As a Certified Financial Planner™, I get to work with many wonderful couples in their late 40s, 50s and 60s who are planning their retirement. Many hope retirement will allow them to volunteer for a cause close to their heart, travel more domestically and internationally, try out a new job, spend more time with their kids and grandkids, exercise more, develop and expand their hobbies and meet new people who are experiencing retirement as well.
To achieve your retirement dreams later in life, you’ll need to start planning many years ahead of time to minimize financial obligations later on, put the right safeguards in place and ensure your retirement years are secure. Here are nine things to consider when planning for your retirement:
1. Credit cards paid off. Taking care of your debt obligations is a good thing to do pre-retirement, but in retirement it’s crucial.
2. Living expenses fund. The emergency fund that you’ve been building for years now becomes your backup living expenses fund. If the stock market has a down year, this allows you draw on this fund instead of selling stocks when their value is low.
3. Equity loans and lines of credit on your home. These should be paid off, primarily to reduce your fixed expenses, and will give you more flexibility with your monthly income needs.
4. Home loan. It’s nice to have your home loan paid off or close to paid off, once again to give you flexibility in your retirement cash flow needs.
[Check Your Credit: Don't Guess. Know.® Get your free credit report and score. No credit card required.5. Tax strategies. Consider diversifying some of your tax deferred retirement funds (Retirement Deductible or Nondeductible IRAs) to Roth IRAs. Roth IRAs may offer tax benefits in retirement (the pros and cons of the Roth IRA should be reviewed first). Consider tax exempt investment options. Regular taxable retirement funds also offer flexibility in managing your tax liability during retirement.
6. Fixed expenses. Develop a budget planner before you retire so you will know your fixed expenses such as food, utilities, taxes, car and home maintenance. Retirees may feel more secure if they know the majority of these expenses may be covered by Social Security, company pensions and possible low-cost annuities. A word of caution on annuities, though, because they may carry relatively high costs compared to other investments. So, prepare to do your research!
7. Discretionary expenses. A withdrawal plan from your 401(k) or IRA savings may be used to fund your travel, hobbies, helping your children and other fun activities.
8. Back-up plan. Consider what kind of a part-time job might work for you and your spouse, or other ways you might earn money in retirement, just in case life doesn’t go the way you planned.
9. Transition process. Finally, and most importantly, consider avoiding an abrupt change from work to retirement. Check out part-time jobs, volunteer opportunities, new social groups, start exercising, develop your hobbies and travel a little before you retire.
All couples have a unique set of circumstances. For some, the above listed ideas will not make sense. The same rules do not work for everyone, just as the same hairstyle does not make everyone beautiful!
This is an opportunity to plan ahead so you can make your retirement the most fulfilling, exciting time of your life. Take advantage of it.
Heidi Davis is a Certified Financial Planner™ professional licensed with a registered investment adviser that provides personal financial advice online for a fee. A former commercial lender, she helps her clients with investment reviews, financial and retirement planning issues. Contact Heidi for help with virtually any financial need.