10 Financial Goals to Reach Before You Retire

Retirement preparedness may feel like life's biggest and most important financial goal -- but your success as a nonworking senior often relies on reaching other financial milestones first. Here are 10 financial goals that, once achieved, position you well for a carefree, comfortable retirement.

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Owning a home diversifies your wealth, adds financial flexibility, and insulates you from rising living expenses. Your home as an asset complements your retirement investment portfolio because it behaves differently. While stocks can rise and fall with economic and market cycles, real estate tends to appreciate more steadily over time. It is less liquid than your securities, but that can be a good thing if it encourages you to stay in the home longer and continue building your home equity.

Home equity can be a very powerful asset in retirement. If needed, you can convert your home equity into cash by downsizing, refinancing, or getting a reverse mortgage. Alternatively, you can hold onto your home equity and use it to fund an inheritance for your loved ones.

As long as you do stay in the home, your fixed-rate mortgage payments won't change. That's an advantage over renting, which exposes you to rate increases at every lease renewal.

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High-rate debt is always problematic, but it becomes especially hard to manage in retirement. As a retiree, there are only two ways to fund debt repayments. You can rely on higher savings withdrawals, but that lowers your future income potential and limits your long-term solvency. Or you can downsize your lifestyle, which may result in a leaner retirement than you'd like.

That's why it's smart to pay off credit card balances, personal loans, and auto loans before you retire. The average loan payment on a new car in the U.S. is $568, and the average minimum credit card payment is about $125. If you have similar payments, repaying these accounts slashes your annual living expenses in retirement by about $8,300 a year.

When your budget is balanced, you can fund your lifestyle with current income only. That means you don't reach for the credit card to fund date night, a new pair of shoes, or even a vacation.

The thing is, living on a budget takes practice. You need to get that practice while you are working and earning annual raises, which provide some leeway to manage spending mistakes.

Once you retire, your "raises" consist of higher savings withdrawals and cost-of-living adjustments (COLAs) from Social Security. Unfortunately, critics say COLAs don't adequately reflect the real inflation seniors experience, which is skewed by relatively higher healthcare costs.

The takeaway is that you probably won't have much wiggle room on spending in retirement. Plan for that by balancing your budget today so you're a budgeting pro by the time you retire.

Even the most thorough budget doesn't account for the unexpected. You can't predict car accidents, plumbing mishaps, or random injuries. But these situations all have a cost you have to cover. That's where your emergency fund comes in.

Set a goal to save six to 12 months of income in cash before you retire. Having those funds on hand gives you the freedom to avoid debt or higher savings withdrawals when unbudgeted expenses arise. You'll also have the option to delay or reduce savings withdrawals temporarily if, say, the stock market takes a dive.

Remember, too, that your retirement budget should allow for ongoing emergency fund deposits. That way you can replenish the funds periodically.

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Supporting your kids as they transition to financial independence can involve paying for college, gifting money for a home down payment, or supplementing their income temporarily. Whatever your family situation demands, you'll want to fund it before you retire.

When your little ones are younger, you can save to a 529 account for future college expenses, or to a more general UTMA (Uniform Transfers to Minors Act) account. As the kids approach adulthood, you'll have to open up a dialogue. To avoid hurt feelings or misunderstandings, be clear about what you can do for them financially and under what timeline. Without those parameters in place, you can't reliably plan for your own retirement.

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Early in your career, it's natural to expand your lifestyle every time you get a raise. You don't want to be eating peanut butter sandwiches for dinner in your studio apartment in your 40s, after all. But eventually, you'll need to learn to hold your spending steady even as your income grows.

Building a gap between your income and your expenses is a fundamental step in achieving financial independence. Without that gap, it's very difficult to realize any sizable financial goal. Debt payoff will be painstakingly slow. You'll also have a tough time gaining traction with your emergency fund or your retirement savings.

Going forward, use at least half of every annual raise to fund automatic deposits into your emergency fund. Once you reach your target emergency fund balance, redirect those deposits into your 401(k).

Having a plan keeps you focused and consistent in your investing activities. Without a plan, you're more likely to do too much -- moving in and out of your funds when the market climate changes, for example.

Base your plan on your retirement timeline, your risk tolerance, and how much hands-on work you want to do. If you want minimal responsibility, for example, invest your retirement savings in a single target date fund. Or, you can build your retirement portfolio from five or six mutual funds that give you exposure to different sectors, currencies, and company sizes.

The sweet spot for many retirement investors is a two-fund portfolio -- an S&P 500 index fund and a Treasury bond index fund. You might split these 50-50 if retirement is approaching quickly and you don't like volatility. If retirement is still decades away and you can handle some volatility, hold a higher percentage of the S&P 500 fund.

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Wondering how much savings you need to retire comfortably? A quick guideline is 15 to 20 times your annual income, assuming you delay your Social Security benefits until you reach full retirement age (FRA).

For the average worker who claims benefits at FRA, Social Security replaces about 40% of working income. If your living expenses stay about the same, that leaves 60% to fund through your savings. Many financial planners recommend a savings withdrawal rate of 4% annually, to ensure you stay solvent for at least 30 years. Follow the math -- essentially, 60% divided by 4% -- and the savings balance you need to supplement Social Security is equal to 15 times your current income.

There are several assumptions baked into that math, so consider the 15 times figure a bare minimum. A higher multiplier, say 20 times your annual income, allows more room for the unexpected.

Saving to different types of retirement accounts gives you flexibility to leave some of your savings invested or to take taxable or nontaxable income in retirement. Distributions from your 401(k) are always taxable, and you will have to take required minimum distributions (RMDs) from that account once you reach 72.

You can complement your 401(k) savings by also stashing money in a health savings account (HSA), Roth IRA, and taxable brokerage account. None of these accounts are subject to RMDs. An HSA allows for tax-free contributions and tax-free distributions when you use the funds for medical expenses. Your Roth IRA contributions are not tax-deductible in the current year, but all withdrawals you take in retirement are fully tax-free. Note that you do have to meet income limits to contribute to a Roth IRA.

Finally, a brokerage account has no tax perks but no withdrawal restrictions, either. You will pay taxes annually on realized gains, dividends, and interest. Manage that by investing long term in quality growth stocks that don't pay dividends.

Long-term financial plans rarely shake out the way you expect. Just as you are drafting your final resignation, the market might take a turn, your house might burn down, or you might need to fund long-term care costs for your folks. That's why it's important to be flexible and have a plan B.

Think about what you'd do if financial disaster strikes at the wrong time. Some options include delaying retirement for a few years, downsizing your home, starting a side hustle, or buying residential real estate to earn rent income. And if you really want to be prepared for anything, consider implementing one of these strategies proactively -- before plan A goes sideways.

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If tackling all of these goals at once feels overwhelming, pick two to focus on for this year. You might prioritize balancing your budget and paying down debts, for example, since completing those items makes it easier to save. Set a calendar reminder for yourself to evaluate your progress and adjust your strategy every six months. Stay on that cycle over time and you will see momentum -- especially as you build that gap between your income and expenses.

Retirement preparedness doesn't come easy. But when you're living out your days comfortably and without financial anxiety, you'll be glad you did the work.

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