As you prepare to count down to a new year, have you also considered your retirement readiness?
To assist you in your planning, we consulted with Kevin Gallegos, vice president of Phoenix operations for Freedom Debt Relief, to give you a countdown of the top 10 things to do before retirement. Don’t worry—you don’t have to get it all done before the ball drops!
Count down with us….
10. Fully fund your retirement savings. (10+ years from hopeful retirement)
If you’re at least 50 years old, your employer may allow you to make “catch-up” payments to your IRA, says Gallegos. That way, you can make greater annual contributions and build a bigger retirement fund. It’s also wise to start building an emergency fund of at least 6 to 12 months of expenses in an accessible account, he adds.
9. Figure out where you stand. (5 to 10 years from hopeful retirement)
Evaluate your debts and assets, review all your investments and retirement benefits, and compare where you are now with where you need to be in order to retire, advises Gallegos. Get a current estimate of your Social Security income, and use a retirement calculator to determine how much savings you’ll need to stay afloat once you retire.
8. Decide whether to purchase long-term care insurance. (5 to 10 years from hopeful retirement)
Long-term care insurance may cover expenses that are not covered by health insurance or Medicare, says Gallegos. He recommends consulting a financial planner to determine if this type of insurance is right for you, and to find a policy that meets your needs.
7. Set expectations with your spouse. (2 to 5 years from hopeful retirement)
If you’re part of a couple, Gallegos strongly suggests you discuss and plan your retirement lifestyle together. “The stereotypical situation where one spouse envisions traveling the country in an RV while the other has sights set on cruises and vacations in Europe is all too common,” he says. Prepare to make some compromises so you can get on the same page about your future together.
6. Create (and stick to) a retirement budget. (2 to 5 years from hopeful retirement)
Rather than waiting for retirement to tighten your belt, start living on what you anticipate your post-retirement income will be, counsels Gallegos. Experts say living on 80 to 85 percent of pre-retirement annual income is a good rule of thumb. Then you can either save the rest of your income or use it to finish paying off debt.
5. Pay off debt. (As soon as possible)
Credit card debt tops the list of liabilities you should eliminate before you retire. “Paying off a credit card balance with a 15 percent annual interest rate is equivalent to earning a 15 percent return on an investment—far better than any savings fund,” explains Gallegos. “Plus, you will provide yourself breathing room on a fixed income.” Look into debt relief services if you’re having trouble making payments.
4. Protect your income. (Depends on employment status)
While you’re still working, make sure you have disability insurance in place, advises Gallegos. That way, your income will be protected in case of unforeseen circumstances. If your employer doesn’t provide this insurance, you can obtain coverage yourself until you reach retirement age.
3. Apply for Medicare. (As close to your 65th birthday as possible)
You have to be on the ball to get the most out of Medicare, the federal health insurance program for people who are 65 and older. In fact, the Social Security Administration recommends applying for Medicare three months before you turn 65. After all, some benefits decrease if coverage is not selected as early as possible, warns Gallegos.
2. Evaluate your life insurance needs. (Within 1 year of retirement)
Are you still paying premiums on a large life insurance policy even though you’re no longer supporting dependents? If so, Gallegos suggests you consider whether to redirect those payments to another source, and adjust your retirement budget accordingly.
1. Pay off your mortgage. (Within 1 year of retirement)
“A mortgage-free home can be a tremendous asset for retirement because it frees up cash that had been going to the monthly payment,” says Gallegos. If paying off your mortgage is not realistic just yet, try to accelerate the process by applying any financial bonuses, raises, or one-time windfalls to additional principal payments. You might also consider getting a reverse mortgage to increase your cash flow.
CHIME IN: How are you getting your finances ready for retirement?