Here comes retirement, suddenly upon you, just a few years (or months!) away. Now, you want to make sure you’ve got everything set for a pleasant retirement.
You’ve may have done well saving and paying off big bills like your mortgage, of course, but there are still several steps you can take to ensure your retirement years are actual golden years.
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For expert advice on this topic, GOBankingRates turned to John Jones, investment advisor at Heritage Financial. Here are the seven things he advises us all to do when we’re nearing retirement:
1. Assess Your Financial Situation
You’re headed into a time of life when you’ll no longer be earning an income from work. Now, you’ll be receiving your retirement income from your retirement funds — savings, 401(k), pension, etc.
“Taking time to evaluate your financial position is a process you really want to do a few months before retirement, ideally a few years before your retirement date,” Jones said.
He added that you want to “evaluate debt and spending habits and estimate monthly expenses in retirement. Once monthly expenses are estimated, this can be compared against your current working income to help get an idea of the income you’ll need in retirement.”
Then, you’ll know if your assets can support your needs.
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2. Secure Guaranteed Income Streams
Now that you know what your needs will be, it’s time to look at your guaranteed income streams.
These include funds like a pension or your Social Security earnings. Both are good income streams because you know they’ll pay out no matter what. Also, take a look at any 401k or IRA payouts you expect to receive and what kind of income you’ll get each month from those.
The additional things to remember to look at, according to Jones, are the taxes, which, “cannot be controlled because you will pay taxes on the money when it’s received.” Then, with Social Security, you’ll need to look at when you want to start receiving your benefits based on two questions, “How long do I expect to live?” and “How do I get the most dollar benefits across my life?”
Of course, these are highly individual questions you need to take time to evaluate.
3. Develop a Detailed Retirement Budget
When you know what your income will be, you can begin to budget to stay within that income bracket. Obviously, your goal is to live well below your means.
“Most of my clients arrive at their retirement income needs in one of two ways: Through physically budgeting every aspect of their retirement or, more commonly, through picking a desired income or replacement salary,” Jones explained.
It’s a good idea to sit down and consider all of your expenses, including the expenses that do not last forever, like car payments, mortgage payments and pre-Medicare health insurance.
Also consider your fixed expenses, like property taxes and utilities, and your variable expenses, like groceries, clothing, travel, and transportation, etc.
Then, you can decide how much you want to receive each month based on your budget, or look at how much you will receive each month, and adjust your budget.
4. Conduct a Retirement Tax Strategy Review
Jones really wants to bring the point home that your taxes are something you cannot control, so he wants you to be prepared for that. As he notes, “A recent FINRA publishing stated that ‘income taxes might be your single largest expense in retirement.'”
He warns, “It is not uncommon to see the ordinary retiree having the bulk of their financial assets concentrated in the pre-tax funnel with very little in the tax-advantaged section, which is fine but makes proactive tax planning and management especially important.”
For this reason, it’s important you sit with your financial planner to review what your tax plan might look like after retirement and start preparing for that now.
5. Create a Healthcare Plan
Another area retirees may underestimate when it comes to expenses is healthcare. As Jones reminded us, “If not properly planned, there may be substantial healthcare expenses, which can strain the income plan.”
So, know in advance what you’re eligible for, whether it’s Medicare, COBRA benefits from an employer, or if you’re retiring before the age of 65, health insurance on the market. After all, your Medicare benefits will only kick in once you turn 65. Even then, you’ll want to consider supplemental insurance and get educated on taxes and surcharges.
Shopping on the marketplace can be expensive, as well.
“Ultimately, it is not uncommon for me to see many individuals target their official retirement around the most efficient healthcare scenario,” Jones said.
Make sure to look at your current health and your expected health, and plan for any unexpected health emergencies. This will allow you to take a clear look at when and how to retire in the ways that are most financially beneficial to you.
6. Evaluate and Adjust Investments
Many retirees don’t realize they should be adjusting their investments now that their funds will become incomes.
“An important reminder is that individuals should not merely aggregate risk across every component of their portfolios (checking, annuities, stocks, bonds, etc.), but should instead ensure each section is allocated appropriately to achieve the overall upcoming and long-term goals of the individual,” Jones advised.
The goal as you head into retirement is to control the controllable. You cannot control what the market will do, but you can mitigate risk and control how much of your financial position is exposed to what amount of risk.
According to Jones, that this approach will give you peace of mind.
7. Create a Withdrawal Strategy
Once you’ve reviewed your portfolio, created a detailed budget and evaluated your guaranteed income streams, it’s time to create a withdrawal strategy. For this, it’s crucial you consult with your financial advisor, who can help you understand how withdrawals and earnings will affect your retirement.
“An asset is only as variable as it can be turned into cash and spent, in the form of distributions or income,” Jones cautioned. “I see many individuals use the 4% rule as a starting point to planning their retirement, but holistically evaluating their situation with a professional to create a more robust strategy that incorporates time horizons, tax strategies and portfolio risk aggregation can help achieve a better retirement.”
In short, work with a professional you trust so you know your withdrawal strategy is one that will pay what you expect, when you expect, with relatively few surprises.
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This article originally appeared on GOBankingRates.com: 7 Things To Do If You’re Nearing Retirement
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
