The last decade before you plan to retire is an important one. It's kind of like you’ve been climbing a mountain. You’ve been preparing for a long time to make the climb. When people prepare to climb a mountain, don't they also plan to get back down again? We need to think about retirement the same way. It often happens that people plan to climb to the top of the mountain but have not prepared to safely get back down. The trip back down is where about 60% of deaths occur. How are you planning your way down the other side of the mountain into retirement?
You’ve spent years working, saving, and providing for your children, but now you’re in the home stretch with the retirement light at the end of a long tunnel. By this point, you have an idea of when you hope to retire, how much money you have saved, and what you’ll need to do to bridge the gap. The one thing you don’t know and it probably concerns you, is ‘what will the tax rates be at that time?’ There are things to focus on in these final ten years to make sure that when the time comes, you’ll be financially ready to retire. Would you prefer a strategy where everything has to go right in order to work or a plan where if things go wrong it is still better than what you had before?
Take Full Advantage of Retirement Financial Planning
If you have not yet done so it may be time for you to have a financial plan focused on income planning, especially maximizing tax-exempt income. If your plan has a Roth 401(k) option you might determine if your plan makes contributions on your behalf if you become disabled. If it does not (hint: most, if not all do not), it is time to seek out a specialist if having this option appeals to you. After-all, don’t you owe it to yourself for all of the hard work you put in every week to have a safety net in the likely case that you (or your spouse) become disabled.
Traditional 401(k) plans provide a great supplement for retirement but they have many holes. 18% of American’s become disabled during their working years. Would you get on an airplane if there was an 18% chance that it would not be able to land safely?
Make Sure You’re Investing for Growth
Growth brings with it risk. If you are over the age of 50 and find that you are behind in your retirement planning it is likely that you can take advantage of what ‘Executives’ have used for decades to plan for retirement, ‘leverage over risk’. ‘Leverage’ is one of the most important tools used in a well-rounded financial plan. "The goal is to target growth using mathematical certainty along with tax efficiency," advises retirement income planning consultant, Jeff Mohlman. In other words; ‘how would you feel if you had a path to retirement where if things worked out you were in great shape but if things didn’t work out you were still in better shape than you were before?’
Address Your Debt
Take a hard look at the debt you have. Taking the next decade to pay off any remaining credit cards, car loans, and accelerating your mortgage payments can give you much greater financial freedom in your retirement. Speak to a financial expert about your current debts, including your mortgage, and they will be able to help you plan how best to keep up your retirement savings while making sure your debt burden is as light as possible.
Focus Your Retirement Financial Planning on Your Retirement Income
This is the time to start to estimate your predicted retirement income from Social Security, any pensions you have, any 401(k) retirement supplements that you have and any buffer assets that you have. Keep in mind that a number that used to be used for 401k supplemental retirement plan withdrawal rates was 4% for many years. That has been revised to 3%. This is one rate that you cannot afford to miss on in retirement. Life expectancies will change over the next 10-15 years and have us living 20-30 years into retirement instead of 15-20 years. Couple that with long-term rates of return being closer to 6% now rather than the 10-11% of the early 2000’s and the Rule of 4% is now OVER. This rate and the ‘great unknown-tax rates’ are easily the two biggest areas that future and current retirees will overlook that will create havoc on their retirement goals.
Speaking to a retirement income specialist will help you look at your current strategy and if you don’t have one they can learn about your needs and goals to help you design one. Your specialist will be able to help you better understand how to diversify your assets, gain leverage and become more tax-aware.
Start Planning Your Retirement Budget
Your budget may change when retirement begins. If you’re planning to live in the same home, you’ll have a good idea of some of your bills. Medical costs may go up, but commuting costs will go down. Will your home be paid off before retirement? Are you planning to downsize now that your nest is empty? Are you hoping to have money for travel? Look at your potential retirement income and your potential retirement expenses.
Plan for Your Medical Future
Now is the time to prepare yourself for medical costs after retirement. If you’re over 65 when you retire, Medicare will cover most of your routine costs, but supplemental insurance is a good idea, because medical costs typically rise as you age. Medicare also will not cover long-term care (in most cases). Long-term care insurance is a smart investment to protect your retirement nest egg and anything you hope to pass on to your heirs.
As you enter the last decade before retirement, it may still seem like you have plenty of time. But this decade is the most important to make sure that you are planning carefully and setting yourself up for the retirement you’ve dreamed about. Speaking to a financial consultant can help ease your mind that you’ve done everything you can. We’re here to help, and can suggest some options you have that you may not know about. Contact Safe Money Partners to learn more about what you can do now to better position yourself for your retirement in ten years.