Step for Retirement

Steps for Retirement

Are you planning for your retirement? Even if you are a few decades away from leaving the workforce, there are steps everyone can take to ensure they retire the way they should. Retirement takes on many forms and can prepare for in a number of ways. But regardless of anything these are vital steps that need to be taken at these key stages. At five, 10 and 20 years here are some things to consider before leaving the workplace.

When you are 20 years from retirement most people are not thinking of their golden years. But this is when a strong foundation can be laid to ensure you have a successful retirement in store. But before you can even begin to plan for your retirement it is essential that you and your family have a solid budget in place. Without a budget, there is virtually no way to tell where your money is going and how you can save or cut spending. According to most financial planners, the vast majority of people that they meet with do not have a budget in place. So before we even begin you need to get your budget in order and one that is functional. Do not save everything and forget to live a little, which is paramount and can help you stay on track with the budget process as a little fun is always needed. If you want a budget spreadsheet, simply sign up for my free email newsletters for some exclusive free spreadsheets.

When you are at any stage of life and not when you are 20 years from retirement you need an emergency fund. That is three to six months of expenses saved in a liquid location such as a bank. This is not an investment or is it intended to be considered an investment of any kind. These are funds that are intended to be used in actual emergencies and for nothing else. This will help keep you from dipping into your retirement accounts or taking on a home equity loan if things go bad for a period. Then you always need to contribute as much as you can to your work’s defined contribution plan or at the very least up to the amount that the company will match. Then you will need to have a ROTH IRA if you can and contribute as much as you can to that up to the annual $5,500 limit for those under age 50. If you cannot open or contribute to a ROTH IRA contact me and I will explain a work around on this issue for you and yes it can be done and done legally.

At this point, you also need to ensure that you coordinate your insurance with the benefits package you have at your place of employment. In this regard, you need to make sure you have some insurance for long-term disability in place as I have read in many articles that as many as 25% of people in their 20’s will need disability insurance before their retirement. This is also a good point in time in which to make sure that your investments are also spread across many investment assets to provide a diverse investment portfolio. Here it is also worth noting that you should spread these assets across tax-deferred, taxable and tax-free accounts as much as possible to use when you are in retirement. Some basic estate planning is also essential at this stage of your life as well with a will, the power of attorney and such that need to be in place no matter when you plan to retire. These documents are essential to everyone who has a family of any kind that relies on them. Finally when you are about 20 years from retirement, it is never wise to sacrifice your retirement for the education of your children. They can get loans to pay for their education where no one will finance your retirement.

When you are a mere decade away from your planned retirement, you can check the following items on your pre-retirement checklist. At this point in your career, you should be near the apex of your earnings potential so it thereby goes to reason you are saving as much as you can. It means to take full advantage of tax efficient investments such as a defined contribution plan at work. Ideally you have been saving at least 10% of your salary but now is the time to turn up the savings percentage if you can. Then you need to make sure you maintain your emergency fund and keep it at it’s fullest as older employees are a prime candidate for downsizing. This is no time to have to dip into your 401(k) and cost you needed earnings loss potential.

Also, now is not the time to be making big ticket purchases unless you have thought them through and have a solid plan for their repayment. And it is also wise to have a plan in place for any debts you may have at this point, not just potential big ticket purchases.

At 20 years, your investment risk might have looked different than it does at ten years. So now is the time to re-evaluate your asset allocation and make any needed changes to your portfolio. With that done it is time to look at your potential taxes and make the necessary changes to limit any future tax liabilities on your income that is derived from investments. While you are looking at your asset allocation, it is also a good time to review any estate planning that needs attention. Especially if you have had any life events such as a new marriage or a recent divorce.

With five years until retirement some issues may need to be addressed. Some are continuations while others are relatively new to your planning. First you need to make a list of retirement needs and wants. The difference is your emergency funds takes needs into account and not wants. So plan accordingly there. Check with a tax expert to verify that you will not be hit with a huge tax bill after you do retire on your investments. Now is also the time to check your Social Security earnings and have any corrections that need to be made make them at this time. If you are going to be 65 and still working find out how your work insurance is compatible with Medicare. As an on-going issue look at your asset allocation on a yearly basis between now and throughout retirement. And again, update any estate planning documents that need your attention.

Retirement does not need to be complicated or scary, but it does require your attention and planning. Start as early as you can and chances are things will go smoothly for you and your family. If you need any assistance or have any questions, feel free to contact me.

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