Five Years Before Retirement-What You Need to Know
Five years before retirement is a critical juncture. If you are prepared, all you must do is maintain your retirement program. However, if you find out you are not prepared, you may need to make modifications to your retirement plan or retirement date. In this article, we will go over what you need to take into consideration five years before retirement.
Length of Retirement
To determine whether you have enough to retire, you will first need a general idea of how long you will be retired for. The best way to do this is to generate a general idea based on your health and family history.
Planning for Prolonged Illness
The need for long-term care can quickly deplete your assets, leaving you and your spouse in a difficult position. If needing care runs in your family, you may want to purchase a long term care insurance policy. For a premium, your policy will help cover a portion or all of the fees that you incur during the course of your long term care. This will help to protect your nest egg.
Retirement Expenses
To know how much you need to save, you need to estimate your retirement expenses. You can use your current budget as a starting point for your calculations. Then add on items and experiences you plan on spending money on. For example, you may need to replace your roof or want to take a tour of Europe. You will want to factor in such costs into your total retirement goal.
Calculating Your Income
Part of preparing for retirement is calculating the total income you will be receiving. Source of income you should look for include:
- Social Security benefits (you can get an estimate on how much you will receive on the Social Security Administration’s website.)
- Pension income
- Annuity payments
- Rents you plan to collect
- Required Minimum Distributions
Calculating Net Worth
Aside from the income you will receive, you also need to calculate your net worth to determine how much you have to draw from. These include:
- IRAs and 401ks
- Savings Accounts
- Investment Accounts
- HSA Plan
- Value of real properties you own
- Other valuable property, like art
Are You on Track?
If you are on track, continue with your place so you can be ready to retire in five years. However, if you have found that you are not ready there are a few things you should take into consideration. First, would changes to your planned lifestyle significantly reduce your expenses? Second, can you increase your retirement contributions over the next five years to produce sufficient principal for retirement? Third, would working part-time during retirement help offset any deficit? If these suggestions are not enough, you may need to adjust your time horizon to be more than five years before retirement. If you are still unsure about what to do, meet with a qualified retirement planner to help you evaluate your current situation.
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