Retirement planning is essential at any age, especially today, when traditional pensions, which were the foundation that many of our parents’ and grandparents’ retirements rested, are being eliminated or cut back. As you enter your 50s and retirement is drawing closer, it is a perfect time to review your retirement plan and to make necessary adjustments. Here are the top 10 retirement planning tips for those aged 50 and up.
Assess Retirement Account Balances. Determine how much you have in your retirement accounts and, based on the contributions you are currently making as well as expected returns, what you expect your retirement account balances to be when you retire.
Project Retirement Account Income. Take a stab at calculating how much you expect to withdraw from retirement accounts when you retire. Some financial planners suggest not taking more than 4% of the total account balance out each year (adjusted for inflation). Another way to estimate the potential income from your retirement accounts is to find out how much income your accounts would provide if invested in an immediate annuity at the age you plan to retire. While the actual figure could be much different when you retire, depending on interest rates and other factors, this figure will give you a base-line starting point for your analysis.
Estimate Other Retirement Income. Estimate how much you expect to receive from Social Security, pensions, and other sources (such as income from a rental property or dividends on stock holdings) in your retirement.
Make a Retirement Budget. Prepare a budget for your retirement years, taking into account any expected changes, such as moving to a lower-cost state or into a smaller home. Admittedly, this is difficult to do if your retirement is 10 or 15 years in the future, but it can be a useful exercise, so do your best to make realistic estimates.
See Where You Stand. Compare your retirement income projects with your budget projections. This will tell you whether you appear to be on track for a comfortable retirement. If there is a shortfall between your estimated retirement income and expenses, now is the time to take action.
Review Your Retirement Contributions. If you feel your retirement plan is on track, you may not need to adjust the contributions you are making to retirement accounts. On the other hand, if your accounts are underfunded, now is the time to begin to contribute more. Even if they aren’t, if you have the income, increasing your contributions may be smart, both because it could help to ensure a comfortable retirement and because you may be in your peak earnings years when tax deductions are most valuable. Keep in mind that the IRS allows Americans 50 and older to make tax-deductible catch-up contributions to retirement plans, which means that you can sock away more than ever.
Review the Investments in your Retirement Accounts. Review the investments in your retirement accounts to be sure that the risk profile is appropriate. As you approach retirement age, you may want to adjust the investment mix to reduce risk, perhaps by shifting some money out of equities into “safer” investments.
Adjust your Retirement Plans If Necessary. If it appears that you will not be able to accumulate the money you need to retire when you had hoped, consider other options. You may need to work longer or perhaps to work part time in your early retirement years. Another option is to look for ways to reduce your cost of living during the retirement, for example, by moving to a smaller home.
Don’t Forget Long-Term Care Insurance. If at some point during your retirement you must move into an assisted living or nursing facility, the costs could quickly erode your retirement savings, so begin to look into your options for long-term care insurance that can help to offset some of these expenses.
Consider Talking to a Financial Planner. Retirement planning is complex, so if you uncertain as to whether you are making the right moves, consider talking to a financial advisor.
www.money-zine.com, Retirement Planning in Your 50s
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