If you're planning to retire at the end of this decade, you only have about 60 months left to squirrel money away and plan how you will enjoy your golden years. As lovely as it sounds, entering the final lap before retirement can also be intimidating. At this point, it's all about planning and follow-through.
So for those this close to retirement, here's an overview of what you'll want to accomplish before leaving the workforce.
Assess your financial situation
Take a critical look at the current condition of your finances, including:
- Investments: Check how your investments are doing and determine whether you need to reallocate funds. For example, you may want to fine-tune your risk exposure, sell out of underperforming holdings, or move into dividend-paying stocks.
- Debt: Pay off high-interest debt, such as credit cards and personal loans. This will not only reduce your monthly expenses but also increase your chances of getting to do what you want in retirement.
Create a post-retirement budget
It may seem silly to plan for a future when you don't know exactly how much to budget, but do your best to estimate. Based on those estimates, build a post-retirement budget that you believe you can live with. It may help if you:
- Do a lifestyle assessment: Consider the lifestyle you want in retirement. If you plan to spend time with family, visit friends, and enjoy plenty of fishing, your expenses will likely be lower than if you dream of traveling the world. The lifestyle you wish to lead will help inform your budgeting decisions.
- Identify necessities: Decide in advance which expenses are flexible. For example, healthcare costs may be fixed, but how much you spend dining out or buying gifts is flexible. Determining what you can live without could make cuts a little easier if you have a particularly expensive month, or weak market conditions mean you don't want to take money from your retirement account while the value of your assets is down.
Image source: Getty Images.
Maximize contributions to retirement accounts
Now is the ideal time to max out your contributions to retirement accounts. Once these five years have passed, you may not have another opportunity.
Let's say you're already maxing out a 401(k) at work. If you haven't already, add an IRA to the mix. And if you have access to a health savings account (HSA), take full advantage of it. Unlike a flexible spending account (FSA), the funds in an HSA roll over yearly, allowing you to take what's left into retirement.
Familiarize yourself with healthcare options
According to Vanguard, the average non-smoking retiree with no chronic conditions is considered low risk and spends about $3,400 annually on healthcare. In contrast, a smoker with two or more chronic conditions can expect to pay approximately $7,500 annually. Your final tab could be higher or lower depending on where you live, the type of Medicare plan you choose, and inflation.
One way to understand how much you'll pay for healthcare is to familiarize yourself with the different Medicare plans and the required out-of-pocket costs once you retire.
Become an expert on what you can expect from Social Security
Whether you're collecting retirement benefits based on your earnings, collecting survivor benefits, or claiming spousal benefits, create a free account at my Social Security. There, you can learn precisely how much you're currently eligible to receive and how much you'll be eligible for in five years.
Don't go it alone
If you're not already working with a financial advisor, consider finding one who is a fiduciary. A fiduciary is legally obligated to look out for your best interest rather than their own. For example, they can't steer you toward a specific investment only to gain a commission.
You don't have to commit to a financial advisor, either. If all you need is an extra set of eyes to look at your portfolio, hire an advisor willing to work by the hour or for a flat fee.
As retirement draws nearer, you undoubtedly have a lot to consider. Take your time, be strategic, and if possible, enjoy the process.
