Are people starting to talk to you about all the golfing you’re about to be doing, despite
the fact you’ve hardly ever golfed?
If so, you may be in your 60s.
Even though you’re close to enjoying golf or any other activity you actually do, it doesn’t
mean there isn’t a bit of work left in putting together your finances.
After all, you do want your retirement to be as comfortable as possible, right?
And planning can help get you there.
The average American plans to retire at age 66.
With that in mind, your 60s are a tale of two different lives.
Financially speaking, your last few years working full time and your first few years
in retirement will likely be handled differently.
Let’s start with those years leading up to retirement.
First, there are the financial steps that are good for anyone, no matter their age.
Starting off, make sure you have an emergency fund with enough cash to cover unexpected
costs.
This can help you avoid having to raid the investments you need to live on during retirement.
Second, prioritize paying off high-interest debt.
Debt with an interest rate higher than 5% could grow faster than your investments, so
knocking this out before retirement could help your retirement savings last longer.
Doing those two things would help to put you in a better position to save as much as possible
in the last few years before retirement.
A comfortable retirement typically means living off about 80% of your working salary from
age 67 for as long as you live.
One common benchmark is to have about eight times your salary by age 60 and 10 times your
working salary by age 67.
If you’re behind, consider increasing your retirement savings as much as possible.
Contributing to retirement accounts like a 401(k) or IRA can provide tax benefits, though
there are contribution limits.
The good news is that after you turn 50 the IRS allows you to contribute more.
For example, as of 2021, the IRS cap on 401(k) contributions was $19,500.
But if you’re 50 or older, you’re allowed to contribute $6,500 more per year, setting
the cap at $26,000.
As far as what to invest in, now that you’re close to retiring, you should be cautious
about taking on risk--you don’t have much time to recover if there’s a market downturn.
Stocks have a track record of higher growth, but that comes with higher risk.
Bonds, on the other hand, tend to provide less growth but more safety.
Everyone’s risk tolerance is different, but somebody within five years of retirement
might consider a portfolio of 60% stocks and 40% bonds.
Everything changes when you retire, especially when it comes to investing.
For decades you’ve focused on accumulating and growing savings, but now you need to live
on those savings while preserving them as long as possible.
That’s a big change, and you need a plan so you don’t outlive your money.
Creating a plan boils down to estimating your expenses, identifying your income sources,
and figuring out how to align them.
Start by estimating your annual spending.
How much will you need for housing, doctor visits, utilities, travel, etc.?
Remember that factors like downsizing housing, tax laws in the state you retire, increased
travel in early retirement, or more doctor visits as you age may affect the equation.
Also, how you spend down your assets may evolve over time as you go deeper and deeper into
retirement.
A retirement calculator can help you get a clearer picture.
Once you’ve figured out how much income you’ll need, plan where it will come from.
Your investments are only one source you may also have Social Security, pensions, rental
income, alimony, etc.
It’s best to think about those reliable sources of income covering your basic needs
and your investments for everything else.
But for many people, the money they’ve saved up in retirement accounts is a major source.
Retirees may focus on preserving their nest egg with safe, income-generating investments
while maintaining some growth that money could need to last for decades.
That means considering a conservative mix of investments, like 40% stocks, 55% bonds,
and 5% cash.
Many investors looking for income focus their stock portfolio on stocks that provide payments
called dividends.
These types of stocks tend to be less risky while providing regular payments to live on
or reinvest.
And that 5% cash allocation refers to short-term investments like money market accounts and
CDs.
This is separate from having an emergency account, which you should keep on hand to
cover unexpected expenses.
How much income you actually take from your portfolio is called your withdrawal rate.
Withdrawing no more than 4% per year is a common rule, but circumstances vary.
As you can see, the lower your withdrawal rate, the longer your money should last.
Retirees looking for a more reliable stream of income might also consider an annuity.
An annuity is an investment vehicle offered through an insurance company.
It’s designed to provide regular payments for a determined length of time, which could
be a certain amount of years, or a lifetime.
Investors approaching retirement may consider contributing their savings in one lump sum
to an annuity.
That contribution can then grow tax deferred.
When investors are ready to start receiving payments, the insurance company will begin
sending them monthly payments that are predetermined and guaranteed by the insurance company.
When it comes to your retirement, there’s always the option to work with a professional
or use managed investment solutions that can do the planning and investing for you.
All these different strategies have advantages and disadvantages, so be sure to do your research
and consult a financial expert to help you if needed.
Well, you’ve got a lot of planning to do, but once you’re set up, the only planning
you’ll be doing is trips to see your grandkids and maybe even trying out some golf hey, why
not, right?
Just ignore the score and enjoy not working.
Have a great retirement.