Retirement is closer than you think; the time to start planning is now

Life in your 50s probably means a hectic work and family life, with multiple responsibilities. Retirement — perhaps 10 to 15 years down the road — may be the last thing on your mind. Still, it’s important to pause and reflect on this next stage before it sneaks up on you.

Granted, accumulating a retirement nest egg is key. However, sound planning calls for letting yourself dream about travel, volunteer work, a second career or things you have always wanted to do, says Geoffrey Owen, a certified financial planner (CFP) at Front Porch Financial Advisory in Charlotte, North Carolina. “It’s important to engage in envisioning exercises to prepare for your best life, with a financial planner, therapist, life coach or faith-based counselor.” Matt Bacon, a CFP at Carmichael Hill in Gaithersburg, Maryland, has seen some of his clients return to work part-time in search of something to do. “There is a lot of free time, and boredom can be a big problem for some,” he says.

On the financial side, the secret weapon for a fulfilling retirement is the ability to look at your behavior and develop good habits now, says Ashley Folkes, a CFP at Bridgeworth Wealth Management in Birmingham, Alabama. Ideally, you will eliminate the tendency to make poor decisions that may be hard to recover from. “The goal is to maximize saving, investing, and eliminating debts today so you can live the life you want in the future.” As you contemplate this next chapter, use the following checklist to determine what needs to be done now.

1. Meet with an adviser, set a tentative retirement date
How’s your overall retirement plan? Do you have one? Do you have a strategy for implementing it? Rob Greenman, CFP, chief growth officer and partner at Vista Capital Partners in Portland, Oregon, says creating a written plan “will pay huge dividends.” You’ll get a strong psychological boost from having a plan, and you can use it to check your progress toward retirement.

If you don’t have a written plan, then a qualified financial planner can help you prioritize your goals, Folkes says. “A planner will have objective, unbiased opinions and see things that you do not. You can even stress-test different good and bad scenarios that could happen before and during retirement.” The Financial Planning Association (FPA) offers a list of certified financial planners to choose from.

2. Set up Social Security online, consider other income streams
Next, Folkes says, learn more about how Social Security works. Set up an account at ssa.gov, and use one of the calculators to estimate the amount of your monthly check when you retire. You will see a list of your earnings for each year you have worked and paid Social Security taxes. Check these figures for accuracy, as they will determine your benefit. Then read the information on how other retirement income streams — a pension, for example — may interact with Social Security, says Tess Zigo, a CFP at Emerge Wealth Strategies in Palm Harbor, Florida. “The windfall provisions and government offset can get tricky.” (Both the Windfall Elimination Provision [WEP] and the Government Pension Offset [GPO] can reduce your Social Security retirement benefits.)

3. Analyze your expenses, compare with projected income
Using one of the many apps available — such as Simplifi by Quicken, You Need a Budget (YNAB), or Mint from Intuit — start tracking your essential expenses and discretionary spending, says Eric Ross, a CFP at Madison Wealth Management in Cincinnati. Expenses such as housing, transportation and health care are required to meet your minimum needs; most others are discretionary. “You need to understand your expenses to develop an investment and spending plan. This should be an annual exercise that starts well before retirement.”

Looking ahead, estimate the income you expect to receive from various sources, Zigo says, such as pensions, Social Security or part-time work. “Then figure any potential gap — the difference between how much you will need each month to live on and how much you’ll receive from these sources.”

4. Check your progress, max out retirement savings
Are your retirement savings on track? While each situation differs, CFP Brandon Opre, founder of TrustTree Financial in Huntersville, North Carolina, offers a rule of thumb: 50-year-olds should have four to six times their annual salary saved; 55-year-olds should have five to eight times their annual salary. For example, a 50-year-old couple with a combined gross income of $200,000 needs to have $800,000 to $1.2 million; a 55-year couple should have $1 million to $1.6 million. “These figures should serve as good starting points. It’s best to crunch the numbers with a planning professional,” he says.

Need to up the ante? Then make sure that you are taking advantage of the catch-up provision for many retirement accounts and contributing the maximum. If you are 50 or older in 2021, you may contribute an additional $1,000 to an IRA above the standard $6,500 limit, or an additional $7,500 to a 401(k) above the standard $22,500 contribution limit.

5. Pay down debt aggressively, protect your emergency fund
To free up money to save for retirement, you may need to reduce your discretionary spending and pay down your credit card bills. In retirement, you want as little debt as possible, so you may also need to focus on refinancing or paying off your mortgage, as well as any remaining student debt. If you have an emergency fund, resist the temptation to use it for impulse purchases, as it can protect your investments and financial plan in a downturn. If your fund is paltry, add to it any way you can, even if that means selling unwanted possessions or finding a part-time job.

6.  Think insurance, review all legal documents
Are you adequately insured? Sandra Adams, a CFP at the Center for Financial Planning in Southfield, Michigan, recommends reviewing your life insurance coverage and disability insurance to determine if both are sufficient for the last stretch of your work life. “Also, put a plan in place for long-term care, whether you purchase insurance or have the assets to self-insure.”

What’s more, it’s a good time to review and update your will or estate plan, financial and medical powers of attorney, and other important documents, if your situation has changed. At the same time, you should revisit whether you are storing these items as safely as possible, and who could access them in your absence.

7. Set boundaries with kids, consider your parents
Finally, if you have both children and parents to think of, it may be time to have some important discussions, Ross says. If your kids are in college or are recent graduates transitioning to a career, establish your expectations about their financial responsibilities. “Set financial boundaries to avoid impairing your own retirement plan with your children’s financial needs.” As for your parents, Adams recommends making sure that they have an adequate aging plan in place to protect their assets — and your future.

by Patricia Amend, AARP

https://www.aarp.org/retirement/planning-for-retirement/info-2021/financial-steps-to-take-at-50-plus.html