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When you’re just a few short years away from retirement, there are some exciting milestones to prepare for. Now’s the time to buckle down and think about what you want your retirement to look like and how your savings strategy can help make it happen. Below we’ve identified five savings milestones you should address as you move closer to your dream retirement.
Milestone #1: Determine How Much You Need to Save
At this point, you may have a general idea of how much to save for retirement. As you near the final stretch, now’s the time to dig in and decide how much you need to save up before leaving your 9-to-5 job for good.
Start by considering what your ideal retirement will look like. Your retirement lifestyle plan will help you determine how much you’ll likely be spending in retirement. In other words, your retirement lifestyle plan will directly dictate your savings goal.
Location, Location, Location
Perhaps the most significant decision is where you’d like to spend your retirement (or at least the first part of your retirement). Living costs vary wildly across the country, and you could be looking at a significant difference between your current and future expenses. If that’s the case, you’ll need to adjust your savings goal to match your anticipated costs.
Beyond moving to another state or city, consider if you’ll be downsizing or otherwise changing your living space. Perhaps your children would like you to move into an in-law suite and help care for the grandkids, or you’d like to sell the large family home and settle into a condo or apartment. In that case, would you have the added expense of an HOA or management fees?
While you don’t have all the answers yet, these are essential questions and considerations to start mulling over, as they will impact your financial obligations in retirement.
Lifestyle
Do you envision your retirement more go, go, go, or taking it slow? If you never had the time to take off work and travel the world, perhaps that’s top of your retirement bucket list. Or, if you’ve been looking forward to relaxing at home and spending time on the back porch with a good book, that’s a great way to spend your time too.
Your level of activity and adventure should be accounted for in your retirement budget. This is, after all, your time to do what you love and spend your money how you’d like. Make sure your resources support your activities, whatever they may be.
How You’ll Spend Your Time
If you’re not quite ready to leave work behind, you may want to consider pursuing an encore career. Around 27% of retirees have worked at some point during retirement, and the benefits are often two-fold.1 First, it can help supplement your retirement income. The paycheck you bring home in retirement could give you the padding you need to delay Social Security benefits or keep more money invested in the markets.
Allowing more of your money to remain invested can be especially advantageous during periods of market volatility—when you don’t want to lock in losses by withdrawing sooner than you have to.
In addition, working a low-stress job in retirement can help you stick to a routine and feel fulfilled. Quitting work cold turkey is more challenging than most retirees realize, so easing into it by working part-time can help reduce feelings of unsureness and anxiety. It’s also a great way to remain active physically and mentally, which is crucial to staving off cognitive decline later in life.
Milestone #2: Plan for Long-Term Care
Most people will need long-term care at some point in their lives. A person who turns 65 this year will have a 70% chance of needing long-term care in their lifetime.2 However healthy you feel approaching retirement, it’s impossible to predict the future—and it’s better to be prepared for the “what ifs” before they become “what nows.”
There’s no getting around it. Long-term care is expensive. Most healthcare policies (including what’s provided through Medicare) won’t cover it, which could put a financial burden on you and your family in the event ongoing care is needed.
Whether you’re anticipating future issues based on your health history or you’re interested in protecting your loved ones, a long-term care insurance policy could be a good fit for your needs.
If you’re eligible to contribute to an HSA, that’s another excellent way to prepare for long-term care in retirement. Your HSA funds can be used to pay for out-of-pocket costs and medical insurance premiums, typically including long-term care insurance premiums. Once you reach age 65, you can use your HSA funds penalty-free for any expenses, not just eligible medical costs.
Milestone #3: Make Catch-Up Contributions
Once you reach age 50, you can make catch-up contributions to several savings accounts, including your 401(k) and IRA. Once you turn 55, you can also make catch-up contributions to your HSA (if you’re eligible).
The more you can contribute now, the more opportunity your money has to grow before retirement. Use this opportunity to set more aside to address any savings gaps in your retirement income planning.
Milestone #4: Tackle Remaining Debt
In an ideal world, your best-case scenario would be to enter retirement with as little debt as possible. By paying off debt before you retire, you’re giving yourself better future cash flow later. When you think of it that way, paying off debt and saving for retirement can be considered the same.
Before making a big purchase, like a new car, boat, house, etc., check in with your financial advisor first. It’s important to consider how a purchase like this and accruing new debt may affect your financial wellness in retirement.
Milestone #5: Plan for Social Security Benefits
Your Social Security benefit withdrawal strategy impacts the benefits you receive over your lifetime. While you’re technically eligible to begin benefits at age 62, your lifetime benefits would be reduced if you receive benefits before your full retirement age (around 67). If someone began receiving Social Security benefits at age 62 in 2023, for example, they would take a 30% reduction in benefits compared to someone who waited until full retirement age.3
Wait past full retirement age; you’ll receive delayed credits totaling 8% extra in benefits for every year you delay (up until age 70). If you don’t need your Social Security benefits to make ends meet, delaying benefits for as long as possible is a great way to boost your retirement income.
We’ll Work With You Toward Your Retirement Savings Milestones
You’re at a point where retirement is finally within reach. With these last few years to go, you have some important decisions to make—and even the most minor changes can significantly impact your retirement readiness.
We highly recommend contacting our team if you’d like to discuss your retirement plan with a knowledgeable financial partner. We’d be more than happy to look at where you’re at today and build a plan for helping you achieve your ideal tomorrow.
Related: Net Worth Summaries vs Portfolio Reporting
Sources:
1. Working After Retirement: The Gap Between Expectations and Reality
2. How Much Care Will You Need?
3. Retirement Benefits