Retirement planning

Retirement: 10 Things You Need To Know BEFORE You Retire

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Everyone dreams of their retirement but people spend more time planning their vacations than they do retirement planning. Many would like to retire even though they do not have a clear plan in place to do so. Others are not interested in leaving their careers and plan to continue working.

The Top 10 Things to Consider Before You Retire

  1. Only 40 percent of Americans have calculated how much they need to save for retirement. Start making a plan now.
  2. Experts state you will need approximately 70-80 percent of your current income in retirement to maintain your standard of living.
  3. In 2018, almost 30 percent of employees with access to a defined contribution plan (such as a 401(k) plan) did not participate.
  4. The average American spends roughly 20 years in retirement. With increasing life spans it may even be longer. Are you prepared?
  5. Nearly two-thirds of 40-somethings have less than $100000 in retirement savings. By age 50 you should have at least 6 times your salary in savings.
  6. It is never too early or too late to start saving. With compounded interest and catch up allowances, you can make a significant impact on your savings.
  7. Make paying off debt a priority. Learn how to make additional principal payments so you can pay off your debt faster. Do not create new debt.
  8. Find out what your social security payments will be. Most people have no idea what the monthly benefits will be so it is important to have a realistic expectation so you know where you stand.
  9. Take advantage of IRAs. You can put money into an IRA with pre-tax dollars. This can be a benefit because it can put you into a lower tax bracket and help you to reduce your tax liability while saving for retirement.
  10. Ask questions. Doing nothing is a sure-fire way that nothing will change. It is important to meet with professionals who can help to educate you about financing your retirement. It is also important to investigate all of your options with your employer.

As a retired banker, I can not tell you how many people I worked with that was ill-prepared for retirement financially. Many folks in the baby boomer generation are trying to make ends meet with a part-time job and social security. Or they are not planning on retiring at all. This can be unrealistic when taking health concerns and job losses into consideration. There are things you can do even if you are a few years from retirement.

How to Calculate What You Need

Many experts will tell you that you will need 70-90 percent of your income for retirement but let’s think about this logically. Unless you are living the same exact lifestyle with the same expenses, many seniors are able to live with significantly less during retirement.

You can downsize your home, reduce your debt, taxes and maintenance payments or move to an area with a lower cost of living. If you live in NYC and decided to live outside of Orlando, Florida, chances are you can reduce your expenses by more than 50%.

Social Security

You can use this Social Security Calculator to see what you will receive when you retire. Also, check your retirement calculator located on your investment fund website to get an idea of the monthly or annual income you will receive from your investments.

When considering what age you will retire, you can see on your social security calculator there is a difference in the income if you retire at age 62, 66 or 67.

You can start receiving your Social Security retirement benefits as early as age 62. However. you can lose anywhere from 25-35% of your benefits if you choose to retire early at 62. You are entitled to full benefits when you reach your full retirement age. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will increase.

Next, you will want to try to estimate your expenses during retirement. Take a look at your current budget and see what areas you can cut or reduce over time. This way when you retire you will already understand what your financial needs will be.

Start Saving Now

Regardless of your circumstances, you have to find a way to start saving. It may mean changing your lifestyle. If you are taking vacations, you can save. If you are eating out, you can save. You may have to make some sacrifices now to live comfortably in retirement.

Understand that when the employer is matching the contributions to a 401k, it is like getting free money from their employer. You can earn up to an additional 6% depending on your employer plan. Take advantage and save the most money you can while you are getting that free money!

Catch Up Contributions

Once you are age 50 or older you can start catch-up contributions if your employer’s plan allows it. As of 2020, you can save up to $19,500 plus an additional $6,500 for the catch-up contribution. If your employer does not allow for catch-up contributions, you can also start an IRA with your broker or bank.

Roth IRA 401k

Do Research on the Investments Available With Your 401k

I was shocked to learn that most people have no idea what they are invested in. They pick their funds based on the return history 5 or 10 years ago, then set it and forget it. While the set it and forget it mentality is good when it comes to taking money back out of your retirement accounts, funds can become stale and have bad years. It is important to understand the financial objectives of the funds you are investing in and revisit them regularly.

Risk Tolerance

You will also need to determine your risk tolerance to know which funds will be a good fit for your retirement plan. This will change as you age so you should also plan on adjusting your plans as you get older. Understanding appropriate asset allocation, or how much of your investments will be in stocks vs. bonds is an important part of your retirement strategy.


While it is important that you learn about the different funds available to you, it is also important that you learn about diversification. Often when one sector does poorly another sector will do well. With diversification, over time, you will most likely earn more being diversified, rather than having all of your eggs in one basket.

Pay Off Your Debt

I am always a little surprised how many people go into retirement with a mortgage(s) or serious debt. Paying off your debt before retirement is a smart move as it will free up your income so you not feel burdened going into retirement. Being debt-free was how I retired early!

Consider Downsizing

Many people get locked into the idea that they want to stay in their homes. This is not always realistic. If you own a home that you raised your family in, it may be significantly larger than you need. You can sell the home and pay cash for a smaller home with fewer maintenance costs, like a condo, thus lowering your expenses. Many people use the equity in their home to finance their retirement.

Do Not Originate New Debt

Often new retirees will go and purchase items to satisfy their hobby dreams like an RV or boat. These depreciating assets can widdle away at your monthly income. If you need to sell quickly it is rare that you can sell these items for more than you owe if you did not put a significant amount of money down.

It is not only important to pay off your debt but also to stay out of debt in retirement.

When Should I Start The Retirement Process?

Truth be told, the retirement process should have begun in your 20s, or as soon as you are working. Unfortunately, many of us were unable or unwilling to make retirement a priority.

The fact is, it is never too soon or too late to prepare for retirement so there is hope to get caught up. Retirement planning needs a clear strategy and commitment to that strategy.

Your retirement planning should be more focused as you approach your 40s. At this point, you have 25 years to make up for lost time if you are behind. No matter what your age is you need to have a focused plan.

Many plan on continuing to work but that is not realistic either. Health concerns and downsizing can force you to retire. It is important to have a backup plan even if you want to continue to work in case you are downsized or your health prevents you from working.

What Do You Need To Do 10 Years Before You Retire?

If you are within 10 years of retirement it is important to make sure you are on the right track. There are some important questions you need to address at the 10-year mark.

  • Will your debts be paid off before retirement?
  • Do you know what your income will be during retirement?
  • Do you know what your expenses will be?

It is important to know this ten years out so you can adjust your plan if you are not where you want to be. Of course, it will not be 100 percent accurate. You have little control over the cost of living adjustments, etc. But understanding your current realities is the key to making corrections and bringing about change before it is too late.

The adjustment may just be focusing on getting promoted so you can save more, or focusing on becoming debt-free. You should also have other retirement accounts in addition to your 401k at this point in the process. Adding as much as the law allows into those accounts at this time can make a huge impact on your retirement.

You will want to do annual reviews of your financial situation every year until retirement at this point. It is crucial that you stay on track so that you can live the way you want in retirement and keep it in front of you is the best way to do that.

What Do I Need To Do One Year Before I Retire?

One year before retirement it is important to make time to meet with your CPA, attorneys, and insurance advisors. There may have been changes to your circumstances as well as the laws in your state that you are unaware of since you made your initial plans.

I would also suggest meeting with your estate attorney to evaluate your will, healthcare mandates and trusts. Many retirees who would come in the bank had no idea that by moving to Florida, their will was no longer valid after crossing state lines.

Also, discuss the best way to protect your assets from creditors during your retirement. You may want to investigate setting up a living trust as a way to avoid probate and protecting your assets. Handling your estate now will save headaches for your heirs after you pass.

Final Thoughts

The key to retirement planning is sticking with a strong savings and debt reduction plan. Retirement planning does not need to be stressful if you are realistic about where you are and stay focused on where you want to go.

Unfortunately, I have had plenty of 60 something clients in front of me who was just having the realization that retirement was not going to be what they expected financially. The key is to be flexible and adjust your expectations if need be. Be open to new plans and make adjustments so you can retire comfortably.

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