For most of your working life, you may have thought of retirement in the abstract, as some sort of distant, ethereal concept. But, once you reach your late 50s or early 60s, retirement might seem like it is suddenly speeding toward you.
This is the time to stop thinking about retirement as a dream and start taking concrete steps toward preparing for its reality. Although you may have been planning for retirement during your working years by saving and investing, there are more specific financial details you’ll have to deal with once you actually retire. These seven last-minute financial moves can help position you for a successful retirement.
Reduce Portfolio Risk
As you may be retired for 30 years or more, you’ll still need to keep at least a portion of your portfolio allocated to growth investments such as stocks after you stop working.
However, you’re also not guaranteed the luxury of time to recover from major market declines like you were in your 20s. If you’re planning on retiring with a $1 million portfolio, for example, and you hit a major bear market right when you stop working, you might end up with $800,000 or even less in your account. This could result in a significant hit to your quality of life if you were looking to live off this income. For that reason, most advisors recommend lowering the risk level of your portfolio as you approach retirement.
Maximize 401(k) Contributions
One of the biggest benefits to your retirement savings when you’re in your 50s is the catch-up provision. Once you turn 50, the IRS allows you to contribute an additional $1,000 to your IRA account or $6,500 to your 401(k) plan. This brings the annual maximum allowable contribution to $7,000 and $27,000, respectively.
If you’re in a position to max out your retirement accounts, this could result in total contributions of $70,000 to an IRA or a whopping $270,000 to a 401(k) plan from ages 50 to 60. As you’re likely at your peak earnings level in your 50s, this is a great time to beef up your retirement accounts.
Plan Your Social Security Claiming Strategy
For qualifying workers born in 1960 or later, full retirement age is now defined as 67. However, you can file for retirement benefits anytime between age 62 and 70. Which age is right for you will depend on a number of factors, and it’s best decided in consultation with a financial advisor.
If you claim at age 62 instead of age 67, for example, you’ll get your money as soon as possible and will receive five full years of additional payments. However, your payments will be permanently reduced by 30%.
Every year you wait to claim benefits from age 67 to 70, on the other hand, your payments will jump by 8%. The bottom line is that waiting to file at age 70 instead of claiming at 62 will result in a permanent increase to your benefits of about 77%.
Of course, you’d have to wait eight long years to receive those benefits. This is why it pays to plan your Social Security claiming strategy before you retire, so you can maximize your benefits in conjunction with your other retirement savings and benefits.
Make a Retirement Budget
It should be no surprise that after you retire your monthly budget will look different than it does while you are still working. Higher medical, travel and gift expenses are common among retirees, but many other expenses may be lower.
To make sure your nest egg can cover all of these expenses, it’s important to make a retirement budget. You will never know exactly what your monthly expenses will look like after you retire; but, the closer you get to retirement, the more accurate your estimates are likely to be. Start drafting a retirement budget early on while you are still working and then refine it as your retirement date approaches to get the best results.
Check Out Medicare Provisions
Most Americans gain access to Medicare once they turn age 65, but it doesn’t mean you’re fully protected from all health expenses for the rest of your life. In fact, to gain Part B coverage, which includes things like doctor bills and outpatient services, you’ll have to pay a monthly premium.
But there are many things that even Part B doesn’t cover and that you may need outside insurance for as well. If you plan to retire early and claim Social Security at age 62, be aware that Medicare doesn’t kick in until age 65. Be sure to thoroughly research your existing coverage to see whether it will cover the gaps in Medicare once you retire.
Establish a Long-Term Care Plan
One medical cost that Medicare does not generally cover is long-term care, although some limited nursing home and rehab facility costs are covered. Yet, about 70% of Americans who reach age 65 will require long-term care at some point, according to a study from the Urban Institute and the U.S. Department of Health and Human Services.
If you’re getting close to retirement, it’s a good time to talk with a reputable insurance agent about the types of long-term care policies that are available and appropriate to fill in any gaps in your coverage. Generally speaking, long-term care policies are not that expensive, but they could prove to be invaluable at protecting your nest egg if you do need additional care.
Many retirees find themselves in the position of having “too much house.” This is especially true if you no longer have a spouse and if your kids have moved away. While you may have a sentimental attachment to the four-bedroom, three-bath house that you raised your family in, if you will be retiring alone, you may not need more than a one- or two-bedroom house, or even an apartment.
Not only would you save on your monthly rent or mortgage expenses, you also would cut down on maintenance and utility costs. If you’re in a position to downsize before you retire, you’ll have that much more additional time to save money every month.
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