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Countdown to Retirement: 3 Planning Tips When You’re 10 Years Away from Retirement

Rebekah Barsch •  September 22, 2015 | Enjoying Retirement

There’s a sweet spot when it comes to retirement planning, and it usually starts about 10 years before you plan to stop working. That’s the point when you’re close enough to retirement to know what you want your life to look like, yet far enough away that there’s still time to adjust your strategy if you find you’re not as financially ready as you’d like to be. As an example, a 49-year-old person can contribute a maximum of $18,000 into his or her qualified retirement plan, while a 50-year-old person can contribute $24,000.

In fact, the decade right before retirement is often a golden time for retirement investors. Like many people, you may be in your peak earning years, with many of life’s largest expenses—namely, house payments and college tuition—either behind you or significantly reduced. This makes the 10 years right before retirement an opportune time to bolster your retirement savings by maximizing your contributions to your 401(k) plan, IRAs and/or other savings, and by taking full advantage of any catch-up provisions that may be available to you starting at age 50.

In addition to socking away as much as possible for your future, here are three important steps that can help make the countdown to retirement as smooth as possible.

1. Ten years before retirement: Crunch the numbers. In the decade before retirement, you’ll want to sketch out a draft retirement budget and then run a projection to see if your savings are on track to support your desired retirement lifestyle. This means taking a careful look at the assets you’ve earmarked to provide retirement income, including your mix of investments and the assumptions you’ve made about what your portfolio will earn.

This is where a qualified financial professional can make a difference. He or she can help assess your retirement readiness by running a detailed model of how much money you’re likely to have by the time you retire. This includes looking at your portfolio to determine the likelihood that it will provide the income you need, for as long as you need, regardless of market ups and downs. In other words, you’ll want to test your retirement assets against variables like market performance, inflation, tax rates and your own longevity.

2. Five years before retirement: Start transitioning your portfolio. As you’ve accumulated savings for retirement, your goal has probably been to achieve the highest returns on your money given your particular tolerance for risk. As you round the bend toward retirement, the growth potential of your portfolio is still key. However, other factors become more important, such as minimizing the impact market volatility may have on your portfolio prior to and early into retirement, as well as figuring out the best way to turn your savings into income.

This is the time to start consolidating the retirement savings you (or you and your partner) may have in various employer plans, IRAs and other accounts to create a total household “picture” of your assets and how they are positioned. Once you know what you have, you can begin to gradually re-position your assets in the financial products that will give you the highest and most reliable retirement income to meet your goals. These products may often be different from those you used to accumulate the money. Simply stated, creating a retirement income involves a different strategy than saving for retirement.

3. One year before retirement: Get on solid ground. The final working year before retirement is your opportunity to make sure you’re on solid ground before exiting the workplace. Many of the decisions you’ll need to make, such as where you will live and how you will spend your time and money, carry financial and life-planning implications.

One of the most important things to do is to nail down a firm budget for retirement. Then take a careful look at your sources of income in retirement to see if you’ll have sufficient cash flow, and make any adjustments to meet your ongoing expenses. In addition to Social Security and any pension you may have, you’ll also need to decide when and how to start pulling money from your retirement accounts.

If your employer doesn’t offer retiree health coverage (few do these days), investigate your options, including Medicare supplemental coverage. If you plan to retire before Medicare kicks in at age 65, you’ll need to find interim health care coverage to bridge the gap from retirement until you become Medicare eligible—and this can be expensive.

One of the biggest decisions you’ll need to make as you approach retirement is when to take Social Security. While you can sign up as early as age 62, there are a number of strategies—including waiting until age 70 to claim—that can significantly boost your monthly benefits. There may be additional options and strategies available to you if you are married, divorced or a widow or widower. Consult with a knowledgeable financial professional on the Social Security strategies that may be available to you. The Social Security Administration’s website offers calculators that show the impact of retiring at various ages on your monthly benefit.

The Countdown Begins

The 10 years leading up to retirement are a critical time to get a handle on all of your financial resources for retirement and create a realistic picture of how financially prepared you are for the future. If your savings are behind schedule, don’t lose heart. Instead, use the valuable years leading up to retirement to build your savings further and to consider all of your options for achieving the kind of lifestyle you want for your future.

Click here to see more articles from Rebekah Barsch.

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