We would all do well to give serious and regular thought to our retirement, whether it's three or 30 years away. The more you know and the more steps you've taken to make sure it's a comfortable one, the better off you'll be. Here are 20 smart retirement moves you can make right now.
- Get out of debt. This is vital, at least in regard to high-interest rate debt such as you'll get with credit card balances. It's not unusual to be charged annual interest rates of 25% or more, and on $20,000 of debt, that can cost you around $5,000 each year! No matter how much debt you have, you can probably pay it off if you're determined and persistent.
- Have an emergency fund. You may have thousands socked away in retirement accounts, but if a job loss or major health setback causes you to liquidate such an account, that's going to hurt your financial future. Have an emergency fund available with three to nine months' worth of living expenses.
- Appreciate the power of compounding. If you don't already appreciate the power of compounding, consider this: Sock $8,000 away each year for 25 years and if it grows by 10% each year, you'll end up with about $865,000. If it grows for 26 years, it will total more than $960,000! That's a difference of more than $95,000 and it shows how powerfully money can grow when given a lot of time. The lesson is to start saving and investing as early as possible, and aggressively, too, as your most powerful dollars are your oldest ones.
- Save more. The more you can sock away, the better off you'll be in retirement. In the example above, if you could save and invest $9,000 each year instead of $8,000, you'd have almost $1.1 million in 26 years. Aim to increase your saving each year, perhaps by applying some or all of any raises toward your future.
- Spend less. In order to save more, you'll need to spend less. It can help to spend a few months tracking all your spending, to see where your money goes. Then draft a budget and stick to it. Live below your means, saving money perhaps by using coupons, comparing prices before buying, bypassing some luxuries, and brown-bagging some lunches.
- Catch up, if you can. If your retirement savings are well below where they should be, consider taking some drastic steps to beef them up. The earlier you do this, the more your money can grow for you. You might take on a second job for a while, or regularly do some extra work on the side, such as tutoring. You might take in a boarder for a while or rent out a room on Airbnb now and then. Have several cars in your household? You might get rid of one for a while, to save money.
- Invest smarter. Is your portfolio full of lots of stocks you bought and forgot about, including would-be highfliers that never flew? Aim to hold only stocks in which you have great knowledge and confidence. Consider dividend payers. If you're just not great at choosing which stocks to buy and when to sell, you would do well to just opt for one or more inexpensive broad-market index funds.
- Reduce fees. Take a look at the fees you're paying in your investment accounts, bank accounts, mutual funds, retirement accounts, and so on. Very often, you'll be able to switch to lower-cost options. If you can pay one percentage point less on $100,000, you'll save $1,000 -- per year.
- Simplify financial accounts. Many of us have accumulated lots of financial accounts, from various jobs and points in our lives. Consider consolidating some of them, so that they're easier to stay on top of.
- Rebalance your portfolio now and then. If you haven't rebalanced your portfolio in a long time, you may be far from your desired allocation of, say, 10% in international stocks or 20% in bonds. One big winner might now make up 35% of your portfolio, resulting in a lot of eggs in that one basket.
- Take advantage of retirement accounts such as the Roth IRA. Remember that you can contribute up to $5,500 to an IRA for 2016, plus an additional $1,000 if you're 50 or older. Follow the Roth IRA rules and you'll be able to withdraw all your contributions and earnings tax-free!
- Make the most of your 401(k). 401(k)s have much higher contribution limits, so aim to contribute generously to them, at least enough to take full advantage of any available matching funds. That's free money, after all.
- Get your spouse on board, too. Be sure that you and your spouse are on the same page, financially, working together to save and invest. If only one is doing so while the other is spending or racking up debt, you're headed for trouble.
- Pay off your mortgage before retiring. Consider paying off your home before retiring to free yourself from mortgage payments. That can make the rest of your money go further.
- Consider an annuity. Consider buying into an annuity to provide some retirement income. With a $200,000 investment, for example, a 70-year-old couple might be able to secure $1,000 per month for as long as at least one of them is alive. That can provide much peace of mind.
- Consider dropping your life insurance. If you're paying for life insurance and you still have people depending on your income, keep it. But if your kids are grown and your spouse will have enough financial resources to carry on should you die, you might save money by dropping the policy.
- Look into long-term care insurance. Long-term care can be very costly -- which is why insurance for it is costly, too. It won't make sense for everyone, but it's worth investigating how much it would cost you and if it seems worthwhile. The earlier you buy it, the less it will cost.
- Get the paperwork done. No matter your age right now, be sure you have all your legal paperwork in order. All of us should have a will, a durable power of attorney for finances, a living will, and a healthcare power of attorney (sometimes called a healthcare proxy). You might also look into setting up an estate plan and a trust, among other things.
- Imagine and think about retirement. As retirement approaches, start thinking about it in some detail. Think about where you want to live or where it makes most sense to live, financially or socially. Think about what you will do in retirement and see whether there any steps you might take now to prepare, such as visiting areas where you might move or reading up on late-life investing strategies.
- Have a plan. A critical thing to do is to have a plan, and not leave your retirement up to chance. No matter your age now, give some thought to how much income you'll need in retirement and how you'll build up enough of a nest egg to supply that. It can be smart to consult a professional, too.
The more you know and the more you plan for your retirement, the better it's likely to be.
Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, owns no shares of any company mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.