Retirement should be like a second childhood … without parental supervision. I believe that’s doable for most people, but it takes planning.
Luckily, you can begin right now by taking these steps:
No. 1: Decide where you want to live.
Think about the retirement lifestyle you desire, and find a location that supports it. If you want to travel, you may opt to downsize to a condo. If you want peace and quiet, a small town could be the ticket. If you want to have more money at your disposal, you might want to move somewhere with lower taxes and a lower cost of living.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
No. 2: Practice retirement now.
After you retire, you no longer have somewhere to go every day. You’re cut off from your typical social network. It can be a surprisingly difficult time. Try to avoid post-retirement depression by contemplating what you want to do and beginning it now.
Would you like to volunteer for your church? Start now. Interested in teaching for a university? See if you can teach a class now. By practicing your retirement, you can find out what you really want to do (it may not be what you think), and meet new people, too.
No. 3: Retire your debt.
I believe that when you are retired, so should your debt be retired. If you have no mortgage, no car payment and no credit card debt, most of your expenses will be variable costs you can control. Wouldn’t that feel great? Want to begin now? Make a list of all your debts, then rank them by highest interest to lowest. Depending upon the terms and conditions of the loans, it usually makes sense to start paying off the highest interest debt first and work your way down until you have paid off all your debt.
No. 4: Reconsider your risk profile.
Once you’re five years away from retirement, I believe you need to adopt a defensive investment philosophy. You may have invested more aggressively while you were growing your money. However, now would be the time to diversify and reduce your risk to help avoid losing a big chunk of your retirement to a bear market. We recommend and often employ several defensive strategies with our Money Matters clients, such as rebalancing their portfolios quarterly; reducing their exposure to equities; and creating stop-loss strategies to mitigate downside risk.
No. 5: Think about health care.
It's an unfortunate fact of life: Health care becomes more critical (and potentially expensive) as we age. Don’t forget to include it in your plans, especially if you want to move or travel extensively. For example: Medicare may not pay for expenses incurred outside of the United States, so you might consider buying a private insurance policy to fill that gap.
No. 6: Make a budget.
How much money will you need to support the lifestyle you want? I suggest you come up with two numbers. The first is the amount you need to cover the things you need, like food, housing and health care. To get your second number, add the costs of the things you want — like travel or a club membership. Create a financial plan that gives you a high probability of achieving the necessities, and then add the luxuries if possible.
No. 7: Apply for Social Security ahead of time.
If you’re waiting until your full retirement age to collect Social Security, it’s recommended that you apply at least three months before you want your benefits to start (you may apply as early as four months before your full retirement date). Make sure you have all the documentation needed. You can find a list of required documents here.
No. 8: Consider rolling over your 401(k).
After years of pumping money into their 401(k)s, workers approaching retirement have some decisions to make. Transferring money out of a 401(k) to an IRA could increase investment options, allow for more flexible estate planning and offer more distribution options.
When making any decision about moving your money, make sure to take into consideration your age, current financial status and costs involved. It may not be the right time for you to roll over your 401(k), but it is the right time for you to study your options.
-
Ask the Editor — Tax Questions on Inherited IRAsAsk the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on the rules on inheriting IRAs.
-
I Asked Experts When It's Worth Splurging on Beauty and Skincare — and When You Can SaveSmart Shopping Experts agree that while you don't have to spend three figures on your products, some higher-priced items have value.
-
Retiring Early? This Strategy Cuts Your Income Tax to ZeroWhen retiring early, married couples can use this little-known (and legitimate) strategy to take a six-figure income every year — tax-free.
-
Ditch the Golf Shoes: Your Retirement Needs a Side GigA side gig in retirement can help combat boredom, loneliness and the threat of inflation eroding your savings. And the earlier you start planning, the better.
-
Roth IRA Conversions in the Summer? Why Now May Be the Sweet SpotConverting now would enable you to spread a possible tax hit over more than one payment while reducing future taxes.
-
A Financial Expert's Three Steps to Becoming Debt-Free (Even in This Economy)If debt has you spiraling, now is the time to take a few common-sense steps to help knock it down and get it under control.
-
I'm an Insurance Expert: This Is How Your Insurance Protects You While You're on VacationHere are three key things to consider about your insurance (auto, property and health) when traveling within the U.S., including coverage for rental cars, personal belongings and medical emergencies.
-
Investing Professionals Agree: Discipline Beats Drama Right NowBig portfolio adjustments can do more harm than good. Financial experts suggest making thoughtful, strategic moves that fit your long-term goals.
-
'Doing Something' Because of Volatility Can Hurt You: Portfolio Manager Recommends Doing This InsteadYes, it's hard, but if you tune out the siren song of high-flying sectors, resist acting on impulse and focus on your goals, you and your portfolio could be much better off.
-
Social Security's First Beneficiary Lived to Be 100: Will You?Ida May Fuller, Social Security's first beneficiary, retired in 1939 and died in 1975. Today, we should all be planning for a retirement that's as long as Ida's.
