“I would like to retire in five years, but I am not sure I will be able to afford it. What do I need to do to prepare?”
We often hear variations of the question above from our clients. Between working and living life, they suddenly realize retirement is approaching rather quickly and they aren’t necessarily financially prepared. If your goal is to retire in a few years, it’s important to make sure you have all your ducks in a row. Check out the seven helpful tips below to get you thinking and ready for retirement.
- Make a budget. Most people know what they make, but they don’t know what they actually spend. If you don’t know what you are spending now, you won’t know what you will need to live comfortably in the future. While most people dread sitting down and creating a budget, it is a necessary part of planning for retirement. A budget will allow you to see where your money goes and what changes you can make to spend a little less now and save a little more for the future.
- Find out your projected Social Security and/or pension benefits. Additionally, you should be able to determine the difference in guaranteed retirement income based on when you retire. For example, what would you receive if you retired at age 62 or 66, as opposed to 70?
- Calculate the difference between your budget and your guaranteed retirement benefits. How much do you need to supplement your living expenses with outside savings?
- Take inventory of all of your savings and investment accounts. Determine how much you have saved between cash, CDs, brokerage accounts, IRAs, 401(k)s and other savings accounts.
- Add up all of your debt. What do you owe and to whom? Find out how much you have left on your mortgage, car loan, credit cards, Home Equity Line of Credit and any other debts and loans.
- Determine a strategy to pay off your debts before your retire. The less you have in monthly payments when you retire, the easier it will be to manage your monthly budget. Try to eliminate debts that can be paid off now, so you will have flexibility later.
- If you discover you have some extra discretionary income, save more. If you can save even 1 percent more in additional savings, it will make an impact on your total savings when you retire. Additionally, for every 1 percent you save now, this will be 1 percent less than what you are accustomed to spending when you are getting ready to retire.
While the list above may be short, it’s a great place to get started. You should also consider sitting down with a Certified Financial Planner to review your goals and objectives to see if they are attainable. If you don’t plan to retire in the near future, the goal is to get to a point in your life in which you can work because you want to work, not because you have to work. Taking small steps in the short term can make a big difference in the long term.
Read More: There are multiple factors to consider when planning for retirement, which is why it’s crucial to start early. Once you’ve determined your retirement goals, it’s time to start estimating expenses. Learn more in our blog post, Retirement Planning: Crunching the Numbers.