Retirement is something that many people think about from practically the time they start working.
Too often, though, people put the actual planning for retirement off until it’s much later and they have to play catch-up.
Luckily for you, I have a 5-year countdown plan that will take you through every step of preparation and ensure you’re ready for the retirement of your dreams, both mentally and financially!
5 Years to Go:
The first thing you must do is to see exactly where you stand financially.
This is often the scariest step for people, particularly if you already have a feeling that you might be behind where you ought to be.
However, you have to leave that fear behind and get serious about looking at your finances.
I promise you that if you’re willing to do this first step when you still have five years until retirement, you’ll be able to have your best retirement regardless of where you stand right now.
Take a look at the amount of money you have saved currently and add in social security benefits and any pension income you may get.
Is that total amount enough for you to live off of in retirement?
Even if you end up deciding that it’s not enough cash to pay for your expenses in retirement, don’t worry.
You have options, whether that means working longer than you’d originally planned, increasing your retirement contributions, or looking at your overall asset distribution and potentially altering it.
4 Years to Go:
During this year, consider your planned living arrangements in retirement.
If you’ve thought about living in a retirement community at some point, now is the time to start looking into it.
Many wait lists for retirement communities are several years long, so don’t worry about starting the process too early.
It’s also important to consider at what age you’d want to enter a retirement community.
The age, and level of health, at which you enter a retirement community is very important.
You don’t want to go too early and miss out on the freedoms that you’re still very able to take advantage of.
On the other hand, you don’t want to go in too late, and have missed out on the friendships and social groups that have already cultivated, or be in a state of health that prevents you from taking advantage of the community’s amenities.
When you’re at the “4 years to go” point, you should also think about long-term care, and if long-term care insurance is something you’ll need to consider.
For many people, long-term care insurance isn’t something that they’ll really need.
It’s important to talk to your physician about long-term care options, and consult an insurance agent to find out what the costs would be like and what the process would be.
This is also a good time to look over your will and make any adjustments.
At this point in your life, things are largely settled—you’re not having any more children, and you’re nearing the end of employment.
3 Years to Go:
Now is when you start considering what retirement will actually be like for you.
If you remember in an earlier “Retirement Calculator” article, I talked about taking a retirement “trial run” where you take time off from work to start imagining what it’ll be like to be retired every day.
This is also the time when you can start preparing for retirement and laying the groundwork to ensure you still have an active and social life once you stop working.
Take some classes at the community center, join social groups, or explore new hobbies now while you’re still working.
That way once you retire and no longer go to work every day, your life will still feel full and you won’t have to start from scratch in terms of what to do every day.
You should also take a look at your house—regardless of whether you plan to stay in it or sell it once you retire, now is the time to start on any upgrades or renovations you want to do.
2 Years to Go:
Before this year is up, rerun all the numbers on your retirement savings including the money you’ll receive from social security and any pension income.
Do this either through an advisor or using an online retirement calculator so you can really see where you stand.
During this year you should also practice living on whatever your retirement income will be.
Once you do those calculations to see how much money you’ll receive every month, practice using only that amount for several months.
It’ll let you know where you stand and how realistic that amount is for you to live on and get the retirement you want.
This has proven to be a very helpful exercise for people nearing retirement.
If you realize that the current monthly retirement income you’ll receive isn’t enough, you may decide to keep working a couple extra years, or work part-time a few years into retirement.
1 Year to Go:
This is when you figure out what your health insurance needs are and what you’ll need to do about it in retirement.
Medicare kicks in at 65, and you should look at what your current employer’s process is for continuing employer health insurance.
You could also look into signing up for Cobra health insurance. You should consult an insurance broker to find out what your options are and what the costs would be.
If your current retirement savings are looking good, then consider getting out of some of your stock holdings.
While the stock market can return larger profits, it’s also0 much more volatile than bonds or cash.
Think back to the people who had the majority of their retirement savings in stocks in 2007, and then the crisis of 2008 hit and they watched their entire retirement dry up.
So long as you’re in an okay position, you should try and take some of your savings out of stocks and into cash, where you know it will be safe from any market movement.