Retirement Planning Tips
5 – 10 Years from Retirement
Know Your Number
You’ve worked hard to save, but now that retirement is a decade or less away, you have a much clearer picture of what your post-employment expenses will be and can truly determine how much money you’ll need in retirement.
You may look at your account balance or your benefit estimate and wonder if that will be enough. You need to stop wondering and put actual numbers together. Take a look at what your salary may be before you retire. A good goal is to replace 80% of your income to have a comfortable retirement. Next, add up your expenses – including medical costs – in retirement. If you’re coming up short, there are actions you can take now to accelerate savings.
A Late Start is Better than No Start
If you determined your number and you’re coming up short on what you’ve actually saved, don’t panic. Here are some strategies to help you get on track:
Consider your Investment Risk
One way to address a projected short-fall is to have your investment gains try to make up for what you may not be able to add in contributions. As you know, investment returns make up an important part of your total account balance. For those who are able to achieve higher investment returns, a smaller amount of contributions is required to meet the same retirement account balance goal.
Make Catch-Up Contributions
It’s important to max out your annual contributions if you are able. And after doing so, you may consider making additional “catch-up” contributions to meet your retirement savings goal. Catch-up contributions are additional amounts those age 50 and older are allowed to contribute to many retirement plan types each year.
For more information on catch-up contributions and annual contribution limits, check out this CentsAbility blog article.
Reduce Expected Expenses in Retirement
If you can find ways to adjust your retirement expenses downward, then your needed savings at retirement would also decrease. One common way is to have your mortgage, or other debt, paid-off by retirement.
A second consideration is to wait a few more years before you retire. Not only does this allow you to contribute more towards your retirement savings, but it also allows your existing balance to continue to grow—while not being reduced by withdrawals over those years.
Create or Update your Estate Plan
It’s difficult to think about, but the day will come when you pass and your loved ones will be responsible for dealing with and dividing up your possessions. One way you can make this sad time a little easier is to have an estate plan on file, and keep it updated.
An ideal estate plan describes your wishes as clearly and completely as possible. This helps others know your requests in the event you’re incapacitated or you pass away. You may even need several types of documents to cover all your bases such as:
- A will to clearly define your final wishes.
- An advance care directive (also known as a living will) to specify the course of your medical treatment at times when you can’t make choices for yourself.
- A health care proxy which designates someone to make choices about your medical care when you are unable to do so.
- Statements of intent which allow you to lay out your philosophy and preferences for the guardians and trustees who will be asked to carry out your wishes.
Know Important Dates
While your path to retirement is unique, there are certain ages that stand out for everyone. Keeping these key ages in mind will help ensure that you are able to make the most of your planning years and avoid penalties for not taking action on time.
Check out this Retirement by the Ages handout to learn more about important dates and actions you need to take.
Keep your Beneficiaries Current
Chances are, you designated beneficiaries for your retirement accounts, life insurance policies and similar assets some time ago. Since then, your personal and family situations may have changed. To ensure that your assets will be distributed as you intend, you should periodically review your beneficiary designations.
For more information on adding or updating beneficiaries to your MERS plan(s), click here.
Retiree Health Care Expenses
The average 65-year-old couple should plan to spend $390,000 for out-of-pocket health care expenses in retirement. Now is the time to start thinking about how you will fund costs that won’t be covered by Medicare or other retiree health coverage.
Check out this Quick Bite Webinar where we discuss retiree health care coverage options and strategies to set money aside for medical expenses – even if you haven’t started saving yet.