If you're at the point where retirement is a mere five years away, you may be getting increasingly excited about making your workforce exit. But before you start picturing your newfound freedom, make sure to tackle these very important moves.
1. Get an estimate of your future Social Security benefit
Social Security may end up being an essential income source of yours in retirement. And even if you bring in a nice amount of savings, there's something to be said for the fact that the program is designed to pay you your monthly benefit for life.
As such, it's important to know what benefit you're in line for. If you're only five years away from retirement, the estimate from your latest earnings statement should be reasonably accurate. And you can access that earnings statement by creating an account on the Social Security Administration's website. You may not have a paper copy, since those usually aren't sent by mail until people turn 60.
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2. Figure out how much annual income you'll get from your savings
Hopefully you have a decent stash of money socked away somewhere, whether it's an IRA or a 401(k) plan. From there, you'll want to figure out what annual income you're looking at given that amount.
A nest egg worth $1 million may seem like a ton of money. If you intend to withdraw from your savings at a rate of 4% per year, that's only $40,000 in annual income. That may be enough when combined with Social Security. But it's important to know what to expect in case you need to adjust some of your financial plans, such as where to live.
3. Take advantage of catch-up contributions while you're still earning a paycheck
Once you turn 50, you're eligible to contribute extra money to an IRA or 401(k). If you're nearing retirement, it pays to take advantage of that option while you're still working and making money.
You might think that it doesn't make sense to boost your IRA or 401(k) contributions at a time when retirement is so close. But remember, you're (hopefully) not emptying out your nest egg in its entirety right away once your career ends. So it still pays to fund your savings plan to the best of your ability, even if retirement isn't far off.
4. Read up on Medicare
Once you turn 65, you'll be eligible to get health coverage through Medicare. Now you may be retiring at an earlier age than that if all goes accordingly to plan. But at some point, you're likely to turn to Medicare for your health-related needs. So it's important to know what the program costs and covers.
While Part A, which covers hospital care, generally does not come with a monthly premium, Part B, which covers outpatient care, does. So does Part D, which you'll need for prescription drug coverage. There are also certain services traditional Medicare won't pay for at all, like most dental care, so it's important to know what to anticipate.
5. Have a plan for long-term care
Many seniors end up needing some type of long-term care in their lifetime, and the costs there can be exorbitant. Before you retire, make sure you have a plan for covering that expense.
If you don't have long-term care insurance yet, it's something to consider. The optimal time to apply for a policy is during your 50s, but you may not be out of luck if that window has already passed. You may also want to talk to younger family members about long-term care if you expect them to step up and help with it.
The five-year period leading up to retirement is a really crucial time. Make these key moves to set yourself up for a rewarding retirement that's devoid of financial stress.
