How Do I Prepare for Retirement?
When the day finally arrives, will you be ready? What do you
need to do? How do you need to prepare? Well, if you are over 10
years from retirement, then just sock away tons of money in your
401k for now. This article is focusing on people a little closer
to retirement.
So you are about 10 years from retirement. What should you do?
What should you look at and what things will come up that you
typically don't think about while you are working? There are 5
guidelines for you to look at to prepare your financial
retirement.
Do you have an emergency fund? Some experts say you should hold
between six and 10 months worth of living expenses. When we were
younger, that seemed ludicrous. How could you save so much and
be expected to eat? We had kids to raise and educate. But now,
think about it. You are older. Expenses are settling down (I
hope). Look at your living expenses.
While you are there, make a rough estimate of what your
retirement expenses might be. You can only estimate since you
aren't retired and its several years away. But you can get the
general idea of what it will cost. This is step two towards
planning your retirement.
Next, are you saving enough? Is your 401k beefy? If its not, its
probably too late to catch the effects of compound interest.
Hint for the younger readers. By the time you are old enough to
save a considerable sum, time has eluded you and you can't get
the benefit from compounding interest. But there's still hope.
You can contribute a considerable amount into your tax deferred
retirement account and when you can also take advantage of a
"catch up provision". Can you live on 90% of your current
income? 80%?
Five till Five. Step 5 - 5 years to retirement. Consult your
financial advisor and start looking at your options. Will your
Social Security checks plus your company's retirement, plus your
own retirement be enough? Can you draw just the interest? Do you
need an annuity? Will you require a reverse mortgage on your
home to help you in retirement? The "5 till 5" rule means its
time to put things in perspective.
Lastly, if you need estate planning or "wealth transfer"
strategies, contact a financial advisor or better, a financial
attorney. This area gets complicated quick. You want to make
sure you have plenty of money for you and your spouse, but when
you pass away, will you burden your children with taxes and
leave them hardly any money? Or will your favorite charity only
get half of what you designate due to taxes? Life insurance can
hedge this complex area, not for the sake of life insurance, but
to hedge the tax issues that will arise.
I hope these guidelines can help you see what is coming. If you
are younger, the trick is to put back as much as possible. Who
knows if you can rely on Social Security or company pension
plans. You have to look out for yourself.