If you're planning to retire in 2030, the countdown has officially begun. Four years may sound like plenty of time, but that period is when you should be focusing on financial moves that allow you to end your career with more confidence. Here are three to start with.
1. Review your asset mix
When you're in the process of building wealth for retirement, going heavy on stocks can make a lot of sense. Though there's risk, when retirement is 10 years away or more, you have time to ride out market downturns and come out ahead.
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With just four years until you're looking to retire, stocks become riskier. You don't want to ditch them completely at this stage of the game, because you want your portfolio to continue growing during retirement. But now's a good time to see what percentage of your portfolio you have in stocks and consider scaling back.
What you may want to do, in fact, is reduce your stock exposure gradually. If you have 80% of your assets in stocks now and you'd like to have no more than 60% in stocks by the time you actually retire, you could reduce your stock holdings to 75% of your portfolio next year, 70% the year after, and so forth.
2. Figure out your Social Security claiming strategy
The amount of savings you bring into retirement, coupled with other income sources you have, will determine how reliant on Social Security you expect to be. If you have a huge IRA to fall back on, your Social Security benefits may only provide a small chunk of your retirement income. In that case, there may be a little less riding on your filing decision.
If you expect Social Security to provide half of your retirement income or more, then it's crucial to claim benefits at the right time. Even if Social Security will function more like "extra money" for your retirement, you should still put plenty of thought into your claiming decision -- it may just be a less stressful one.
What you need to know about Social Security on a basic level is that waiting until full retirement age to file gives you your monthly checks without a reduction. That age is 67 if you were born in 1960 or later.
You can file for Social Security as early as age 62. Claiming then, as opposed to age 67, will shrink your monthly benefits by about 30%. Delaying past full retirement age, on the other hand, will boost your Social Security benefits by 8% for each year you wait, until you turn 70.
Once you've determined the role Social Security is likely to play in your total income, you can figure out the right filing age. Also keep in mind that if you're married and expect a lower-earning spouse to outlive you, the larger a benefit you lock in, the more generous your spouse's survivor benefits should be.
3. See if your savings need a last-minute boost
It's important to go into retirement feeling confident in the amount of money you've saved. Since your career isn't quite over, now's a good time to see what your IRA or 401(k) balance looks like and whether it's likely to suffice.
Just remember that you're not going to be spending all of your retirement savings at once, so a large number on screen may be deceptive. A good bet is to apply a 4% withdrawal rate to the number you see. If you have $2 million in savings, that's $80,000 a year in actual retirement income, for example, using the 4% rule.
Once you do that calculation, you can create an account on SSA.gov to see what Social Security benefit you may be in line for. If your annual income from savings, Social Security, and other sources is enough to cover your expected bills, you're in awesome shape.
If not, good news -- you're not retiring for another few years. You can take the opportunity to boost IRA or 401(k) contributions to set yourself up with more income down the line.
If retirement is four years away, you might think you have plenty of time for last-minute planning. In reality, you should make these moves sooner rather than later, so that if you do need to make adjustments to your portfolio or savings, you have a chance to act.
