6 essential steps when preparing for retirement
A guide for planning the retirement of your dreams.
Whether it’s two or 20 years away, it’s never too early or too late to start preparing for retirement. The good news is, if you’re participating in your employer’s retirement plan, you’re off to the right start!
Picturing your life in retirement can be exciting, but sometimes planning for it may feel overwhelming. Here are six retirement strategies you can follow – remember, the small steps you take now can have a big impact on your future.
1. Dream big but be realistic.
The first step in preparing for retirement is to envision the life you’ll want. Will you work part time? Travel? Volunteer? Next, take a holistic look at your current financial resources to determine if they’ll support your plan.
Here are a few questions to get you started:
- How much have I saved in retirement accounts and other savings accounts?
- How much will I receive in pension or Social Security benefits?
- Will I work in retirement?
- Do I want to leave a significant amount to my heirs?
- Will I need to financially support family members in the future (i.e., aging parents, children, etc.)?
If you don’t think your resources will be enough to reach your retirement goals, determine what you’ll need and consider what you can do to gain those assets. Or you can adjust the view of what your retirement will look like to match your current resources.
2. Drive down debt.
Now it’s time to pay off credit cards and other high-interest, nondeductible debts. Reducing your existing debt and limiting any new debt in the future can free up more retirement income for you, rather than spending it on interest payments.
3. Build a cash reserve.
Set aside enough funds to cover at least three to 12 months of your salary.
4. Fully invest in your workplace retirement plan.
If you’re not already doing this, try to increase the contributions to your workplace retirement plan or 401(k) to qualify for the maximum matching contribution. If that isn’t realistic for you at the moment, slowly increase the amount you contribute. You could do this by adding 1% every six months or increasing contributions by 50% of any future raises or bonuses.
5. Take advantage of catch-up contributions and consider consolidating.
If you’re 50 years or older, many rules within these funds allow you to contribute more money than usual to your 401(k). You can also consider combining your retirement accounts to potentially simplify your investment strategy and get a clearer view of your total retirement assets.
6. Plan where you’ll live.
In retirement, where you live can significantly impact how you live. For instance, if you sell your home in a state with a high cost of living, and then move to a smaller development in a state with lower taxes, your expenses could decrease – freeing some income to pay for other priorities such as medical care. Alternatively, you might choose to move closer to your family in a state with a higher cost of living and higher taxes. These should be factored into your retirement budget.
Don’t leave your future to chance. Put your strategic plan in place to work toward the retirement of your dreams.
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