I recently read an article on the Time website about 5 things you need to do when you are within 10 years of retirement. Overall, I thought the article was good, as it covered a lot of the things you should think about as you near retirement. In fact, it included one thing that I think most people often overlook. With that said, all of the items on the to do list should not be ignored until you are approaching retirement. So what are these 5 things? I list them below and then go into more detail as well as action steps you should take to be in the best financial shape possible as you are approaching retirement.
- See if you’re saving enough
- Stagger retirement with spouse
- Don’t quit on stocks
- Do mortgage math
- Make friends with co-workers
5 To Do’s When Approaching Retirement
Are You Saving Enough?
When it comes to investing, time is your best friend. For this reason, you shouldn’t wait until you are approaching retirement to see if you are on track with your savings amount. You need to do this throughout your working years.
I say this because of compound interest. The longer your time horizon, meaning the more time you have until you retire, the less money you need to save each month. The closer you are to retirement, the more you need to save. You can read more about this concept in this post I previously wrote.
Action Step: Check in with your savings every 5 years. It might sound like overkill, but you’ll be happier if you can retire on time as opposed to having to put off retirement a few years or more because you ignored checking to see if you were on pace or not.
If you aren’t on pace, then you need to take action. You obviously need to save more. One painless way to do this is to sign up for the free service, Digit. I’ve been with them for a month now and have saved close to $200 – and I don’t even notice the money that was transferred from my checking account. You can read how awesome this service is here.
Next, you should review your expenses and see of there is anything you can cut out of your budget so that you can save more. In this post, I talk about various ways to cut your expenses.
Lastly, you can save money by making more money. In this post, I highlight over 15 ways to make more money – both online and offline.
Stagger Retirement With Your Spouse
This is a great option that most people don’t consider. The idea is that instead of both people retiring at the same time and living 100% on your retirement funds, one spouse retires and the other spouse keeps working for a few years. This will allow you to live more on the earned income from the working spouse, allowing you to withdraw less money from your retirement accounts, meaning they can grow more, leaving you with more money.
Action Step: Talk things over with your spouse to see if this is an option for you.
Don’t Ignore Stocks
This is also great advice that most need to follow when approaching retirement. The old idea of investing 100% in bonds once in retirement doesn’t work anymore for 2 reasons:
- Interest rates are so low, you can’t live like it’s 1989.
- You are going to live a longer than your parents or grandparents.
First, with low interest rates, the income from a 100% bond portfolio will not allow you to live comfortably. For example, if you need $50,000 a year to survive, you need to have a portfolio of at least $2.5 million if you can muster a 2% yield on your money.
In addition, a 100% bond portfolio worked for your parents or grandparents because they retired at 65 and only lived a few years after that. Now we live into our 90’s. This means that we need the growth stocks offer.
Action Step: Dial back your asset allocation as you age, but don’t get to the point where you are not holding any stocks. For many, some allocation between 20-40% stocks is a good place to be.
Be sure to run the numbers on your personal situation so you can pick the right allocation for you.
Do The Math On Your Mortgage
This is one part of the article that I don’t agree with 100%. The article says to do the math to see if paying off your mortgage before retirement makes sense for you. In my opinion, it makes 100% sense to pay off your mortgage before you retire.
The reason I say this is because the less debt you have in retirement, the less money you need in your portfolio in the first place. For example, let’s say your mortgage payment is $1,000 not counting in taxes. That is $12,000 per year.
By paying off your mortgage before you retire, you free up that money for other things in retirement. Furthermore, if you have 17 years left on your mortgage when you retire, you’ll need an additional $200,000 saved for retirement just to pay off the mortgage!
There is also another reason too: while the math might tell you you’ll get a better return by investing instead of paying off your low interest rate mortgage, human behavior says otherwise. Most of us won’t invest that money. We’ll buy a new smartphone or flat screen TV. It’s the same reason why you are better off just paying off other debt as opposed to investing. Most of us won’t follow through. We’ll get distracted before we can invest.
Action Step: Pay off your mortgage! Here is a great post detailing for you all of your options for getting rid of the debt fast!
Make Friends With Co-Workers
The idea here is that your young co-workers will be the decision makers in 10 years. This means they will have the say as to whether or not you stay or get laid off should the economy sink.
As much as it pains me, this is good advice. While you should focus on being the best worker possible, at the end of the day, the difference could be whether or not you are friends with someone else. In other words, it will be easier to lay you off if you have no friendship with Brad, than it will be to lay off Rich because he is good friends with Brad.
Action Step: Make it a point to be cordial with your co-workers. Say hi to them in the morning, say good night to them when you leave. Make small talk with them when you run into them in the break room.
You don’t have to become their kids God parent, but form some relationship with them so that they know who you are.
In all, this is good advice for those approaching retirement. While you need to be paying attention to your saving rate all along your working years, the other tips are great to follow as you near retirement. By taking action now, you put yourself in the best shape for having a long, healthy retirement.
Readers. what else should you consider when approaching retirement?