Top 8 Financial Decisions for the Decade Leading to Retirement

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You look forward to a happy and fulfilling retirement after years of working to provide for your family. Retirement can seem distant for many.

You look forward to a happy and fulfilling retirement after years of working hard to provide for your family. Retirement can seem distant, like a dim but growing light at end of the tunnel. Distances can be deceiving. The last years of your life before retirement pass faster than you think.

Most Americans are confident that they will have enough money to cover their post-work years, despite the COVID crisis. No matter how confident you are, passive retirement investors cannot be trusted. The last decade of your working life is crucial for getting your affairs in order.

Top 8 Financial Decisions

These eight steps will help you to live comfortably after retirement by planning early.

1. Plan your life

What does retirement look like for you? Are you planning to move to Arizona so that you can spend your days playing in the sun? Do you plan to travel the world? Do you plan to work for your favorite non-profit or freelance? Each option comes with its own set of financial requirements.

If you don’t know what your future life will look like after you retire, you can’t tell if your savings plan will work. A good vision of your life and the activities you would like to do each year (e.g. traveling to visit grandkids) will help you plan for your financial future.

2. Identify your needs

Once you’ve decided what kind of lifestyle you want, you can start budgeting accordingly. It doesn’t take a genius to predict what the prices will be in ten years. You can adjust your budget to reflect new events. The budget will tell you if your goals are being met.

Not every line item needs to be detailed 100%. A few accepted methods of setting a baseline budget include basing retirement expenses 80% from your current expenses.

This isn’t a one-size fits all approach. A 50-year old with three college-age children and a 60 year-old with four kids on their own will have very different expenses. This approach may be a good fit for you if you examine your own situation.

Health care is an expense that you should carefully consider. Too many people neglect to consider when their retirement health care will be provided by, even though it is an important time.

Health care is a major expense for retirement, even though Medicare and Medicaid are available. Indeed, the average couple can expect to spend $300,000 for health care in retirement. This does not include long-term care expenses such as nursing homes or assisted-living facilities.

Don’t forget taxes when you are planning your budget. You must receive minimum distributions from qualified retirement funds after 72 years. These distributions may help you move up the income ladder. You need to understand how your income flows throughout retirement.

3. Flip your financial focus

You are likely to have spent a lot of your money on your family, if you’re like most people. The most important expenses you have are for your children’s education and support for your adult children, who are often staying longer with their parents after college. Now is the time to shift your focus to yourself.

Your children will have to deal with student loans and other financial issues, so you have less time to make sure a comfortable retirement. While you don’t have to abandon your children or take care of them, you must provide for yourself.

4. Stability is what you should seek

It is not the right time to make major life changes in the decade prior to retirement. These purchases are usually expensive and can lead to new debt. While large purchases like new houses and cars are exciting, you should consider the impact on your retirement plan before making any major decisions.

Some changes are not avoidable. You cannot control the consequences of natural disasters and health problems as well as personal issues such divorce. It is important to control the changes that you can influence.

5. Dispatch debt

Combining debt and retirement is not a good combination. Even low-interest debt such as a mortgage is true. You don’t want debt with variable interest rates if you have a fixed income.

In some cases, debt may be acceptable for retirement. A reverse mortgage, depending on your circumstances, may be a wise decision. However, it is a good rule of thumb that debt reduction should be a high priority in your last years before retiring.

6. Increase savings

You must build up your retirement savings, but it’s not always easy to know how much. Catch-up payments on 401k contributions (an additional $6500 per year) and IRAs are great opportunities. Don’t forget about your projected budget to determine how much you will have when you retire.

7. Insulate investments

To protect your income stream, you should be more conservative as you approach retirement. You can avoid major swings in income caused by market volatility by balancing your retirement plan towards fixed-income assets.

There are many guidelines that financial planners can use to help you split your portfolio. The common rule today is to subtract 120 from your age and put that amount in higher income assets such as stocks or cryptocurrency like Bitcoin. Rest of the money should be invested in fixed-income assets.

If you’re 60 years old, 60% should be invested in higher-income vehicles, and 40% in fixed income assets. These rules will allow you to keep your basic income level protected against market swings while growing your portfolio.

8. Predict the unpredicted

Even the best-laid plans can be affected by unexpected events. It doesn’t have to be a major pandemic. It could be as simple as an unexpected change in your retirement date.

You should ensure that you have enough buffers to weather any changes. A good rule of thumb is to have six months worth of living expenses in liquid assets.

Some recommend that you keep it at least a year. Even though it’s uncomfortable, ensure your estate plan covers unexpected situations such as the death of your spouse or you.

You will enjoy the retirement you have worked so hard for if you plan ahead.

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