Money Moves to Make Before Retirement

According to the United States Department of Labor, only half of all Americans have calculated how much money they need to save for retirement. Planning for retirement is a way to help you maintain quality of life in the future. If you are planning to retire in the next few years, there are things you can do now to help take the stress, worry, and uncertainty away.

First, calculate your cash flow and create a rough budget. Mark Ziety, a certified financial planner (CFP) from Madison, Wisconsin, notes: "Retirement income may be a combination of three categories: steady, such as Social Security, pensions, and annuities; variable, including dividends, interest, rental income, or maturing bonds; and volatile, such as stocks or stock funds." Prioritize your financial and personal goals when planning your budget. 

As part of your budget planning, don't forget to estimate your taxes. After projecting your retirement income and cash flow, will your tax bill be higher or lower than it is now? Remember that Social Security benefits are subject to federal taxes - and some states tax them, while others do not. In addition, you will owe federal and state taxes on any withdrawals from retirement accounts that were funded on a pre-tax basis (such as a 401(k) or an IRA). Any contributions you made into a Roth IRA were made with after-tax income.

In addition to a monthly budget, you also need to estimate how long you will need your assets to last. More people than ever are living into their 90s and beyond, so longevity in your family and the state of your health are important considerations. "Also have a plan for long-term care," Tess Zigo, a CFP in Palm Harbor, Florida, advises. Statistically, someone turning 65 today has an almost 70% chance of needing some type of long-term care services in their remaining years, so it is important to plan for how you will pay for that support should the need arise.

Don't forget to consider health insurance as well. If you retire before you become eligible for Medicare, you will need to find your own health insurance if you don't join your spouse's plan. Once you are eligible for Medicare, know that it does not cover everything and you may want additional coverage, such as Parts B and D or Medicare Advantage. 

Try to pay down as much debt as you can before you retire. "Eliminating your single biggest monthly expense - your mortgage - will give you a lot of freedom in retirement," says Matthew Benson, a CFP from Chandler, Arizona. "Pay it off, or at least make a dent."

Also make sure you have a 'cash stash.' Just as you need an emergency fund now to cover unexpected expenses and protect your nest egg, the same goes for retirement. Start saving now; then keep saving and stick to your goals. Some advisors recommend keeping up to two years of cash to help pay for things in the event the market declines and you don't want to sell investments.

While it might not be fun to think about now, make sure your affairs are in order. Verify that the beneficiaries of your financial accounts are listed correctly and get an up-to-date will, estate plan, and advanced healthcare directive. Designate a personal representative or executor with power of attorney. By doing so, it is more likely that your wishes will be carried out should the unforeseen occur. In addition, you will eliminate any uncertainty that could land your estate in probate for a very long time, causing undue stress on your survivors and potentially eating away at your hard-earned assets.

Because retirement is both a mental and a financial transition, you may want to find a qualified financial advisor to work with. The content in this article provides general consumer information. It is not legal advice, financial advice, or regulatory guidance.