Retire Ready: What You Need to Know About Your Finances Before Retirement

Retirement can be one of the most thrilling – and difficult – adjustments of a person’s life. Not only are you planning for lifestyle changes, but you’ll need to adjust your financial plans and activities as well. When the time comes to retire, you want to be sure your finances are in order.

When you can finally see retirement on the horizon after decades of working and saving, that’s not the time to relax. If you intend to retire within the next ten years or so, there are a few crucial steps to consider taking to ensure that you have everything you need to live a comfortable retirement lifestyle.

Whether it’s optimizing your savings or calculating out how much money you’re going to need to live off of – especially if you plan on retiring early – now is the time to start planning. While the best time to start planning is yesterday, the second best time is now.

If you’re 10 years away from retirement, or are hoping to be at some point, here are the key financial decisions you should make to set yourself up for success (and savings) so you can enjoy your retirement life to the fullest.

Create a Budget for Your Retirement

Figure out what your spending might look like in retirement so you know how much you’ll need to save. Create a budget that works for you and begin tracking your spending right away. Get started with whatever approach works best for you, such as a budgeting tool or a good old spreadsheet.

According to certified financial adviser, Julia Pham, taking the time to do this will provide you more peace of mind and a clearer view of your spending needs when you’re ready to take the jump into retirement.

Calculating just how much your current lifestyle costs and how much it would cost to keep it will help you identify areas where you can cut back today to enhance your savings.

Pham also recommends that, while creating a budget, you consider your future demands. Chances are, you’ll spend more than you expect when you retire. Healthcare will most likely be a significant expense. She recommends multiplying the amount you intend to spend each year in retirement by 25 to figure out how much you need to save by the time you retire.

Consider consulting with a financial advisor or planner to assist you figure out your figures and what is best for your specific circumstances.

Check Up On Your Retirement Accounts

Most people create these accounts and then completely forget about them. Perhaps you began saving for retirement in your twenties, set up automatic contributions, and then promptly forgot about them. Now is the time to check in on them.

Try to maximize your contributions in the years coming up to retirement, whether you have a 401(k) or a self-employed retirement plan. If your 401(k) offers company matching, contribute enough to ensure that your employer contributes the full amount to your account, even if you are unable to meet your own contribution limits.

You can also take advantage of catch-up contributions if you are over 50 years old, according to financial expert Matt Hylland. You can contribute an additional $1,000 to an IRA or Roth IRA, as well as $6,500 to your 401(k).

Work on Reducing Your Debt

Paying off debt is the last thing you want to be doing in your golden years, so utilize the 10 years before you retire to assess any debt you may have and devise a plan to pay it off. Finding out the financial chronology of any debts you owe is one of the first things you should do.

Find out whether you can consolidate, refinance, or negotiate your debt. Make a strategy to pay off your debt before you retire in either case—the sooner you pay it off, the more money you’ll have to spend towards retirement.

Consider making extra mortgage payments so that you can pay off your loan before you retire. Paying cash for large purchases can help you avoid incurring new credit card debt. You can reduce the amount of retirement income spent on interest payments by restricting new debt and lowering existing debt. According to Anil Suri, managing director of Bank of America’s Chief Investment Office, paying off a credit card with a 15% interest rate is like earning 15% on a risk-free investment.

Invest, and Make Sure Your Portfolio is Diverse

You’re likely at the pinnacle of your earning power in the decade leading up to retirement, so be sure you’re saving and investing intelligently. At this stage, it’s best to dial back on your investing risk and focus on diversification and playing it safe. As you approach retirement, the impact of a market correction might be substantially more devastating.

Investing in stocks and bonds, in addition to retirement funds, is a secure and wise approach to make the most of your money in the years leading up to retirement. According to Brian Dechesare, founder of financial investment site Breaking Into Wall Street, you should adjust your portfolio allocation to 50 to 60 percent stocks and 40 to 50 percent bonds in the last 10 years before retirement.

Prepare for Unexpected Expenses

Life has a habit of tossing us a curveball now and again, and retirement is no exception. Create a financial cushion that is both quick and easy to access so that you can more easily cover needs like unanticipated house repairs or medical bills if they happen.

It is never too late to start preparing for your retirement. 

It’s easy to forget about your retirement plans when it’s a decade – or more – away. However, it’s critical to prepare ahead of time and set reasonable goals so that time works in your favor and you may enjoy the retirement you’ve always desired.

Even if you started saving and investing for retirement late or have yet to do so, remember that you are not alone and that there are steps you can do to boost your retirement savings and your after-tax income. It’s never too late to start,