Make smart money moves a decade before retirement
The last decade before retiring can be the most important one for planning.
“It’s your last chance to get your affairs in order and make sure you have everything set up for a comfortable retirement,” says Steve Parrish, co-director of the Center for Retirement Income at the American College of Financial Services. Here are some smart money moves to make:
Envision retirement. Focus on the when, where and what you plan to do in retirement. Will you downsize your lifestyle, travel more and take on new hobbies? If you have a spouse or partner, make sure that you have this discussion together.
Know your retirement number. This number is how much you will need to have saved to fund your retirement lifestyle. By now, you should have a pretty good idea of what it is. If you don’t, common rules of thumb for estimating that number are having 12 times your salary socked away or enough money saved to generate at least 80% of your preretirement income annually.
Sri Reddy of Principal Financial Group is uncomfortable with these quick estimates because everyone’s circumstances are different. He recommends estimating your retirement spending budget for categories like housing, food, travel and insurance.
Give your savings a checkup. Figure out if your savings is on target, while you still have time to do something about a shortfall. Ask a financial adviser or retirement planner to run the numbers for you. Or use free online calculators, such as www.schwab. com/retirement-planning-tools/retirement-calculator from Charles Schwab.
Stop spending on the kids. Don’t put your children’s college needs ahead of your own retirement goals, Reddy says. “Parents may rob themselves to pay their child’s college expenses. Big mistake,” he says. “Your kids will have their entire lives to pay off their student loans.”
Circle the wagons around your portfolio. The closer retirement gets, the more conservative you need to be with your investments. Reddy suggests owning enough fixed-income assets so that if the stock market abruptly drops 20% or 25%, your retirement lifestyle won’t be seriously harmed. One quick way to estimate the right percentage of stocks for your portfolio is to subtract your age from 120. So, 55-yearolds would aim to have 65% of their portfolio in equities and the rest in fixed income.
Aim to be debt-free. “Getting to retirement debt-free is one of the biggest gifts you can give yourself,” Reddy says. In that decade before retirement, start targeting debt with the highest interest rates first, like your credit cards, and gradually work your way down the list until you’re free and clear.