You’ve gone past the big 5-oh, and now your retirement planning has reached crunch time. The result of a lifetime of money habits will soon make itself abundantly clear. If you set a retirement savings target but have been neglecting it, you need to dust it off for a careful review. “You should be looking at your plan periodically, at least every three years,” says Dick Bellmer, past president of the National Association of Personal Financial Advisors.
Once you’ve reacquainted yourself with the financial destination you want to reach, take these steps in your remaining pre-retirement years to make sure you get there.
1. Set realistic goals
First item for consideration: Your savings and investments thus far. Hopefully, you’ve been stashing funds away consistently, making maximum contributions to things like 401(k) plans and IRAs, as well as other accounts.
How much is enough? That depends on your lifestyle and expenses, potential medical bills and the kind of support you’ll have from, say, a pension plan and Social Security. But, as you review your savings goals, be careful not to set the bar too low. According to Fidelity Investments, investing professionals recommend that you reach retirement with savings of at least 10 times your last full year’s worth of income from work. But nearly three-quarters of Americans underestimate that need, a Fidelity survey found.
“People typically don’t downsize,” says Harold Evensky, CFP professional in Coral Gables, Florida. “It’s not uncommon for them to spend more in retirement than less.”
2. Call in the experts
It may be a good idea to seek a little professional guidance to ensure you’re setting realistic goals. When the Employee Benefits Research Institute asked people in a survey what was the most helpful thing they did to save, most said it was hiring a financial adviser.
Ray Ringston, 79, says hiring his financial adviser was one of the best moves he’s made. “I’ve never been interested in the money game,” says Ringston, who calls the prospect of managing investments “boring.”
Instead, Ringston hired an independent investment adviser to do the job. “He’s done exceptionally well, and I believe he’s trustworthy. If I had to do it over again, I would have tried to find someone in my 40s.”
3. Take advantage of catch-up contributions
One of the first things a pro will encourage you to do is to keep saving. If you’re still working and over 50, there are ways to catch up. You can begin putting more money into tax-sheltered retirement accounts such as 401(k)s and IRAs. In 2017, individuals age 50 or older can save up to $24,000 in a 401(k) and up to $6,500 in an IRA.
Take advantage of these opportunities. “It’s not hopeless!” says Dee Lee, CFP professional and author of “Women & Money.”
To illustrate, Lee describes a couple who decide they need to do some belt-tightening. If each contributes $10,000 a year to a 401(k) plan, they’ll have about $90,000 each after seven years, assuming the money grows by 7 percent a year.
Now for the caveat: In order to earn that 7 percent, you’ve got to be willing to take on some risk. Historically, stocks have earned just over 10 percent a year, while bonds have clipped along at roughly 5 percent. If you’re unwilling to invest in stocks, you may well wind up short of your goals.
“The question besides ‘What do you need?’ is ‘What is your risk preference?'” Bellmer asks. “It doesn’t matter that you might need a 10 percent rate of return. You might not be able to handle the risk associated with that.”
Nevertheless, bold or not, planners will say most people in their 50s are too young to flee to the safety of cash instruments. “This is not the time when you go to cash,” says Ellen Rinaldi, chief security officer at mutual fund group Vanguard and the firm’s former head of investment counseling and research. “You may stay 50-50 in stocks and bonds. But you’re going to need growth in your portfolio.”
4. Time your exit
Savings and investments alone may not be enough to adequately fund your retirement. Planning means making some vital life decisions, too.
You may want, or need, to delay retirement. If so, you’ll have plenty of company. These days many workers are opting to “downshift” into retirement by working part-time or workng longer than they’d originally planned. A September 2016 Bankrate survey found that 70 percent of Americans plan to work “as long as possible.” And only around half expect that will mean retiring in their 60s.
Delaying retirement doesn’t just mean the potential for more earnings. It also affects Social Security benefits, which are based both on your earnings and age you start tapping into them. If you were born by 1938, you qualified for full benefits by age 65. But individuals born after then will have to wait longer — up to age 67 for those born after 1960. If you draw benefits earlier, you’ll see reduced benefits over your entire lifetime.
Meanwhile, other retirement funds, such as a 401(k), IRA and Roth IRA, generally make you wait until age 59 1/2 before you can cash out. If you jump the gun, you’ll usually owe a 10 percent early withdrawal penalty.
One bright spot: You may find it easier to find work, or stay at your current job, as you get older. Instead of pushing older employees out the door, many companies are finding that they need to retain experienced individuals to fill staffing gaps, says Tim Driver, CEO of RetirementJobs.com.
“It’s a supply-and-demand issue,” he says. “There’s a much lower supply of younger people coming into work. Then, because of longevity, there’s a whole new need for people to work longer. People find they didn’t save enough. Work is a fundamental and new part of retirement.”
5. Tackle debt
Part of the equation when you quit work is lingering debt. By the time you’re 50, one big debt hurdle you may have left to clear is your mortgage.
Once, mortgage-burning parties were common, a fun way to celebrate the achievement of owning your home free and clear. But that rite of passage is becoming less common. Nearly 7 out of 10 households in the 55-to-64 age bracket had mortgage debt in 2011, according to a study from Harvard University’s Joint Center for Housing Studies.
There are arguments both for and against paying off your mortgage as quickly as possible. You may well be able to earn more plowing money into the stock market. That, of course, is the argument made on paper. In real life, most retirees find it too difficult to quit and keep paying for their home.
“It comes down to whether you look at your home as a home or an investment vehicle,” Vanguard’s Rinaldi says. “But going into retirement with a large mortgage is not the best situation.”
6. Prepare for the unexpected
Safeguard your finances against unexpected medical costs. Some hefty medical bills can quickly eat up a lifetime of savings.
A couple in their mid-60s will need $275,000 to cover health care costs in retirement, according to a 2017 Fidelity Investments estimate. Then there’s the stratospheric cost of extended care at nursing homes. A report from Genworth says the median annual cost of a semi-private room in a nursing home is $85,776 in 2017. With that in mind, retirement planning must include some consideration of future medical costs.
One option is long-term health insurance, which pays for extended medical care including such things as nursing and assisted living — which can be expensive. “It has to be easily affordable not just for today, but for whole premium period,” says Marilee Driscoll, founder of Long-Term Care Planning Month, a public-awareness effort each October.
Ray and Pat Ringston decided long-term care insurance was too pricey. But they did safeguard against health care costs by purchasing an insurance policy that supplements their Medicare benefits with extra prescription drug coverage.
“Retirement is like a two-edged sword,” Ray Ringston says. You’re looking over your shoulder, he says, concerned that something drastic could happen to you or your partner that could wipe you out financially. But you’re also enjoying the freedom of doing what you want.