8 Steps To Do Now To Plan For Retirement
Do you remember when retirement seemed a long long way from now? As the kids are entering high school and college, the thought of retirement may now seem so distant. What steps do you need to take to plan for retirement?
Now is the perfect time to move the needle forward on your retirement planning, but maybe you don’t know how to assess your future needs or how to bring up the subject with your spouse.
Why Should I Plan For Retirement Now?
It is not too early to plan ahead as people in their 40’s can focus on growth and those in their 50’s can work to save and eliminate “bad” debt.
By taking the following steps to prepare for retirement, the sun will shine through the clouds as you have a concrete plan in place and a dream that you are working towards. Having the steps complete will relieve stress so you can fully enjoy life now and the next wonderful phase.
1. Determine your lifestyle
The first step is a really fun exercise that can be a great icebreaker with your spouse. Let’s do some dreaming!
The first thing you want to do is decide how you want to retire. Where do you want to live? Do you see yourself in a beachfront condo or mountain retreat? Maybe you want to be near family or stay in your community with friends. Should you “”downsize””?
How will you spend your time? You may currently be working a full-time job. How do you want to fill those 40 or more hours in your retirement? What hobbies do you want to pursue? Do you want to travel or take care of grandchildren?
2. Know Your Number
After you have decided how you want to live, you will need to determine your number on how much you will need to accomplish your goals. You may also decide to adjust your expectations based on your number.
We are all living longer now, so chances are you will need to plan for an additional 20 to 30 years after the typical age of retirement in your 60’s.
The Vanguard retirement worksheet will help you determine your retirement expenses.
The Smart Asset calculator will show you how much you need to save.
3. Get Rid of Bad Debt
Those in their 50’s should focus on eliminating bad debt and saving, saving, saving. Pay off your credit cards. The average credit card interest rate is 21.21%, according to data collected by The Balance in February 2020.
The money you are spending in interest could be going to your savings. Credit cards, car payments, and any other debt that incurs interest should be your focus to pay off as quickly as possible.
On the other hand, debt such as your mortgage or student loans may be considered okay debt as they have tax benefits. As of this writing, the average 30 -year fixed mortgage rate is at 3.75%. Check with your mortgage broker to see if refinancing your house makes sense to you saving money.
4. Savings
If you are in your late 40’s or 50’s it is the opportune time for you to beef up your savings. You have 10-15 years to fill the gap of what you have and what you need for retirement and are most likely hitting your peak earning years. Expenses may be declining as you become an empty nester.
Be sure to combine whatever amount you have saved and factor in other sources of later income such as social security and taking from your retirement funds.
One great way to contribute to your retirement savings is by increasing your 401(k) with catch up amounts for those over age 50. The IRS announced that “the contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $19,000 to $19,500.”
“The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6000 to $6500.” That adds up to $26,000 you can put away this year.
Other ways you can save are to examine your budget and cut out some unnecessary expenditures, change your spending habits, and maybe pick up a side hustle.
It can be quite exhilarating to have a focus and watch your savings grow together.
5. Investment Portfolio
Revisit your investment portfolio in your 50’s. What is your risk tolerance for your investments going up and down?
If you are planning on taking out earnings from your portfolio in the next 7-10 years, you may want to move to safer investments so you aren’t concerned with loss due to the market being volatile.
6. Health Savings Account
A 65-year old couple retiring this year will need $280,000 to cover health care and medical expenses throughout retirement, according to Fidelity Investments’ 16th annual retiree health care cost estimate.
Take advantage of your Health Savings Account (HSA) if your employer offers it as part of your benefits package. Contributing to an HSA has a triple tax benefit. Contributions are pre-taxed, it grows tax-free, and is untaxed when used for qualified medical expenses.
According to the IRS, the annual limit on HSA contributions will be $3,550 for self-only and $7,100 for family coverage in 2020. You can use your HSA for medical expenses now and also save for your future medical expenses. Any contributions to your HSA is yours if you leave your current employer.
7. Long Term Care
Your medical insurance may cover everything you need right now, but plan for later as well. Medicare doesn’t kick in until you are about 65 years old and doesn’t cover dental, vision, or most long-term care. This is where your HSA account would come in handy.
Start planning for your long term care. It is shown that the average woman will need 3.7 years of long term care and men will need 2.2 years. Now that doesn’t mean that you will be going to a nursing home, but it is good to have some options covered. Long term care may be someone to check in on you or a home nurse that comes during the day.
If you don’t want to depend on family members or use up your assets, consider insurance policies for long term care or a combination life insurance and long term insurance policy.
This doesn’t need to be a scary thing if you plan for it now and can have peace of mind that you are covered.
8. Get Your Estate in Order
You will also want to be sure your estate is in order to protect your assets and family’s well being. Create a will and designate a power of attorney.
This is something many Americans neglect to do since we feel we aren’t in danger of dying anytime soon. I for one know I need to do this, but it keeps rolling over to the next month’s to do list…. for years now!
Take Action
Planning for retirement is usually on the back-burner for many and doesn’t seem like a lot of fun. By finishing the steps above, you will have that weight lifted from you, have clarity, and peace of mind that you are heading in the right direction.
Be sure to visit these steps annually as circumstances may change and you may need to recalibrate. This also gives you time to pause, reconnect, and dream about your goals again. You may also want to read Best Tips For Having a Positive Attitude and why it is important in middle life.
