10 Steps Investors Should Take to Prepare for Retirement

Retirement can be one of the most joyous times of your life, but planning for it can be stressful. It can take decades to prepare for your senior years, and simply saving for retirement is only one part of the equation. To ensure you're as ready as possible, there are 10 steps you should be taking before you retire.

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The age you choose to retire will affect your entire retirement plan -- from how much you need to have saved, to how much time you have to prepare, to how much you might receive in Social Security benefits -- so it's crucial to make this decision carefully. Your finances will play a major part in choosing when to retire, since retiring before you're financially ready can be disastrous. But it's also important to think about your health as well as your retirement plans. If you would like to travel the world during retirement, for instance, you may choose to retire earlier while you're still relatively young and healthy. But if you're in fantastic physical shape and expect to live a long and healthy life, you may be able to afford delaying retirement.

ALSO READ: 3 Factors in Determining Your Ideal Retirement Age

Once you know what age you'd like to retire, make sure your savings target is still accurate. One of the easiest ways to do this is to run your information through a retirement calculator, which will give you an idea of how much you'll need to save by your desired retirement age, as well as how much you'll have to save each month to reach that goal. If your current contribution rate doesn't align with what you should be saving to achieve your goal, you may need to tweak your budget to find some extra cash to put toward your retirement fund.

As you're considering what age to retire, it's also important to think about when you'll begin claiming Social Security benefits. You can file for benefits as early as age 62, but the longer you wait (up to age 70), the more you'll receive each month. The average beneficiary receives around $1,500 per month, according to the Social Security Administration, but claiming earlier or later can affect your benefit amount by hundreds of dollars per month. To get an estimate of how much you can expect to receive, you can check your statements by creating a mySocialSecurity account. From there, you can determine just how much you'll be able to depend on your benefits in retirement.

Once you turn 50 years old, you can supercharge your 401(k) and IRA contributions. Normally, investors are allowed to contribute up to $19,500 per year to their 401(k) and $6,000 per year to their traditional or Roth IRA. However, those who are age 50 or older are eligible for catch-up contributions, which means you can save an additional $6,500 per year in your 401(k) and an extra $1,000 per year in your IRA. If you're behind on your savings or just want to give your investments an extra push before retirement, catch-up contributions can help you build a much stronger retirement fund.

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The average retiree can expect to pay around $4,300 per year in out-of-pocket healthcare expenses, according to a study from the Center for Retirement Research at Boston College. Even with Medicare coverage, you'll still be responsible for some out-of-pocket costs, including premiums, deductibles, copays, and coinsurance. In addition, you don't become eligible for Medicare until age 65, so if you retire before that, you'll need to have a plan for how you’ll cover healthcare expenses.

ALSO READ: What Will Healthcare in Retirement Cost You? Try $295,000.

In general, the closer you get to retirement, the more conservative your investment portfolio should be. That means as you get older, your portfolio should shift more toward bonds and less toward stocks. Just how much you should invest in stocks versus bonds, though, largely depends on your tolerance for risk. Although bonds are "safer" investments, they generally see lower rates of return than stocks. So it's important to balance risk and reward as you're investing to ensure you're playing it safe enough without sacrificing too much in potential gains.

Nobody knows whether a stock market crash is on the way or not, but it's important to consider how a market downturn could change your plans. If the market were to crash just before retirement and your savings took a hit, could you still afford to retire? Would you be able or willing to delay retirement by a few years? If you choose to retire during a market downturn, could you make financial sacrifices while your investments recover? By thinking about these questions now, you can create a strategy just in case the market does crash as you’re preparing for retirement.

When it comes to preparing for retirement, saving is only half the battle. An equally important factor to consider is how much you'll be withdrawing from your retirement fund each year, because that will directly affect how long your savings last. The 4% rule is one common guideline, and it states that you can withdraw 4% of your total savings during the first year of retirement, then adjust your withdrawals each year after to account for inflation. The 4% rule does have its flaws (for instance, it assumes you'll be spending the same amount each year in retirement, when in reality, many retirees see their expenses fluctuation year to year), but it is a good benchmark to determine roughly how much you can safely withdraw each year.

Unfortunately, even in retirement, you may not be able to escape taxes. If you're saving in a 401(k) or traditional IRA, you'll owe income taxes on your withdrawals once you retire. In addition, you could face both state and federal taxes on your Social Security benefits depending on where you live and your retirement income. If you're not prepared for these taxes, they could potentially throw off your retirement plans.

ALSO READ: Want to Lower Your Taxes in Retirement? Do This 1 Thing.

Approximately 40% of adults age 55 and older say they'd like to move at least once more, according to a survey from Freddie Mac, and moving during your senior years can dramatically affect your retirement plans. If you move somewhere with a significantly higher or lower cost of living, that could have an impact on how long your savings last. It's also important to think about how factors like property taxes or income taxes differ between your current city and your prospective city, because that can also affect your long-term finances. So if you're thinking about moving, make sure you've done your homework and are accounting for how these changes could affect your retirement plans.

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As you're planning for retirement, it's important to have a strategy in place. By thinking about all the expenses you may face in retirement and adjusting your plans accordingly, you'll give yourself the best chance of enjoying your senior years comfortably.

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