Key Steps for an Investor Preparing to Retire

September 13, 2019

If you’re preparing to retire in the next year – congratulations.

You’ve worked hard for decades, and diligently invested and saved your money to help prepare for a comfortable retirement. Finally, the light is at the end of the tunnel, and you’ll have the time and freedom to focus on the things you love, and activities you may have been putting off.

It’s an exciting time, but before you can truly kick back and embrace retirement, you’re likely making the final preparations and determining how and when to spend your money to make sure you’re properly prepared.

Will you choose to work part time? Make additional charitable contributions? Are you prepared for any unexpected expenses, like unanticipated medical bills?

While you probably would prefer to focus on all the trips you’ll take, or the free time you’ll have to spend with friends and family, the year before entering retirement is an important period.

Here are some key considerations to help ensure you are ready for retirement:

  • Determine your health care coverage needs.
  • Boost retirement savings.
  • Assess your investment risk exposure.
  • Analyze your income needs.
  • Build your bucket list.

Determine Your Health Care Coverage Needs

If you’re retiring before age 65, or your spouse is under age 65 and covered under your employer insurance, you’ll need to figure out how you will both be covered for your health care needs.

This could mean determining if you’re eligible for a Consolidated Omnibus Budget Reconciliation Act (COBRA) plan from your former employer, being added to a spouse’s plan through their employer, or purchasing coverage through the Affordable Care Act federal exchange or your state’s health care marketplace.

Medicare is available if you’re already 65, or turning 65 soon (you can enroll for Medicare three months before your 65th birthday, though it’s not active until you officially turn 65).

Determine your additional health care needs and any supplemental plans to cover expenses that aren’t covered by Medicare like dental care. Also, never underestimate the potential cost of health care in retirement. The cost of health care is not going to get any cheaper and none of us are getting any younger.

Boost Retirement Savings

In your final dash toward retirement, try to take advantage of the fact that you still have your income and the ability to save.

While you’re enrolled in your employer’s 401(k) plan, be sure to max out any match opportunities while you still can.

Additionally, make the most of catch-up contributions, which allow you to sock away additional money in your individual retirement accounts or 401(k) plans beyond the existing contribution limits.

Assess Your Investment Risk Exposure

Conventional wisdom says that the older you are the lower your risk tolerance should be. This is amplified the closer you get to retirement, and particularly with the market conditions we have experienced in the past year and a half.

As we continue into the longest bull market run in decades, experts and consumers alike are bracing for what may come next. According to the Allianz Life Q2 Quarterly Market Perceptions Study, an increasing number of Americans say they fear a major recession or major market crash on the horizon. In addition, only 31% say they are comfortable with market conditions and ready to invest, down from 33% in the first quarter, and 35% in 2018.

This can certainly be nerve wracking for those planning on retiring in the next year and may leave you looking for additional opportunities to protect your investments. This could mean moving away from your stock market investments, or seeking out a financial product that can offer a level of protection if the market drops while even retaining accumulation potential.

Working with your financial professional, you can determine what strategy makes the most sense based on your unique situation.

Analyze Your Income Needs

Many people focus on the accumulation strategy in the years leading up to retirement, and it is certainly important to have a retirement income plan well in advance of retirement.

But now that your retirement is nigh, it’s time to double check and focus on making adjustments to your income planning. This includes how much money you will need on a monthly basis, where the money should come from, and any income gaps.

You should review all of your annual and monthly ongoing expenses including essential costs like taxes, mortgage or rent, car payments, insurance, health care, food and more, as well as discretionary expenses like entertainment, vacations or charitable donations. Then recalculate your total income including pensions, annuities and/or Social Security.

Take inventory of your assets as well, including both qualified and non-qualified assets for a full picture of what you may have available to you.

Updating all expenses and how you’ll pay for them will identify any income gaps you may face in retirement. Working with your financial professional, you can determine any gaps – both now and down the road – and if you need to modify your strategy for how they might be addressed.

This could mean deferring Social Security so your monthly benefits will grow until you reach age 70, purchasing a financial product like an annuity that can provide guaranteed income for life, leveraging a life insurance policy with a cash value from which you can take tax free loans, or even working part time to help fill in the gap.

Build Your Bucket List

Now, once you have done your financial due diligence, it’s time to have a little fun. Jot down a list of all the things you want to do with your forthcoming free time. Maybe it’s the little things you have been putting off for years, or maybe it’s the trip of a lifetime.

But now is the time to decide how you want to spend your hard-earned retirement. It is easy and not necessarily a bad idea to remain cost conscious in retirement but beware of the trap of becoming too frugal. There actually is such thing as not spending enough in retirement.

By reviewing and adjusting your plans now, you’ll be grateful you have your ducks in a row once your official retirement date rolls around. Partnering with your financial professional to review your retirement needs and wants will allow you to determine the steps you need to take in the coming months to help give you a comfortable, enjoyable retirement.

Originally Published on US News Money
Written by Kelly LaVigne

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