July 21, 2020

Ten Year Countdown: Financial Planning for Retirement

When retirement is a decade or less away, it’s common to have a little anxiety about if you’ve done enough. You have had a good career, you’ve been saving, but what you really want to know is: Am I really financially ready? If you are ten years away, financial planning for retirement takes on a new meaning. There are some steps to take during these last ten years that can make the countdown more exciting and less stressful.

Get Out of Debt

If you still have any debt, now is the time to work on eliminating what you can. Any debt, even a mortgage, can put strain on your retirement income. You have ten years left, so talk to a financial consultant, make a plan, and focus on getting to your retirement free of any debt.

Make a Mock Retirement Budget

Look at your current monthly budget (if you don’t have one, that’s step one!), and use that to create a potential retirement budget. Some expenses may go down, while others will go up. Inflation is about 3% a year when it comes to household budgets, so make sure you account for that in your calculations. Once you have your monthly budget for retirement, you’ll have a good idea of what your minimum monthly retirement income will need to be. There are some additional factors to this process that you can consider when working with your budget. Are you planning to downsize your home? Are you hoping to travel? Once you have a basic budget, you can look more closely at your goals.

Take Advantage of the Catch-Up Options

While many publications will suggest taking advantage of the catch-up provisions in the company 401k, we often suggest a different approach. If you have been putting money away into the 401k for many years there is one thing that has been “kicked down the road” and that is taxes. Sure, it has been nice using those contributions as a deduction all these years but that bill will be coming due in the future. Many of our retiree clients have been surprised to see how big of a bite the government takes once those taxes are due. They are often forced to take out more than initially planned to cover the taxes. In many cases, the increase in taxes from 401k money led to an increase in Social Security taxation, which could lead to an increase in Pension taxation.

There are numerous cases of retirees getting bumped into the next tax bracket. The need to create a buffer asset to account for the taxes has never been more important. Should you create an avenue to simply cover the additional taxes that will be due so it won’t limit your ability to retire how you want? Do you want to create a mechanism that will pay the taxes as you convert part, or all, to a ROTH IRA later? Is there a way to begin the conversion to a Tax-Free account now? Do you want to have another account, with Tax-Free money, to draw from instead of relying so much on the 401k? Start asking yourself these questions.

Perhaps you could think about this as a “retirement-is-coming” warning that the government gives you as the ‘ultimate opportunity to do a Retirement Income analysis. You are probably thinking “How do I know if I am on track for the income I need in retirement?” or “My 401(k) plan and IRA accounts are not going to provide enough income like I expected.”

Rising tax rates and a 40% lower long-term rate of return have caused a big shortfall in what will be my lump-sum retirement monies, and putting in $1,000 more each year won’t cure my ills so what is the Smart Money doing? Certainly, they are not using 401(k), IRA, and Roth IRA plans. So what are they doing?

Stay Focused on Financial Planning for the Retirement Road – not the Detours

If you’ve been diligently saving, paying off debt, supporting a family, and making the right choices for a long time as a responsible adult, it can be tempting to stray from the path as you reach the end. You might feel like you deserve a little treat for all this hard work, and maybe you’ve even heard horror stories about retirees who were stricken with illness or other hardship and never got to reap the rewards. It’s tempting. Stay focused. Odds are, you will have plenty of retirement time to enjoy the fruits of your labor.

Make Sure Your Estate is in Order

If you haven’t already created a will and estate plan, the time is now. If you have, now is a good time to check in and make sure you aren’t in need of any updates. Look at your insurance (and start researching Medicare if you’ll turn 65 around the time of your retirement), your expected Social Security benefits, your investments, and any other long term planning you’ve begun. Research long-term care insurance, and sign up by age 60 for the best rates.

When you are ten years away from retirement, the finish line is in sight. Take advantage of your last decade of work to get your financial planning for retirement in the best shape it can possibly be. We can help. Contact Safe Money Partners to learn about more ways to prepare for retirement and what you can do now to bring more financial security to your retirement years.

photo of Jeff Mohlman

By Jeff Mohlman

Jeffrey has developed a comprehensive network of financial planning and estate planning experts who work for their client’s short-term and long-term goals. Today, the approach he incorporates for his clients follows three basic tenets: 1) being debt-free, 2) maximizing after-tax retirement income, and 3) protecting their estate from unforeseen risks.