“A Checklist a Decade Away from Retirement”

For many individuals, saving for retirement is not high on their priority list until those years begin to come into focus.  As you begin the count down to retirement, the pressure can mount, and nerves can start to set in.  Questions begin to swirl such as: Have I/we saved enough? Did we take too many risks with our investments? Am I covered for insurance after I leave my employer? What if we have another market collapse in the next ten years? These questions are fair, and planning for retirement is not a straightforward process, but following this checklist is a good place to start.   Assess Your Situation To build an accurate retirement plan, determine how much you have in the bank. Calculate your total net worth by subtracting what you owe (e.g., debt, mortgage, auto loans, and credit card balances) from what you own (e.g., cash, retirement accounts, and assets).  It is critical to have a clear picture of your financial status before you chart your retirement journey.   Project Your Future Expenses According to Investopedia, a majority of people believe that their annual spending during retirement will be 70% to 80% of their past expenditures. However, you must also factor in expected (and unexpected) expenses that may occur.  Healthcare is one of the biggest expenses that individuals and couples have in retirement and according to Fidelity Investments, the average 65-year-old couple will spend about $11,000 on healthcare in the first year of retirement.  Yes, Medicare kicks in at age 65, but it often doesn’t cover everything.  Also consider utilizing a health savings account, which provides unique tax breaks and makes covering healthcare costs in retirement easier.  Make a list of all your planned costs so you can build those expenditures into your budget.   Consider Partial Roth Conversions The decade before retirement is critical because it’s the best time to manage current and future taxes. If a large portion of your nest egg resides in IRA accounts, for example, you’ll have significant required minimum distributions subject to income taxes that eat away at your hard-earned savings. With partial Roth conversions, however, you can take money out of your IRA, pay taxes on it right away, and have a tax-free income source. You can even convert smaller amounts over time instead of paying the taxes all at once.  Not only does this provide some tax diversification to your investments, but we also believe that federal income tax rates will go higher in the future so paying today’s tax rate could prove to be a smart decision.   Reduce Your Debt In 2016, the median debt of households headed by someone 65 or older was more than twice the total it was in 2001. To avoid debt hanging over your head during retirement, begin paying it off now. Start with high-interest debt, like credit card balances, personal loans, or mortgages. But don’t use a lump-sum withdrawal from your retirement accounts to pay it off—the taxes you’ll pay will likely be higher than any interest savings.  Heading into your retirement years with little to no debt is not only a smart decision on paper, but it can also provide peace of mind that is hard to put a value to.   Get Professional Advice Perhaps the most important step you can take before your retirement is meeting with a financial advisor. An advisor can help you with the above steps and other potentially complicated or stressful retirement elements. Ultimately, an advisor can ease your burden and assuage your worries, ensuring you have the best plan to live out your dream retirement. Even if you already have an advisor, you owe it to yourself to meet with him or her regularly to discuss your plans.   Planning for retirement is critical—especially in the decade leading up to it. Covering these steps (and others) will help to put a strategy in place that allows you to look forward to your pending retirement rather than dread it.