Retirement could be within your reach in the next decade if you start planning for it now.
Ask yourself: Are you saving the right way or investing in the best products to get the most out of them? What are living expenses going to look like when you retire? It’s never too late to start considering these questions to help you reach your retirement goals.
Here are some things you might want to consider now if you plan to retire in the next 10 years.
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Redo your current budget
You may not be retiring for another decade, but if your retirement savings might not be on target now, you may want to save more.
Review your current budget and find ways you can save a little extra money. Taking fewer trips may be an easy way to cut costs, or think about spending less on dining and entertainment.
Then invest that money in anything from stocks or mutual funds, or put the money into a CD or savings account if you prefer something with less risk.
Create a retirement budget
A big part of saving for retirement may be setting a goal based on how much you expect to spend when retired. You’ll need to sit down and think about your income streams as well as everyday and special expenses you may have during retirement.
This also may be a good time to consider when you want to retire. If your estimated budget doesn’t align with your desired retirement date, you may have to reconsider factors such as working longer, working part-time when you retire, or saving more to reach your goals.
Max out retirement contributions
Now is a good time to squirrel away as much as you can in a retirement account. Take advantage of your employer’s 401(k) contribution matching program to maximize the cash in your account.
You may also want to bump up contributions from your paycheck beyond the employer match. If you’re 50 or older, you’re eligible to make “catch-up” contributions in an IRA or 401(k). In 2022, you can put away $1,000 more than the $6,000 IRA limit. For a workplace plan, you can add $6,500.
Your investments may increase in value the longer you hold onto them, so it’s never too late to give those accounts an additional boost.
Calculate your Social Security income
How much you receive in Social Security benefits will depend on when you start taking them and your income. The Social Security Administration website can help you calculate your Social Security monthly benefit.
You can adjust your retirement date to see how different retirement ages may affect how much you receive each month. If you’re married, one spouse may choose to take benefits at 62, for example, while the other waits until age 70 to get the highest benefit.
Your current lifestyle and goals may also affect when you collect Social Security. If you’re part of the FIRE movement (financial independence, retire early), retiring in your 40s will be different from retiring in your 60s. Social Security benefits are calculated using an average of up to 35 years of work.
Evaluate your portfolio
Now may be a good time to check your investment portfolio to see what may or may not work for you during your retirement. Perhaps you have a large amount of money in high-risk investments or some of your investments are in non-liquid assets such as your home or car.
You also may want to identify other areas such as savings accounts to see if you need to move that money to something like a high-yield account or CD to take advantage of additional interest on the funds.
Pro tip: If you feel overwhelmed by the different investment choices, perhaps you should consult a fee-only financial advisor. They can help you plan your retirement portfolio and evaluate your current financial life.
Take fewer risks
When you’re in your 20s and setting aside some money in your 401(k), you may be more willing to take on risky investments that could have the potential for higher returns — or higher losses that you can recover from over a few decades.
But if you’re retiring in the next 10 years, you may want to consider fewer risky investments. If there’s a downturn in the stock market and your portfolio declines by 30%, you won’t have as much time to recoup any major losses before retirement.
One option may be index funds, which some people choose over individual stocks because you’re investing in the broader market and that can distribute the risk.
Pay off your debts
One expense you might want to get off your balance sheet is any debt, so try paying those down now. Working to get out of debt in the near future could make things easier for you in retirement.
Not all debts are the same, though. Paying off your mortgage, which may have a fairly low interest rate, will require a significant amount of your savings. Credit card debt, with high interest rates, should be paid off first. That extra monthly cash may help in retirement.
Think about living expenses
As you plan your budget, take into account fixed expenses like your bills and property taxes on your home. Then consider variable expenses, such as groceries, car maintenance, or entertainment, which you can control now and when you retire.
You also may want to consider where you will live when you retire. The cost of living is a big issue for retirees. Retiring in New York or San Francisco may sound exciting, but housing and everyday expenses like groceries or gas may cost more there.
If you’re going to be on a fixed income, consider a lower cost-of-living area that may not eat into your retirement savings as much.
Consider long-term care insurance
You may have life insurance or health insurance, but what about long-term care insurance? You may start researching long-term care plans as part of your future health-care plans when you’re in your 50s.
Long-term care can cover things such as assisted living or nursing homes as well as in-home care if you need it. Spending a little now on insurance will make it easier for you and your loved ones to pay for any care needs as you get older.
Pro tip: You also may want to invest money in a health savings account (HSA) if you haven’t already. Money from the account can be used tax-free for qualifying expenses such as prescription drugs, glasses, or hearing aids as well as medical care.
Review your income sources
Besides Social Security, where will your money to live come from when you’re retired? Think about your income sources. Social Security and retirement savings are the basis but think about other sources as well.
Selling your house and downsizing could yield some extra cash for your retirement. A typical savings account pays little in interest, so you’ll need other options. You might want to ask your local bank about Treasury bonds or CDs that could help you add some extra money to your retirement income.
Or consider working in retirement. If you’re under age 66, there are limits on how much you can earn while taking Social Security.
Identify your goals
There are other things to do in retirement besides not working. What are your goals for your retired life? You may want to add a “fun fund” to your retirement budget to cover extra expenses you might incur while living your best retired life.
The money in the fund can be used for your dream vacations, retirement hobbies, taking classes, or anything else you look forward to enjoying when you’re retired.
It’s possible for you to enjoy retired living within the next decade, but that requires planning now. Think about how much income you have from different revenue sources and how much you’ll be spending each month.
Take into account the big expenses and the little expenses. And put in the work now to enjoy not working later.
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