So, you’ve got a decently-sized nest egg building, your debts are paid off and your estate is more or less in order. You’re approaching the home stretch to retirement.
So let’s not waste any more time — you’ve got money to maximise.
Contribute to your super
If your kids are out of the house and that house is maybe even paid off (or close to), you should start diverting some of those extra savings toward your superannuation.
So, how much is enough? “If you have not done any retirement planning with a financial planner, what are you waiting for?” asks Monica Dwyer, an Ohio-based Certified Financial Planner. “Don’t wait until you are ready to put in your retirement paperwork before you have a qualified professional look at your plan.”
To get a rough estimate of where you stand, Dwyer says you’ve got to start working with realistic numbers. Here’s a formula she suggests using to benchmark yourself:
Total income
Less any contributions to retirement accounts
Less any expenses that will go away (e.g., parking garage fee you won’t have in retirement)
Plus any additional expenses you will have now that you are retired (e.g,. will you eat out more often or travel more?)
Less taxes (estimate high because taxes are likely to go up, not down)
Total — If this total is far from the budget you have been living on, ask yourself why
And then you can see where to make improvements.
Move to Safer Harbours
“People with a shorter-term investment horizon should consider reviewing their investment portfolios and overall asset allocation,” says Roi Tavor, CEO of Nummo.com, a personal finance management platform. “Depending on one’s individual situation it might be a good time to re-allocate some of [your] equity investments.”
Kevin Ta, Senior Wealth Strategist at PNC Wealth Management, echoes Tavor, advising those nearing retirement to invest in a session or two with a financial planner to figure out what’s best for them and their family.
“Generally speaking, it may be prudent to de-risk the portfolio by transitioning out of stocks into more conservative bonds,” says Ta. “As we anticipate interest rates to rise, investors may wish to consider the benefits of shorter term bonds.”
You can model “what if” scenarios with your advisor “to compare and contrast between different portfolio allocations and their risks,” he adds.
Say No to Your Kids
This is a short but simple piece of advice. While you may want to help a child out with paying for a wedding or the down payment on a house, think about your own financial situation first. (Mum and Dad, if you’re reading this… feel free to disregard this tip.)
Protect Yourself in a Worst-Case Scenario
While divorce rates are decreasing for younger couples, so-called Grey Divorce is actually on the rise, according to the Pew Research Center. If it happens with you and your spouse, you don’t want to be caught off guard, and you’ll want to take care of it in the most painless way possible.
“Divorce can be financially devastating emotionally and also due to the additional cost of maintaining two households,” says Dwyer. Any marital assets acquired during your marriage will be split, and you’ll have a stack of legal bills to face. You can see how that might mess up your retirement plan.
Solidify Your Housing Plans
Whether it’s downsizing, upsizing or moving to a sunnier locale, you’ll want to think about where you want to live in retirement and what the possible consequences are.
If you’re planning to retire soon, downsizing may not be the financially feasible option you think it is. Inventory is slim right now and prices are high. Older people are competing with first-time homebuyers for the smaller houses available. Johannes says retirees may have a hard time finding a bank to give them a mortgage unless they already have a long-standing relationship with that bank or lender.
You may decide you want to remain in your current home and pay off your mortgage ASAP. You could try re-financing, or accelerating your payments before you retire so that you’re making one less monthly withdrawal from your retirement savings. “You could refinance to a 15-year mortgage, or you could simply make extra payments on your current mortgage,” suggests Kiplinger.
You’ll pay the equivalent of 13 monthly payments instead of 12 by dividing your payment by 12 and adding that amount to each monthly bill. Or you could simply make an extra payment at year-end. On a 30-year mortgage, making an extra monthly payment each year would reduce the term of your loan by about four years.
Pare Down Your Stuff
And one the biggest things to take control of as you consider downsizing or moving to a new place (or, heck, staying in the same house): Getting rid of your stuff.
If you’re a bit of a hoarder, or just have a hard time parting with your belongings, try a Legacy-Based Approach to your stuff, as outlined in Lauren H. Gilbert’s book, The Stories We Leave Behind (because remember, no matter how much your belongings mean to you, no one else wants them):
Meet at Mum’s place around 8 with doughnuts and coffee. Reminiscing, laughter, tears, more laughter (probably ’80s dance music in the background). Explore rooms, closets and shelves. Pause to smile or chuckle over a trinket discovered here, a special book found there.
Decide which stuff to keep, toss or donate. Angela (the firstborn) would create the list. Go to lunch. Done. Well OK, there’ll be time to box stuff, arrange for pickup and probably mop, but the hard part — identifying what was there and making distribution decisions — was done in a warm, supportive, roughly half-day experience with its own positive, affirming and hope-filled memories; before they got glossy-eyed and grumpy.
As Gilbert tells Next Avenue, tackling downsizing in this way is less about decluttering and more about “embracing the things you want to leave behind.” Your family will thank you.
“When I looked at my stuff through this new lens, I found a lot of boxes in my closets with a lot of things I’ve held on to. For example, my high school theatre stuff,” Gilbert continues. “And I thought to myself: ‘If I only have three to five themes for my life, what do I want them to be? Is this one of the main themes I want my family to know?’ The answer was: Nope. My theatre stuff became a distraction.”
Get Ready to Enjoy Some Down Time
As you approach retirement, you’ve spent decades thinking about your money and how to make it work for you. “But have you thought about how to spend your time,” asks Joleen Workman, Principal’s Vice President of Retirement and Income Solutions. “Make sure to talk with your family about what retirement will look like as you move in to this exciting new chapter.”
This could mean travelling, picking up a new hobby, doubling-down on an old hobby, working a part-time job, volunteering, spending more time with your grandkids — the options are endless. You don’t have to plan everything out — part of retirement is relaxing, after all — but don’t underestimate how much free time you’ll now have.
Are you ready for retirement?
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