We’ve heard about the Roaring 20s, but how about the Roaring 60s? I’m talking about your 60s – the decade when retirement moves from dream to reality.
Here is my list of the five things you need to address in the run-up to retirement, whether you plan to turn in your office key at 60 or 69. These tasks run the gamut from financial to personal. Together they provide a holistic approach to making the most of your post-career years.
1. Have a Comprehensive Financial Plan
You’ve got to know where you’re going in order to get there. Almost everyone approaching retirement has rough sketch ideas of things like how much they want to travel, where they want to live, and (hopefully) how they want to spend their newfound free time.
Great! Now it’s time to ask whether your budget support your ideal lifestyle, plus such basics as housing, food, and healthcare.
Take into consideration things like Social Security benefits, any pension you may have, and the income from your investments. Remember how I preach the benefits of income investing? Here’s where that strategy really pays off. Include the money your investments throw off in the form of dividends and interest here. Next, calculate how much money you’ll need to withdraw from your investments to make your budget work.
Is this number realistic, or would it leave your nest egg tapped in just a decade or so? If you’re running thin on savings to meet your monthly retirement needs (and wants), consider working a few more years, or taking a part-time job to supplement your income. Also, think about saving more and making catch-up contributions to fatten your retirement accounts. Then, when the time is right, you can step away from retirement with true financial independence.
2. Maximize Your Social Security
The goal is that you won’t be relying entirely on Social Security benefits to fund your retirement. But that doesn’t mean you don’t want to make the most of this slice of monthly income.
Your specific benefit will be determined by your earnings over your working career plus the age at which you choose to start receiving benefits. Spousal benefits, on the other hand, are based on your spouse’s earnings and your age. Remember, you can start as early as 62 and delay as long as 70. But, the longer you delay claiming your benefits, the larger your monthly check will be.
I suggest visiting the Social Security Administration’s website and using their online calculators to help estimate your benefits at various ages. You can also consult with a financial professional to develop a strategy for you as to when is best for you to start taking your benefit. Remember, this income will last the rest of your life. So, it pays to maximize it as best you can.
3. Top off Retirement Savings
Try to maximize all of your tax-favored accounts. This point means contributing to your 401(k) and making catch-up contributions, and, if you are eligible, maxing out a Roth IRA account. Once you are 50-years-old, you become eligible to make catch-up contributions. Say you already invest the maximum yearly amount allowed of $18,500. With catch-up contributions, you could put in an extra $6,000 for a total of $24,500 annually. For Roth and Traditional IRAs, you can contribute an extra $1,000 for a total of $6,500, per year.
4. Set Yourself Up for Financial Freedom
There are a lot of strategies out there for retirement planning and investing. One of my favorites is Income Investing.
Income investing focuses on generating cash flow from your investments. This may include holdings such as stock dividends, bond interest, or similar types of assets. This income is reinvested to accelerate the growth of your portfolio until you retire when it then can be redirected to provide you with a nice “paycheck” to help meet your spending needs.
Investment income commonly comes from three places: dividends from stocks, interest from various types of bonds, and distributions that come from a variety of investments that do not fall exactly into the stock or bond category. At Capital Investment Advisors, we use “The Bucket System” to explain in easy terms where your liquid investments should go to generate the level of income that you need. You can read more about it here.
5. Have a Plan for Living Your Ideal Retirement
From the research for my book, You Can Retire Sooner Than You Think, I found that the happiest retirees are those that have passions and hobbies – what I call core pursuits – that they love doing and that they do often. In fact, the happiest retirees have an average of 3.6 core pursuits, while the unhappy camp has only 1.9. Core pursuits work best when they are social; activities like playing sports and volunteering ranked high on the happy list, while more solitary endeavors ranked high on the unhappy list. And, take a vacation or three! In keeping with keeping busy, the happiest retirees reported taking an average of 2.4 vacations per year, while the unhappiest took only 1.4.
What’s important here is that you not only have a financial plan for retirement but a personal one as well. It pays to think about how you want to spend your days when you aren’t spending a third, or more, of your time at the office. Be mindful of what some of your core pursuits are, and do them!