Sometime in your mid to late 50’s, as you sail through midlife, the look-out posted in your mental crow’s nest will catch a glimpse of something faint in the distance and bellow, “Retirement, ho!” Grabbing your mind’s eye spyglass, you’ll scan the horizon and confirm that call. You are just ten years away from pulling into that most glorious port – retirement.
Now is the perfect time to do a stem-to-stern review to ensure that you are on course and speeding towards your destination with utmost efficiency. Here are five things to focus on:
1. Check your coordinates. The first step on a successful voyage to retirement is to know where exactly you are headed. What do you want your post-career years to look like? Will you travel extensively? Start a new business? Relocate overseas? Stay home and read and garden? How much financial help do you want to lend your kids and grandkids? Ideally, you did this years ago. If so, revisit that chart and incorporate any changes or new plans. If not, sit down with our spouse tonight and get your vision on paper.
2. Figure out how much canvas to hoist. Now that you know where you are headed, you can calculate how much you need to save to reach your objective. Put lots of time and effort into this math. Miscalculating how much money you need to fund your post-career life is a dangerous mistake. Arriving at your office going-away party with an under-funded retirement is no fun – scary and no fun.
As you calculate (or recalculate) be sure to consider our extended longevity. You could be retired for 30 years. Consider, too, any health issues and associated medical costs, the tax bite and the need to maintain an emergency fund in case you (or a loved one) get into a jam.
If you aren’t saving enough, you have two choices: dramatically increase your annual savings rate over the next ten years, or work a few more years until you hit your savings number. If you are behind, be sure to take advantage of the “catch-up” provisions that allow those 50-plus to contribute an additional $6,000 annually to their 401(k) and an extra $1,000 to an IRA.
3. Scrape off the mortgage barnacle. You don’t want to lug a mortgage into retirement, where it will be a drain on your resources and a psychological burden. If you can pay off your mortgage now using no more than one-third of your non-retirement savings, consider doing that today. Example: If you owe $40,000 on your house and have $150,000 saved outside your 401(k) or IRAs, paying your mortgage will free up money every month in retirement and eliminate one more worry in your post-career life.
4. Fire up the boiler and get out the oars. Sailing ships are great, but those with additional power sources — engines or oars – are faster and more reliable. Similarly, retirements funded by multiple revenue streams offer more security, stability and resources.
Yes, savings will likely provide the bulk of your retirement income. But your post-career life should also be funded by some or all of the following: Social Security, a part-time job, rental property income, and income generated by your investments.
Start thinking about these things now: Think what type of part-time job or consulting work might interest you? Strategize to maximize your Social Security payment by delaying the start of your benefits. Explore the idea of buying a rental property. What about renting your current place if you are going to downsize?
5. Become an income investor. For most of your saving career, your portfolio should be focused on growth assets. But as retirement looms into view, more of your money should be directed into assets that will generate income – stocks that pay dividends, bonds, and such alternative investments as real estate investment trusts and MLPs, which pay you a share of the royalties paid to transport or store oil and other energy materials. While you are working, the income from these assets can be reinvested to grow your nest egg. Once you retire, that income can be directed into your bank account to help fund your lifestyle.
Bonus: Bond with the junior officers on the ship. You may be the captain of your career, but some of your junior colleagues will surely rocket up the ranks in the next decade putting them in a position to potentially decide your workplace fate. Assuming you want to leave on your own terms, this is the time to start building a relationship with subordinates by sharing your experience, mentoring them, or even asking them to teach you a new trick or two.
Apply these simple strategies and this last decade before retirement will position you to enjoy smooth seas and high tides for the rest of your days.
Will you have enough to retire? Use our Retirement Calculator to learn more about your retirement options.