When preparing for retirement, building up savings is only part of the equation. There are other variables to incorporate into your retirement planning strategy so you can be ready to fully embrace and enjoy the next stage in life.
Developing a well thought out game plan for retirement is paramount. If you are one of the roughly 4 million American baby boomers who will reach retirement age every year for the next 11 years, the best time to actively plan for retirement is now. Sandwiched between the twilight of your career and retirement is a transitional period we like to refer to as pre-retirement.
#1 – Visualize your retirement:
Retirement planning should start in your head, not in your bank account. Planning for retirement is similar to planning for any other major event in your lifetime. Most people want to know every detail and how to accomplish the end goal. If you sit down and get a clear understanding of what is important to you and start to create a roadmap, you will have a much better chance of accomplishing your desired outcome. This all starts with visualization.
#2 – Streamline your spending:
Revamping your spending habits is no easy task. Your pre-retirement years is the most optimal time to revamp your spending habits and get back to personal finance basics like budgeting. Take the time to track your spending for a few months to see where your money is going. You may discover opportunities to save a significant amount for retirement without having a big impact on your lifestyle.
#3 – Right size your home:
Liquidating assets is also a method to generate extra consumable funds. For example, if you live in a home that is bigger than you need or more than you can afford in retirement, consider right- sizing before retirement.
For example, what if you have a $700,000 house and $500,000 worth of equity? If you can right size and move into a $300,000 house, there is $200,000 before tax asset that you can put to work in the market. Keep in mind there are ways to mitigate the taxes from the sale of a home.
#4 – Change your retirement age:
You can begin collecting Social Security benefits between 62 and 70, but waiting longer increases your monthly benefits. If you begin collecting at 62, your benefits will be about 26 percent lower than what you are eligible to collect at your full retirement age of 66 or 67-depending on when you were born. After you reach your full retirement age, Social Security benefits increase by 8 percent each year until age 70. Additionally, working longer equals extra income and savings.
For some of you, circumstances may not allow you continue to work full time, but working part-time in retirement could provide modest cash flow and a daily routine.
#5 – Make the most of your savings opportunities:
If you have the ability to contribute to a Qualified Retirement Plan, Roth IRA, or Traditional IRA make the most of the federal rules that favor pre-retirement investing. Beginning at the age of 50 there are numerous catch-up provisions that you can take advantage of.
Depending on your income, starting at age 50 you can contribute up to $6500 per year to an IRA instead of the standard $5500. Likewise, you can exceed the annual contribution limit for a workplace savings plan, like a 401(k) or a 403(b), by an additional $6000 per year.
#6 – Rebalance your portfolio:
It is of great importance to review your asset allocation. As you get closer to retirement, common retirement investment wisdom would lead you to believe you should become more conservative. More likely than not, your assets still need to grow to outpace inflation. This means that the lions share of your assets must maintain exposure to growth assets in order for your funds to last through your life expectancy.
Parrish Capital’s overarching philosophy hinges on cash flow planning around our “liquidity window” standard. We believe assets that are needed for consumption within a window of 3 to 5 years should be invested in liquid, high quality fixed income securities that mature around the time of that need. By keeping the funds needed in at least the next three years safe and liquid you reduce the need to sell growth assets in adverse markets, which ultimately could prevent you from reaching your goals. Liquidity window funding is continuous and thus reallocation of funds from growth to fixed occurs as needed and according to market conditions.
We believe preparation breeds confidence. Many financial mistakes happen not because of bad investment selection or timing but because the person making them was not emotionally comfortable or prepared. If you plan ahead, you may be able to eliminate a lot of stress associated with retirement.
If you have not done so already now is the time to have a comprehensive financial overview. Please contact one of our planning professionals at 1.800.618.1940 or visit ParrishCapital.com to schedule an appointment.
