savings goal. Do things match up? If not, now’s the time to make adjustments.
3. Boost Your Savings Level. Now is also the time to super-charge your savings rate. If you've been saving 10% of your income, boost it to 15%. If you've been saving 15%, consider boosting it to 20%. This is your last chance to help your nest egg grow. People in their 50s and 60s are often in their peak earning years, and kids have often moved out by this time. Max out your 401(k) and put additional savings into an investment account.
4. Stay Invested in Equities. Financial advisors suggest diversifying between stocks and bonds. The closer you get to retirement age, the traditional wisdom is to reduce stock allocation. But once you retire, you may be looking at another 20 or 30 years that you still need to fund. Investing in stocks can be a way to potentially continue growing your retirement fund, even after you’ve retired. If you aren't sure how much to allocate to stocks and bonds, take a look at one of the many target-date mutual funds now available for investors. This could act as a guideline for an appropriate stock/bond allocation for your age. For example, if you have about 10 years to retirement, some target-date funds might allocate about 65% to stocks and 35% to bonds.
5. Consider Downsizing. Even if your mortgage is paid off (or will be paid off by the time you retire), there are many home-related expenses that could add up in retirement years. These include property taxes, major upkeep costs, and utility payments for the family home. A smaller condo or townhome could translate into lower property taxes and costs. People in their 50s or older can also take a hard look at how well their current home would suit them if they developed mobility issues. Do you really want to keep going up a flight of stairs to take a shower and down into the basement to do your laundry? (Here are tips on how to empty the nest and sell your home after 30 years.)
6. Delay Taking Social Security. The Social Security rules have changed recently, but the concept remains the same. Delay, delay, delay. Those who delay taking Social Security payments can capture a greater benefit later on. Most people can start receiving benefits as early as 62, or delay until as late as age 70. The Social Security Administration offers this chart to determine how much your benefits will be reduced if you retire before your full retirement age. Read more on how to maximize your Social Security benefits here.
Hands-On Retirement Planning
Retirement planning isn’t a set-it-and-forget-it proposition. Your plans take thoughtful care and the help of retirement professionals.