If your 20-year-old self could see you now, they may not believe that retirement is finally within reach.
But thanks to consistent saving, strategic planning and adjusting to life’s curve balls over the years, it’s almost time to leave your full-time gig behind.
This is your last chance to boost your nest egg and ensure it will generate enough income to support the lifestyle you want to maintain in retirement.
It’s also the time to finish paying off debt, prepare for social security and make a plan for life after retirement.
These 10 steps will help you prepare financially and emotionally for the big day while making the most of your final working years.
1. Make Your Final Catch-up Contributions
If you aren’t maxing out your retirement accounts, including making catch-up contributions, it may be time to re-examine how much you’re contributing.
As you age, your financial obligations change, and maxing out your accounts while maintaining the lifestyle to which you’re accustomed may be easier than in earlier decades of your career.
For example, if you no longer support dependent children, don’t have a car payment, or paid off your mortgage, you can reallocate those funds to your retirement accounts.
2. Consider a Roth Conversion
Roth accounts are the most tax-advantaged retirement accounts available and an essential part of a diversified retirement plan.
However, high earners often exceed the income threshold for making Roth IRA contributions early to midway through their careers.
The good news is you can still get the tax benefits of a Roth account by completing a backdoor or mega backdoor Roth conversion.
If you haven’t done so already, your 60s are a great time to complete one or both types of conversions—as long as you’re prepared for the tax implications.
Because the process involves converting pre-tax dollars to after-tax dollars, you’ll need to pay income tax on the amount you roll over.
A wealth manager can help you plan for and time the conversion so it occurs in the most tax-efficient way possible.
3. Estimate Your Retirement Income
With just a few short years until you retire, now is the time to get serious about your retirement income needs.
Calculating your net worth is the easy part. Figuring out what that translates into in terms of annual income is more challenging.
A wealth manager can run projections for you based on safe, moderate, and aggressive withdrawal amounts so you can see which scenarios generate enough income to fund your ideal lifestyle throughout retirement.
At Plancorp, we recommend having enough retirement savings to replace 80% of your pre-retirement income. That may seem high, but you might be surprised by how much you spend after saying goodbye to the workforce.
Your expenses may be higher than you think, especially when you consider the cost of healthcare. Poorly-timed down markets and the uncertainty of Social Security could also increase your need for a larger nest egg.
4. Pay Off Debt
Hopefully, by now, you’ve paid off all your debt, except maybe your mortgage. If you haven’t, paying it off while you’re still earning a regular paycheck is crucial to maintaining your current lifestyle in retirement.
If you retire with high-interest debt hanging over your head, you’ll have to use a chunk of your retirement income to pay it off instead of spoiling your grandkids, traveling, or investing in that vacation property you’ve been dreaming of.
5. Choose Your Retirement Age
There are many factors to consider when deciding when to retire, and choosing an age may not be as simple as it sounds.
A wealth manager can help you decide the best time to retire based on Medicare eligibility, when you plan to take Social Security benefits, the retirement of your spouse, your life expectancy, whether you plan to work part-time and more.
6. Review Your Investment Strategy
As you approach retirement, the allocation of your assets may need to change. As you decide the best way to move forward in this next stage of your life, there are a few things to consider:
Diversifying. This is a good time to ensure your portfolio isn’t overly weighted in company stock, which is common for people who receive equity options but don’t regularly diversify.
Re-allocating. You’d be surprised how much an ill-timed down market can reduce the long-term growth potential of your portfolio. Shifting the balance to more conservative assets can help protect against this risk.
Funding a lengthy retirement. As life expectancies have increased, it’s not uncommon for people to need their nest egg to fund a two- or three-decade-long retirement. A wealth manager can help you balance the need for long-term growth with the need for income generation and stability.
7. Prep for Social Security
Your social security check won’t just show up in your mailbox one day. You have to decide when you want to begin receiving benefits.
Just because you’re eligible to collect Social Security doesn’t mean you should. Receiving Social Security before you reach full retirement age results in a reduced benefit for life while delaying payments increases your payout permanently.
A wealth manager can help you determine the best age to start collecting based on your life expectancy, spouse’s benefits, other assets and how much you rely on Social Security to supplement your retirement income.
You can get an estimate of your benefits by logging into your account on the Social Security Administration website.
You can arrange to collect Social Security payments online, by phone or in person at your local Social Security office.
Be prepared to provide personal and employment information, including your birth certificate, proof of citizenship, military documents and W-2 or self-employment tax return.
8. Tax & Insurance Reviews
As you approach retirement, it’s essential to review your insurance coverage and tax planning strategy more frequently.
A wealth manager can run tax projections and help you employ multiple strategies to minimize your lifetime tax liability and protect wealth for future generations.
Areas you may need to consider include:
- Cashing in remaining equity awards
- Creating a plan for charitable contributions
- Setting up trusts to minimize estate taxes
- Developing a strategy for withdrawals in retirement
You may also need to adjust your insurance coverage at this stage of your life.
As your children become financially independent, life insurance may be less important. But as your health changes, healthcare costs may increase, and you may need to switch health insurance plans or prepare for higher premiums.
9. Estate Plan Review
Your 60s are a good time to go over your estate planning documents and make any necessary changes.
Be sure to review your will, trusts you established, transfer on death and payable on death account designations, financial and medical powers of attorney and your charitable giving plan.
10. Prepare Emotionally
Retiring is a big deal.
Getting ready for it isn’t just about getting your finances in order. It’s also about preparing yourself mentally and emotionally for this significant life transition.
Many successful retirees struggle with deciding how to spend their time when they no longer have to be up and out the door at a specific time.
Assessing your values, goals, activities you enjoy and organizations you’d like to get involved with before your last day of employment arrives can help you create a plan that allows you to thrive in your golden years.
Next Steps
You’ve worked hard for decades to ensure you have enough savings to support your ideal lifestyle in retirement.
At Plancorp, our wealth managers work with you to develop a retirement plan that makes the most of your hard-earned money.
We can help you minimize your tax liability, prepare for cost of living increases, navigate required minimum distributions (RMDs), update your estate plan, protect wealth for future generations and more.
And because we know one thing for sure—your retirement plan will need to change as your life changes—we’ll consistently revisit it with you and adjust it as necessary.
Check out our pre-retirement checklist to find out if you’re prepared to retire in the next few years.
If you’re not sure, have questions or want a more personalized review of your retirement plan, get in touch. One of our wealth managers will be happy to help.
