If you are a regular reader, you can predict that my answer to the question of when you can retire is, “It depends.”
That’s because it does depend what exactly you want out of your retirement and what exactly you have put into your retirement up to this point.
Here are some ideas to help you figure out your progress during the last 10 years before retirement.
Ten years before retirement
- Take a quick test. Tally all your retirement savings and compare to your annual earnings. If you are 10 years away from retirement, Fidelity Retirement suggests you should have seven times your annual earnings saved for retirement. But if you plan to retire before age 65 you will want more.
- Use an online calculator. You can find online tools at AARP.org or at Bankrate.com. These will allow you to take information about your age, your current savings, your target retirement date, your earnings and other factors and give you some rough guidance. Remember these tools are designed to be general and easy to use. They may not provide you with a great idea about what you should do in your specific situation.
- Talk to a CERTIFIED FINANCIAL PLANNER™ professional. A CFP® professional is really well suited to help you analyze and understand where you are and what you need to do along your path to retirement. To provide a detailed analysis, CFP® professionals are trained in:
- Budgeting and cash flow
- Risk protection and insurance
- Investment management
- Retirement income planning
- Estate planning
Regardless of whether you do any of the three steps above, you should also try to:
- Bump up your savings. Many people talk as though having only 10 years until retirement is just too late to make a difference. But it’s not too late.
- Save for 10 years at 5 percent average annual growth rate.
- $640 per month will grow to $100,000 in 10 years.
- $100,000 can produce about $350 per month of retirement income for life.
- Maximize the growth of savings. Often as people near retirement, they can get very conservative with investment choices. And it’s no surprise. Who wants to retire and discover that they have 40 percent less money to fund the retirement than they planned on just a few months before?
But it’s also a mistake to be too cautious. Remember that when you retire at age 60 you are likely to have 30 years ahead of you. You want that money to keep growing until you decide to spend it. Some of the retirement money should be invested for growth on the day of your retirement. Yes, maybe the first couple years of retirement spending should be in cash as insurance against market declines, but not a lot more than that.
This is another great place for some professional advice that’s driven by your goals and not a sales pitch.
- Pay down the mortgage. All of my retired clients need to live somewhere. Everybody has housing costs. But if you can pay off the mortgage, you can reduce the monthly cost of housing in retirement. With 10 years to go to retirement, think about making mortgage payments every two weeks. This accelerates the payments and reduces the interest charges without changing the loan.
Five years before retirement
- Get serious about your budget. On retirement day, you want to be sure you know what you plan to spend. At five years out, you should have a pretty good idea about how you want to live in retirement. This is a great time to confirm your expenses.
- Reduce short-term debt. Still plenty of time to knock off any loans or other monthly bills that you do not want to take into retirement with you.
- Review your savings and investment goals. Great time for a check-up with your financial planner.
- Test-drive retirement locations. If you are considering moving, think about taking an extended vacation to the location. Living there for a month is different than being there for a week’s vacation. Also think about visiting in all four seasons. Sometimes you are surprised by what’s it’s like to live in a vacation spot in the off-season.
- Begin to create retirement income accounts. Now is a time to begin to set aside the money you plan to use for your monthly bills in Year One of retirement and Year Two and Year Three. If you have those funds identified, it takes a lot of risk out of picking the exact date of your late paycheck.
One year or less before retirement
- Check with your human resources department on the details. Be sure you understand the procedure for officially announcing your separation from the company. Review any options the company offers in the way of health insurance or other group insurance benefits.
- Review your health insurance. Confirm that everything is in place as you prepare to leave the company plan. If you are younger than 65, get your private insurance in place in advance to avoid any gap in coverage.
- Apply for Medicare. When you hit 64 years and nine months, it’s time to start filling out Medicare paperwork. You want to apply right away. Any delay will create hefty penalties.
- Review your finances with your planner. Talk with your financial planner about next steps and the process to transition from working for money to working for fun. Depending on your situation, you may have several things you want to change once your retirement is official. Work with your planner to be sure you do everything you should and you do things in the correct sequence.
When should I look for a financial planner?
If you think you might retire in the next 10 years, it’s a great time to visit with a CERTIFIED FINANCIAL PLANNER™ professional. Start your search here. The link will let you see CFP® professionals near you.
As you visit with financial planners, I suggest a couple things to check:
- Is the advisor always the client’s advocate – a fiduciary advisor?
- Is the advisor only paid by clients, not any financial product manufacturer or distribution network? That would be a fee-only advisor.
These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.
A fiduciary, fee-only, CFP® professional can help you create a financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.
Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.
If this article has you thinking about your own circumstances, contact my office at firstname.lastname@example.org. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.