At the time of their retirement, a staggering 80% of the population is still not adequately prepared. About 1/3 depend entirely on social security. Are you in your 50's or 60's and do you feel ready for retirement? If you're within 5 years of retirement age, you should be asking yourself this question and putting considerable thought into deciding when is the right time for you retire.
How Much Money Will You Need?
Start by taking an assessment of where you are financially and where you need to be. How much money do you need to live comfortably in retirement? Do you anticipate a need for $25,000, $50,000 per year, or maybe more? It may be that you have to postpone retirement while you make a few adjustments and implement a quick fix plan to catch up with your goals.
Tackle Debts And Major Expenses
One of the first things to do before you retire is pay off any debts and tackle major expenses, especially costly repairs that if put off can become a huge burden once you're living on a fixed income. The cost to replace a roof, for example, is $12,000 according to Angie's List. Plan for repairs such as this and any routine expenses that will inevitably arise.
Deciding To Downsize & Choose A Home State
If you decide to sell your home and downsize to cheaper accommodations, any home improvements you make will increase its selling price. Senior housing communities are attractive for many retirees. The average cost is $5,000 - $6,000 per month, according to George Karakatsanis, an Account Executive at Redilearning, a senior care provider e-learning company. And Medicare only covers the costs for residents of assisted living housing, a separate area that provides skilled nursing. Some states offer more affordable senior housing (and no state income tax). Choosing a home state is another critical consideration for retirees.
Evaluate Medical Insurance Coverage
Decide how much medical coverage you will need. Medicare only covers the basics, like emergency services and doctor's visits. For dental, vision, prescription drug, and other coverage, consult with your insurance provider about their add-on plan options. Ask about the government sponsored plans Medicare Advantage and Medicare Supplemental Insurance (Medigap).
Consolidate Retirement Accounts
Don't wait to consolidate your retirement accounts. You may have changed jobs throughout the course of your career and neglected to rollover your 401k or other employer-sponsored retirement accounts. The IRS allows you to cash out and make one rollover per year tax-free provided distributions are rolled over into another qualified retirement account within 60-days from the disbursement date.
Re-Balance Your Portfolio And Remember To Diversify
Remember how important it is to adhere to the principle of diversification and to re-balance your portfolio at the end of each year - readjusting asset classes that may have shifted. Now that you are nearing retirement, this is the time when you should be shifting to more conservative investments while staying mindful of inflation, which increases on average 3% per year, and increases in property taxes, maintenance fees, rents, and any other increase that could potentially undermine your retirement efforts.
Incorporate ETFs Into Your Mix
Keep a portion of your assets liquid. As you move away from more volatile investments like stocks, instead of stashing cash away in a low-yield savings account, invest in Exchange-Traded Funds, or ETFs. They are a low-cost alternative to investments like mutual funds or other managed investments, and can offer higher returns (though, with the potential for greater volatility) as compared to savings accounts
Max Out Retirement Accounts
Last, but not at all least, max out your retirement accounts. Take full advantage of employer-sponsored accounts whether or not your employer offers match contributions. If you don't already have one, open an Individual Retirement Account (IRA) and make catch-up contributions. The current IRA catch-up contribution limit for those age 50 and older is $6,500. After retirement, if your account has been open at least 5 years, you can make withdrawals absolutely tax-free.