Workers in their fifties are headed toward eventual retirement but aren’t there quite yet. However, this is the time to start seriously preparing for an eventual departure from the full-time workforce. Decisions made now will have a positive or negative impact in five or ten years when it is time to retire. Here is a monthly guide for 2018 that will help you take steps now to ensure a comfortable retirement later.
January: The holiday hubbub is behind you and now you can spend some time daydreaming about what you want out of retirement. Do you want to stay in your current home and community and travel? Do you want to downsize to a smaller home? Or do you want to move to another part of the country? Picturing your ideal retirement will help you take specific steps over the coming years to help you realize your dream.
February: Check up on how much you are contributing to your employer-sponsored retirement savings plan. If the plan has a match, make sure you are contributing enough to take full advantage of that match. In other words, if the employer matches your first 4% of salary contributions, immediately raise your contribution to 4you’re your salary. If you are already getting the full match, increase your contribution rate by a few more percentage points if possible.
March: Go to the Social Security Administration’s website at www.SSA.gov. Sign up under the button marked “sign in/up” in the upper right hand corner so that you have access to your account. The benefits are two-fold: you can keep track of your benefits and you can prevent someone from fraudulently signing into your account in your name. Make sure your earnings history is accurate; these numbers are important because they determine the size of your ultimate monthly benefit.
April: Do you have consumer debt, such as credit card balances that aren’t paid off each month, or an auto loan? Start working on a plan to pay those debts down as fast as possible. Ideally you would like to have no debt going into retirement. Work on high-interest-rate credit cards first, paying more than the minimum amount required monthly. If your credit cards are gone, start paying down your car loan by sending extra amounts in each month.
May: What’s the status of your mortgage? Rates are low right now. If you have a 30-year mortgage that still has a long way to go, you might be better off refinancing it as a 15-year mortgage. That will force you to pay it off faster. An alternative is to start paying more each month than your required fixed payment. This will amortize principal more quickly and cut months to years off of the term of the loan.
June: When was the last time you rebalanced your investment portfolio, including the funds in your employer-sponsored plan? Picking a risk level you can live with and maintaining the portfolio at that risk level as the market rises and falls will force you to buy low and sell high over the years and can improve your overall return. Also, since you have at least a five-year horizon at this point – and more likely closer to ten years – you should make sure you are taking enough risk. Investing too conservatively at this point, when you have no need to withdraw money from your portfolio, could hurt you in the long run.
July: Remember the daydreaming you did in January? Perhaps it is time to take a vacation in a community that you picture as your retirement home. Check out the ambience, the housing market, services, traffic patterns, entertainment, and costs. If you are still interested after the vacation, start doing online research and figure out a budget for housing. You can use your cost figures when doing planning to see how much money you will need in retirement to buy your dream home and to live in your new community.
August: If you are married, make sure your spouse (or you) will have enough to live comfortably in retirement should you or your spouse die prematurely. If necessary, buy enough life insurance to cover any shortfall in assets or retirement income due to the early death of one spouse.
September: The holiday season is a ways off yet, so now would be a good time to put together a preliminary retirement plan. This should include your hoped-for retirement age, an estimated budget for retirement, a savings and investment plan to build a nest-egg big enough to supplement Social Security and any fixed pensions you will get. There are plenty of online retirement calculators you can use. For a more sophisticated approach, hire a fee-only financial planner, preferably a CERTIFIED FINANCIAL PLANNERtm Practitioner.
October: Get prepared for the one potentially overwhelming expense that could derail your finances in retirement: long term care. You won’t get much from Medicare for nursing home or home care expenses and you don’t want to impoverish yourself and/or your spouse in order to qualify for Medicaid. This is a good time to consider buying long-term care insurance, especially because your health now is likely better than it will be in the future, and health risks are considered by an insurer when deciding what to charge you for insurance.
November: Are you planning to downsize in retirement? If so, the holidays are a good time to start shedding some excess possessions. Those who are in need will appreciate donations of good clothing and housewares to charities such as Goodwill and the Salvation Army. Since you may be seeing family members this month or next, it’s also a good time to consider giving possessions to them that you want to pass down through the generations.
December: Congratulations, you made it through another year! And, if you followed some of the previous suggestions, you will have improved your chances of retiring in comfort and dignity. Take time off to enjoy family and celebrate another year of accomplishments. And, of course, prepare to increase your retirement account contributions again next month!
Richard Schroeder, CFP®
Chief Investment Officer
