10 Money Moves to Make Before Retirement

Your ideal retirement might sound something like a dating profile. You know, taking long walks on the beach, spending quality time with friends, and staying active with an occasional game of golf or tennis. The thing is, that carefree retirement lifestyle isn't easy to come by. For most, it results from a series of disciplined financial decisions -- money moves that push you toward financial independence over time.

Here are 10 of those key money moves. Make them now to start building your dreamiest retirement lifestyle.

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You probably don't need a lecture on the evils of high-rate debt. If you have credit card balances and other pricey loans, you know the drill. You make monthly payments, and only a slice of that payment reduces your debt balance. The rest goes to your interest charges, which recur month after month.

You may have used up the stuff you initially bought on the credit card, too. In that case, the monthly payment feels like tossing money out the window -- since you get zero benefit from the expenditure.

Get creative and find a way to pay off those debts before you retire. You'll free yourself from the ongoing interest charges and create space in your retirement budget for more interesting things, like meeting friends for lunch.

ALSO READ: 3 Reasons You Won't Retire a Millionaire -- and How to Fix Them

Speaking of retirement budgets, do you have one? Estimating your living expenses in retirement is a key step in readying yourself for life after work.

Living expenses that may change after you retire include travel, transportation, healthcare, housing, taxes, emergency fund deposits, and retirement contributions. Take a stab at quantifying those changes. Some of them will be predictable if you have specific plans, say, to move or pay off your mortgage. Others, like healthcare costs, will require some extra research.

An emergency fund keeps you from charging up credit debt or taking large savings withdrawals when life throws you a curveball.

Having several thousand dollars saved in cash is particularly useful when you are retired. Inevitably, you will face an unexpected expense. And when that happens, you need a way to pay for it. You don't want to charge it, and your 401(k) may not even allow for on-demand withdrawals.

Ample cash on hand can also help you navigate a turbulent stock market temporarily. If the market takes a dive, you're better off using your cash for living expenses versus liquidating stocks at a steep loss. For that reason, you might target enough cash in your emergency fund to cover six or 12 months of living expenses. Be sure to budget ongoing deposits to that account, too, so you can replenish any funds you end up using.

Downsizing to a smaller home or cheaper neighborhood is a common financial strategy for retirees. But there are advantages to downsizing now instead of later. For one, the money you free up can go straight into your retirement account. Downsizing now also makes for an easier transition. You can adjust to living on less while you still have the funds to cover any missteps.

If work prevents you from moving, explore other ways to trim your spending. Shop around for cheaper insurance, start budgeting your grocery bill, and scour your bank statements for other opportunities. Practice spending discipline now, so you're a pro by the time you retire.

ALSO READ: The Surprising Benefits of Downsizing

Buy a home with a traditional, fixed-rate mortgage, and your housing expense should be mostly stable for 30 years. You might see your insurance and taxes rise, but the principal and interest portion of your payment won't change. By comparison, if you were renting, your housing costs could increase dramatically over the course of 30 years.

When you own your home, you're also building home equity as you pay down the debt and the property appreciates. That equity is an asset you can use in various ways. Ideally, you'd hold onto it and bequeath it to your loved ones. Or, if you're in a financial pinch, you could liquidate your home equity with a reverse mortgage or home equity loan.

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According to one study from the Center for Retirement Research at Boston College, the average retiree spends $4,300 a year out of pocket on medical expenses. If you save enough to an HSA, or health savings account, you can cover those costs with tax-free dollars.

An HSA is available to anyone who has a high-deductible health plan (HDHP). The IRS defines HDHPs as plans having a deductible greater than $1,400 for an individual or $2,800 for the family.

In 2021, you can contribute up to $3,600 tax-free to an HSA if you have individual coverage, or up to $7,200 if you have family coverage. You can even invest those contributions and enjoy tax-deferred earnings growth. But here's the headlining feature: All withdrawals you take to cover medical expenses, now and in retirement, are tax-free.

Dividend income provides cash flow and an inflation hedge, two things retirees need. The more dividend income you have, the less reliant you are on liquidating your income-producing assets to cover living expenses. That helps you stay solvent for the long haul.

And, if you choose dividend stocks known for raising their payouts every year, you have an increasing source of income to help counter inflation.

It takes time to accumulate a hefty stream of dividend income, so don't dally. Build your position now and reinvest your dividends while you're still working to expedite your growth.

ALSO READ: 3 High-Yield Dividend Investing Tips That Could Earn You Thousands

For the average worker who waits untilfull retirement age (FRA) to claim benefits, Social Security replaces about 40% of working income. Claim earlier and the percentage is lower; claim later and the percentage goes up.

Knowing roughly what you stand to earn from Social Security helps you shape your retirement savings goal. It also might influence when you plan to retire. To maximize your income, for example, you might wait until your 70th birthday to start collecting your benefits.

You can easily view your projected Social Security benefit at different claiming ages by creating an account at my Social Security.

There are several schools of thought on how to pull money from your savings in retirement. There's the 4% rule, which recommends taking 4% of your balance to start and then adjusting your withdrawal amount to keep pace with inflation after that. Or, you could withdraw only what your portfolio produces in dividends and interest. There's also the bucket strategy that involves segmenting your wealth into buckets for near-term, medium-term, and long-term expenses.

Don't wait until your retirement party to think about your withdrawal strategy. Plan today and you can adjust your investment program now to support the strategy you want later.

For a quick-and-dirty estimate of the savings you'll need to retire comfortably, multiply your annual income by 15. That total should replace 60% of your income, assuming you withdraw 4% annually. You'd get the other 40% from Social Security.

This is a bare-minimum savings target that doesn't allow for anything unexpected. A higher multiplier of 20 times your income gives you more cushion for things like changes to the Social Security formula, an unavoidable increase in living expenses, or disappointing growth in your portfolio.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

Start building financial independence today, so you can fully enjoy those long walks on the beach in retirement. Budget, pay down debt, and invest now to support your income needs in retirement. Those are the key money moves that can lead you to that carefree retirement you're dreaming of.

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