Having a solid plan can help you achieve your retirement goals, but just because you have one now doesn’t mean you’ll never need to update it. In fact, if you want to make sure you can retire on your schedule and live comfortably once you do, you’ll probably need to make some adjustments as you go. This becomes even more important as you get closer to retirement.
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But what exactly should you do in the final years before you retire?
GOBankingRates spoke with Chad Gammon, financial planner at Arnold and Mote Wealth Management, and Dana Anspach, founder and CEO of Sensible Money, to get their thoughts. Here’s what they said they plan to do in the five or so years before they retire and why it might work for others, too.
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Reevaluate What You Want Your Retirement Future to Look Like
For some people, retirement is an opportunity to leave the working world for good and spend all that extra free time relaxing. But this is not the case for everyone.
“After spending over 25 years in information technology, I realized my passion for personal finance,” said Gammon. “I’m not someone who envisions a retirement filled with endless relaxation or days spent playing golf. Instead, I see this next chapter as an opportunity to actively pursue my interest in financial planning. This means staying engaged, continually learning, and helping others achieve their financial goals.
It can take some time to figure out what you want your retirement to look like. That’s why it’s a good idea to start thinking about it a few years before you retire.
“Don’t take this lightly and give yourself time to explore,” Gammon said. “It took me over a year to work on it.”
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Review these financial and retirement plans
Ideally, you will already have a clear financial plan in place in the years leading up to retirement. If not, now is the time to create one. If you do, you’ll probably want to review it and make sure it still fits your actual goals and needs.
Don’t be afraid to do this with a professional. Chances are they’ll see things you didn’t take into account.
“Before becoming a financial planner, I created my own financial plan, but still sought the expertise of a professional to verify it,” Gammon said. “Having another perspective on my project was invaluable. I recommend interviewing several financial planners to find the right person. A great resource for this is the National Association of Personal Financial Advisors (NAPFA).
Review your portfolio and make adjustments
About five years before you retire, evaluate your current financial portfolio and make some changes.
“You need to understand that the portfolio that got you to retirement may not be the right portfolio to get you through retirement,” Anspach said. “Portfolios are designed with objectives in mind. During your working years, this goal is to maximize returns to help you accumulate the most money possible. In retirement, the goal is to make sure you don’t run out of money. Different goals mean a different portfolio strategy is needed.
As retirement approaches, Anspach plans to adjust his portfolio based on his goals and needs.
“When I’m five years from retirement, let’s say I look ahead and know that I’ll need $50,000 a year from my IRA for my first five years of retirement,” he said. she declared. “I’m going to build a ladder of bonds or CDs within my IRA, so that every year I have $50,000 maturing. As these securities mature, I will use this cash to meet my withdrawal needs. In this example, I would need about $250,000 (less when factoring in interest) to cover my first five years of withdrawals. The rest could remain in stocks.
Adjusting the retirement portfolio is not a one-time thing, however. This is something that can be done each subsequent year until the actual retirement date.
“Every year I considered selling stocks to buy another rung on my bond ladder. So in a year I could sell $50,000 worth of stock and buy a bond that matures in five years,” Anspach continued. “By doing this consistently, every year until the year I retire, by the time I reach retirement I will have 10 years of withdrawals covered by low-risk investments. »
Plan health care and long-term care costs
“Health care can be a significant expense in retirement, so it’s critical to evaluate your options to ensure you have adequate coverage and can manage these costs effectively,” Gammon said. “In my case, finding a passion that includes insurance benefits helped fill that gap. »
If you don’t get health care through your employer, you’ll need to find other ways to manage your medical expenses in your later years. Also be sure to factor in long-term care, as these can add up.
According to the Administration for Community Living, the average cost of long-term care is about $6,844 in a semi-private room in a nursing home. A private room costs around $7,698 per month. Costs can vary widely depending on the facility and the type – and duration – of care you need.
Review and pay off all remaining debts
In the five years before his retirement, Gammon also said it was important to pay off all remaining debts. This can free up more income for everyday expenses and reduce your financial stress.
“Paying off high-interest debt, like credit cards or personal loans, is especially important,” he said.
If possible, try to become completely debt free before you retire. Don’t neglect your retirement account contributions to pay off these debts. If you do, you could end up reducing your retirement income. This could lead to financial insecurity or other undue stress during your retirement years.
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This article originally appeared on GOBankingRates.com: I’m a Retirement Expert: 5 Things I Plan to Do in the 5 Years Before Retirement
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