10 Financial Steps to Take If Retirement Is Around The Corner


By Nathan Shelton

Do you have a retirement countdown set up yet? If you’re within 10 years of your retirement date, you’re probably spending a lot of your time and energy creating your bucket list and dreaming about what to do with all your time when you say goodbye to your colleagues. But before you pack up your office for good, be sure to tighten up all the loose ends in your retirement plan so you can leave your retirement party fully confident in your future. 

1. Do The Math

A lot could happen in your retirement that has the potential to derail your finances. You could face health concerns, need long-term care, or deal with inflation or market downturns. That’s why you need to factor in uncertainty and run your figures through different scenarios to evaluate how your nest egg will fare should the unexpected happen. Once you stress-test your savings in this way, you can come up with a plan to help to mitigate these risks. If you wait until you are retired to take this step, it may be too late to make the changes necessary to maximize your retirement income.

2. Live On A Retirement Budget 

Whether you choose to continue working during retirement or not, you’ll likely rely on a retirement income generated from several different sources, including Social Security, employer-sponsored retirement plans, personal retirement accounts, and other savings and investment programs. Throughout your working years, you’ve been contributing money to these accounts with a plan to secure a consistent income in retirement. But how do you know if it’s enough to last your whole retirement?

One way is to take your retirement income for a test drive. While it’s generally recommended to assume you’ll need 80% of your current income in retirement, you and your family may need more or less. For a few months, pretend you’re retired and try living on 80% of what you currently receive. Do you find yourself pinching pennies or did you find ways to decrease your budget even more? 

3. Save Like Never Before

These are your last years to save while you’re still receiving a steady paycheck, so cut back on expenses, channel any raises and bonuses directly to savings, and automate savings increases of 1% every few months. 

Your increased savings can be invested into your company 401(k) or 403(b) plan or your personal IRA. If you are over 50, you can invest an extra $1,000 a year into an IRA for a total of $7,000 for 2020. At $6,500, the catch-up contribution for those over 50 is even greater for 401(k) and 403(b) plans, allowing a total annual contribution limit of $26,000. 

4. Reconsider Your Residence

Housing costs tend to be the largest expense in retirement, with the average retiree spending $16,723 per year on housing, not including utilities or amenities. (1) As you approach retirement, think through where you’re going to live and how much you’ll spend on housing costs in retirement. 

If you plan on relocating, visit your potential locations and decide if the climate, community, and area are right for you. If you want to stay where you are, consider downsizing or making modifications that are needed in your current home to accommodate aging. Plan to make any expensive adjustments and repairs now, before you’re living on a tighter budget.

5. Research Healthcare Options

No matter how healthy you are today, you may need more health services as you age. According to the Employee Benefits Research Institute, the average couple at age 65 will require anywhere from $183,000 to $363,000 in healthcare costs in retirement. (2) Most people don’t even have that much in their retirement accounts to live on, let alone cover medical costs. Even with Medicare, there could be significant out-of-pocket expenses and many conditions and treatments that are not covered.

When choosing your health insurance for retirement, make sure you understand all Medicare options and supplements and work with an experienced professional to help you evaluate your options. 

6. Think About Long-Term Care

Along the lines of health, think about your potential need for long-term care insurance. According to the U.S. Department of Health and Human Services, most Americans turning age 65 will face the potential of requiring long-term care at some point during their later years. (3) On average nationally, it costs $280 per day or $8,517 per month for a private room in a nursing home. (4) If you decide that long-term care insurance is the way to go, now is the time to act. Insurance costs increase with age. There is also the risk that your health will change and your insurance application will be denied. Generally, you will have fewer options the longer you wait.

If you want to get a long-term care plan in place, you have a few options. It is smart to consider a traditional long-term care insurance policy, add a long-term care rider to your life insurance policy, purchase an annuity with a long-term care rider, or start saving for your long-term care so you can self-insure. 

7. Check On Your Investments

As you move through your working years, your investment strategy should change. When you were in your 20s with a long time horizon, you could afford to take more risk to achieve growth. But with retirement on the horizon, you don’t want to see your nest egg shrink because your portfolio was not properly allocated. We suggest meeting with your financial advisor to review your current lineup and determine whether your risk tolerance should change.

Along with reallocating your investments, you’ll want to consider how the sequence of returns could impact your portfolio’s value over time. In the simplest of terms, sequence of returns refers to the risk of receiving lower or negative returns early in a period when you’re making withdrawals from your investments. If your retirement date correlates with the onset of a bear market, your savings can be depleted quickly as you withdraw from your portfolio. With a smaller investment base, you’ll have less wealth remaining to benefit from a future market upswing.

To mitigate the risk of sequence of returns ruining your retirement portfolio, work with your advisor to take the appropriate steps, such as reducing volatility, examining your withdrawal strategy, and finding different market options to preserve your money.

8. Don’t Forget Social Security

You know you have Social Security benefits waiting for you, but that doesn’t mean you should just ignore them until it’s time to claim them. These benefits can be claimed anytime between ages 62 and 70, but the timing of when you decide to collect these benefits will impact the amount of payout you receive. Before you start claiming Social Security, it’s important to review your benefits and options for claiming so you can maximize your lifetime benefit.

If your full retirement age (FRA) is 67 and you start claiming benefits at age 62, your monthly benefit amount will be 30% lower than if you waited for full retirement age. (5) And if you wait until age 70 to claim your benefits, your monthly check will be 24% higher than if you retire at 67. (6) It’s also important to consider how long you’ve worked and your lifetime average monthly earnings, which are used to calculate your benefit. In some cases, working a few extra years can have a big impact on your monthly Social Security benefit.

9. Write Up A Tax Plan

Tax planning can save you more money than you realize. By projecting your future income and taxes now, you may find opportunities to save. When you are living off a fixed income in retirement, tax strategizing can make a world of difference in the longevity of your nest egg. 

For example, a $50,000 withdrawal from a Roth IRA will have a wildly different tax impact than that same distribution from a traditional IRA. Creating a tax plan can help you strategically withdraw from your various retirement accounts and reduce your tax liability. 

10. Partner With A Professional

These final years before retirement are critical for making decisions that have far-reaching consequences. Even if you have been saving and planning on your own up until this point, it’s smart to consider enlisting a financial advisor to help you plan for your financial future.

Allow our team at Shelton Financial Group to help you create a personalized retirement road map to address your concerns and guide you to financial independence. Reach out to us at 260-436-7006 or schedule your free 30-minute Fit Call online.

About Shelton Financial Group

Shelton Financial Group is an independent, multi-generational firm in North East Indiana that takes a team approach to addressing their clients most pressing financial concerns. SFG was founded in 1996 with the mission of helping people enjoy their wealth. Using their proprietary “One Life Formula,” the team at SFG focuses on what matters most to their clients and what they can control, integrate their wealth management needs with other aspects of their financial picture. To learn more about Shelton Financial Group and how they can help you achieve financial independence, visit them online.

(1) https://www.fool.com/retirement/2019/06/10/heres-what-the-average-retiree-spends-on-housing-e.aspx

(2) https://www.ebri.org/docs/default-source/ebri-issue-brief/ebri_ib_481_savingstargets-16may19.pdf?sfvrsn=56b83f2f_6

(3) https://longtermcare.acl.gov/the-basics/who-needs-care.html

(4) https://www.genworth.com/aging-and-you/finances/cost-of-care.html

(5) https://www.fool.com/retirement/2019/10/24/heres-how-much-your-social-security-shrinks-if-you.aspx

(6) https://www.fool.com/retirement/what-are-delayed-retirement-credits.aspx