The moves you make in the time leading up to retirement can make or break your financial future. To make sure you’re ready for the next phase of your life, follow these 10 tips:
Put your financial house in order
First, organize and update your legal documents, including your will, financial and medical powers of attorney, and any insurance policies you may have. If you don’t have a will or a Durable Power of Attorney for Health Care, have them prepared.
Without a will, your estate may have to pass through probate, which can be a public, costly and time-consuming process. Without a Durable Power of Attorney for Health Care, your spouse or loved one may not be able to act on your behalf should an illness (such as Alzheimer’s) or injury prevent you from doing so on your own.
Second, review your beneficiaries and make sure all your accounts are properly titled. For example, neglecting to replace the divorced spouse as beneficiary on an account could be a costly mistake.
Finally, make a list of important financial information, including account numbers, passwords and related documentation. Share it with a spouse, partner or other trusted person and then store this information electronically (with a backup) or physically, in a safe-deposit box.
Make a retirement budget.
Step 1: Take inventory of your sources of retirement income, including Social Security, pensions, 401(k)s and IRAs, and savings and investments. Then decide how you’re going to use these resources to support your lifestyle. Many experts use a 4%-5% withdrawal rate (adjusted annually for inflation) as a ballpark to determine how much you can safely take each year without prematurely depleting your savings.
Step 2: Add up your anticipated retirement expenses. For many, health-care costs will be a top expenditure in retirement. The annual Fidelity study estimated that most retired couples spend anywhere from $220,000 to $240,000 on health care in retirement — and that does not include any long-term-care needs.
Step 3: Plug any holes. Compare your income with your expenses. If there’s a gap, consider ways to cut the cost of retirement or look to your savings to supplement your income.
Boost your savings.
If you’re still working, take advantage of catch-up contribution provisions for those 50 and older that may allow you to contribute an extra $6,000 annually (in 2016) to your 401(k) or other employer-sponsored plan and/or an additional $1,000 annually to a Traditional or Roth IRA.