Planning to retire soon? 10 Steps to protect your financial health now and into retirement

Posted on Categories Manage your retirement, Navigate life changes, Save for retirement

The perfect time for retirement planning is before you give up your job, so you have a clear picture of what to expect and how to be able to afford it. Here are 10 steps that help you prepare and protect your financial health now and into retirement. 

  1. Have a comprehensive, up-to-date financial plan, including an income withdrawal strategy. A good idea of where we stand and a clearly defined goal is often what we need to galvanize us into action. If you do not yet have a comprehensive financial plan, now is the time to get one. You’ll get a realistic view of what you have to support your retirement and where the gaps might be. Retirement withdrawal strategies seek to stretch money further for a long retirement, according to Maryalene LaPonsie, Contributor to USNews & World Report: Money. A financial planner or your company retirement plan adviser can help you decide which withdrawal strategies are best for you.
  2. Develop a strategy for claiming Social Security. Social Security benefits, an important component of retirement income, are calculated based on how much you earn during your career. But, and this is key, the age at which you first file for them can affects how much you will receive over time. Check your own eligibility online here. As Maurie Backman advises on CNNMoney, if you file for benefits at your full retirement age, which is between 66 and 67 depending on your birth year, you’ll get the full monthly benefit you’re entitled to based on your work history. If you delay past full retirement age to age 70, your benefits will get a boost. And if you file before full retirement age as early as 62, you’ll face a reduction in benefits, but you’ll also get your money sooner. Knowing your options before making final decisions will help you plan successfully.
  3. Similarly, have a plan for taking withdrawals out of your retirement accounts. It is ideal to “avoid taking money out of a 401(k) or an IRA before age 59 and a half because generally we’ll have that 10% penalty from the IRS and also maybe a taxable event,” according to Amanda Schiavo, Associate Editor, Employee Benefit News, Employee Benefit Adviser. “Individuals will want to try and bridge the gap with other savings or short-term investments that they have. That could be either a high yield savings account or another individual taxable account. Taking money out of your 401(k) or an IRA too soon is generally a last resort.”
  4. Pay off any lingering debts. If you have outstanding balances on credit cards, car loans or other installment loans, plan on paying them off before you retire. If possible, you should arrive at retirement debt-free. That way, the retirement savings you’ve worked so hard to accumulate will be yours to spend in full, rather than being reduced every month by debt payments.
  5. Reduce your living expenses. The flip side of boosting your retirement savings is gradually streamlining your lifestyle now, in preparation for retirement. Take a close look at your monthly expenses and identify items you can do without. A gradual approach will let you significantly cut your monthly expenses without feeling the shock of adjustment. Often, not knowing how much you really need to live on is the biggest challenge to your retirement dreams.
  6. Consider downsizing your home. Streamlining your living expenses in preparation for retirement is a good move, and for many of us, this means moving to a smaller home, with a smaller (or no) mortgage. Take this opportunity to reexamine your assumptions about your needs – you may realize that you need far less than you thought. If downsizing your home turns out to be right for you, you’ll be swapping extra space for additional security and comfort. It’s a smart trade: the beneficial effect on your financial stress can be tremendous.
  7. Ensure you sign up for Medicare on time and have proper and Supplemental Insurance. Healthcare can be expensive at any stage of life, but having good coverage in retirement can help lower your costs and protect your assets. When you’re first eligible for Medicare, you have a 7-month Initial Enrollment Period to sign up for Part A and/or Part B. Since Medicare pays first after you retire, Supplemental Insurance typically offers benefits that fill in some of Medicare’s gaps in coverage—like coinsurance and deductibles.
  8. Make sure you have enough of all kinds of insurance. Safeguarding your financial health for the long term means expecting the unexpected. Review your home, health, life, and auto insurance policies to make sure you have enough coverage to protect your savings and your family in case of a medical or legal emergency.
  9. Review your investments and shift your asset allocation as needed. Preparing for retirement means reviewing not just how much money you have saved, but how it’s invested. Take a close look at your investment/retirement portfolio and, as appropriate for your total circumstances, start shifting your asset allocation away from equities and more towards conservative, fixed income holdings. A financial planner or your company retirement plan adviser can help you decide which withdrawal strategies are best for you.
  10. Pursue creative sources of retirement income. Keep in mind that there are many ways to generate the income you need in retirement, not just from stocks and bonds. For instance, you may be able to set yourself up to receive rental income by converting part of your home into a rental or investing in a multifamily residence. You can participate in the sharing economy (like Airbnb, Uber, Lyft, TaskRabbit, Rover/DogVacay and others). Or, you can plan to sell specific assets to boost your income in any given year. Typically, asset sales aren’t recurring sources of income, but don’t discount creativity. I learned of an insurance agent who shops at Walmart on Black Friday and then sells the items he bought at a deep discount for 4x their original price on eBay!

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