In our 50’s we still have time to plan and save for retirement and it’s close enough that we can envision ourselves in retirement. Below are some things to address as you plan for retirement.
- Set some goals and make plans, what does your retirement look like? Consider your path to retirement and your timeframe – you can gradually transition by working fewer hours in your current job, work part time in a new career field or completely stop working. Think about how you will spend your time in retirement. Work usually provides us with mental stimulation, a sense of purpose and accomplishment, social interaction and a sense of identity. How will you meet these needs in retirement?
- Evaluate your current situation. Take a thorough look at current expenses and assets. Analyze your spending habits and compare this to your earnings. Look for opportunities to save money to invest and prepare for retirement.
- Ramp up savings and maximize your retirement contributions – try to save at least 10% to 15% of your annual income. Increase contributions to your 401k and IRA to take advantage of catch-up provisions. These are your highest earning years where you can really benefit from investing in tax deferred retirement plans.
- Invest in a diversified portfolio that will grow and keep up with inflation. Your retirement savings is long term money that will need to last another 30 – 40 years. A reasonable portion of this money should be invested in stock mutual funds to provide you the growth needed to carry you through retirement.
- Take steps to reduce your retirement expenses – pay off high interest debt, credit cards and vehicle loans. Make extra payments on your mortgage to pay it off around the time you retire.
- Think about where and how you want to live. Do you want to move to a lower cost area or downsize to a smaller home? Put plans in place to meet your goals. Complete major remodeling, repairs and upgrades on appliances before you go into retirement.
- Develop a retirement budget. Consider the impact of inflation and taxes on your monthly outflow. Many retirees are more active and spend more early in retirement. Include expenses for health care and long term care in your budget.
- Evaluate your Social Security options. Delay taking Social Security benefits as long as possible, up to age 70.
- Calculate how much you need to pull from your retirement savings by subtracting your monthly expenses from your Social Security and pension benefits. As a rule of thumb, avoid spending more than about 4% of your retirement savings per year. This will vary with the amount of risk you are comfortable taking in your portfolio. To get a more precise projection on when you can retire, how much you can spend and how much you should save, periodically work with a financial planner on some formal retirement planning.