You are probably 10 years away from retirement tips if you are in your 50s or 60s (give or take). Maybe you’re only a year away from retiring. Regardless of the exact time, you are nearing the finish line of a lifelong sprint to this momentous occasion.
If you’re five to ten years away from retirement, here are some things you can do now to better your situation.
Earn and save more money
As a pre-retiree, you have one last chance to save enough money to retire comfortably. When you’re only a few years away from retirement, you might be amazed at how much money you can save.
Pre-retirees should utilize the impending retirement date as motivation to work hard and save as much as possible
- Reduce your spending
- Keep track of any tax refunds, raises, bonuses, inheritances, or other unexpected funds
- Consider taking on a second job
- Look into ways to make money that isn’t reliant on you
- Attempt to save as much as possible
Max out catch-up contributions
If the fact that you’re only 10 years away from retirement isn’t enough of an incentive, keep in mind that pre-retirees are eligible for additional tax benefits. By raising the contribution limits to 401(k) and IRA accounts, the government encourages people over 50 to save more than younger workers.
The IRS claims that:
- Anyone over the age of 50 can contribute up to $6,500 to their 401(k) account through catch-up contributions. This is in addition to the contribution cap of $19,500. So, in a given year, you can contribute a total of $26,000 to these accounts
- The yearly contribution limit for an IRA is $6,000, or $7,000 if you’re 50 or older
Don’t just rely on 401(k) or IRA – open both
You can contribute $26,000 to your 401(k) and $7,000 to an IRA once you turn 50. Do you have a spouse? By double those figures, you can save $66,000 per year in tax-advantaged accounts.
Your savings, however, do not have to end there. If you have more money than you need, put it in taxed savings. You’ll be glad to have the money later.
Check with your parents if you are getting an inheritance
According to Charles Schwab research, more over half of young adults (53%) believe their parents will leave them an inheritance, compared to the average of 21% of those who got any form of bequest between 1989 and 2007.
If you’re counting on an inheritance to help you fund your retirement, you should talk to your mother, father, aunt, or uncle about it. Medical prices have risen dramatically, and it is common to hear stories of families who have spent every last dollar because they live longer than planned or need to enter assisted living, which may be extremely costly.
You may also wish to take precautions to safeguard the inheritance. For your parents, you might want to consider long-term care insurance or life insurance.
Get rid of debt
Debt can be a major issue in retirement. It’s best to stand out from the crowd and work hard to pay off your debt before you retire.
The Employee Benefit Research Institute (EBRI) estimates that 77 percent of families headed by adults aged 55 and up are in debt. In addition, the average debt is $108,011.
In retirement, your income is usually limited to a set amount, which is obtained from Social Security, pensions, and other retirement resources accumulated over time. A fixed income means you won’t have any more money to pay off your debt tomorrow than you do today. You’ll just end up paying more interest and waste money each month you keep the loan.
Plan for medical needs
If you’re approaching retirement in the next ten years, you should seriously consider your future health-care bills. You should think about three different types of spending:
- Early Retirement Health Care: If you retire before the age of 65, it might be costly to pay for health care until you are eligible for Medicare. “9 Ways to Cover Your Health Costs for an Early Retirement” is a good place to start.
- Medicare: If you believe Medicare will cover everything, you are misinformed. According to Fidelity, a 65-year-old couple retiring in 2021 would require an estimated $300,000 in health-care costs.
- Long-Term Care: While not everyone will need long-term care, everyone should have a plan in place to pay for it if they do.
Maintain the ‘Right’ asset allocation
According to some experts, as you become older, your investments should become more cautious. Most financial advisors, on the other hand, recommend that you strive to produce returns that will allow you to stay up with inflation, if not outpace it.
Your asset allocation will be determined by your objectives, time horizon, and overall financial profile. Learn how to design the optimum asset allocation strategy for you using simple methods.
However, in addition to asset allocation and return concerns, now is the time to start thinking about retirement income planning.
Consider your own needs before helping your children and aging parents
When you’re five to ten years away from retiring, you’ve got a lot of mouths to feed: your own right now, saving for the future, kids in college, and parents who are facing financial or medical challenges or who are in long-term care.
If you can’t afford to pay for everything, you’ll have to prioritize and make compromises. Because there are loans for college and some choices for public help for long-term care, many financial counsellors will suggest saving for retirement over spending on family because there are no financial options for paying for retirement other than working and saving.
