If retirement is on the horizon, there’s a lot to think about. For one thing, you’ll need to take a more active approach to building your retirement nest egg, such as by making catch-up contributions to your retirement plan while you’re still working.
Once you have a general idea of when you will retire, this retirement planning checklist can help you get ready as you count down the years until you start this exciting new chapter.
10 Years Until Retirement
Right now, you may be focused on more immediate concerns like your job or making home improvements. But you should also start thinking about your retirement finances in greater detail.
- Consider your retirement budget. Break down your potential expenses in retirement to assess your savings and see if your target retirement date is realistic. Account for factors like projected inflation, taxes and life expectancy. Your budget should include standard living expenses and other expenses that would come with the retirement lifestyle you envision. For some people, expenses go up early in retirement because they now have the freedom to pursue activities that they didn’t have time for during their working years (such as traveling).
- Pay down debt. It’s best to take care of this while you’re still earning a salary. Paying off debt saves you money on interest and frees up more retirement income later. Start with debts that have the highest interest rates, like credit cards or loans you took out to help your child pay for college.
- Diversify your portfolio. At this stage, your investment portfolio should be well-diversified based on your risk tolerance. While your portfolio management approach shouldn’t be too conservative yet, make sure you’re not overly exposed to market downturns.
5 Years Until Retirement
You still have a little time to take helpful financial steps before retirement.
- Create your retirement budget. Use receipts and account statements from the past year to estimate your monthly expenses in retirement, from groceries to pet care. If you’re retiring before age 65, also budget for the cost of health coverage until you’re eligible for Medicare. Next, take stock of your retirement income sources, such as your pension and Social Security. Use a retirement budget worksheet to compare your retirement income to your potential expenses.
- Keep reducing debt. Pay off debt where you can, such as loans against your 401(k). You should aim to go into retirement debt-free, though paying off your mortgage early may not be the best use of your money unless you’ve paid off your other debts and are already maxing out your retirement plan contributions.
- Reduce risk in your portfolio. While it still makes sense to hold a mix of stocks, bonds and other assets, you should start adjusting to a more conservative investment mix.
1 Year Until Retirement
With only one year left, double-check your retirement finances to make sure you’re still on track.
- Refine your retirement budget. Revisit your budget and update it as needed based on inflation and your current expenses. If you’re relocating to another city, account for that area’s cost of living. Also, set up a withdrawal plan for your sources of retirement income (such as your retirement plan). You should have a good idea of your retirement budget, but you’ll want to test it out. Try living off your planned retirement budget while you’re still working. If it’s hard to stay on budget, rethink your planned lifestyle in retirement or consider phasing into retirement by working part-time for a while.
- Pay off debt and get expenses out of the way. Your last working years are often your highest-earning years. They’re a smart time to complete home projects and big purchases, like a roof replacement or buying a new car, in addition to paying off debts. This way, you’ll have fewer expenses when living on a fixed income. Before retiring, some people get dental work done while they’re still on their employer’s plan, since this won’t be covered by Medicare.
- Meet with a Wealth Management Advisor. At this stage, it would be helpful for you to review your asset allocation strategy to see if it aligns with your overall retirement goals. Your Wealth Management Advisor can partner with you to determine if your retirement strategy is sustainable and help you make any necessary changes if needed.
Stay Ready
For some people, retirement comes sooner than expected. This may be because of unexpected factors like a layoff or health issues. It’s wise to build an emergency savings fund with at least a year’s worth of expenses in case you must retire early.
Everyone’s situation is unique. Having an experienced banker by your side can be especially valuable as you prepare for retirement and other major goals. Explore Amegy Bank’s wealth management services, then connect with an Amegy banker.