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Close to Retirement? Keep These Six Factors at the Forefront of Your Plans

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Retirement plan
Are you ten years away (or less) from your retirement date?

If you’re on the brink of retirement, you might not be able shake the feeling that you may be missing some crucial element of planning.

Instead of wracking your brain with “what if’s” until you tire yourself out, let’s take a look at six over the most overlooked steps in the lead-up to retirement.

1. Estimate Your Actual Needs

Are you setting aside enough? Are you prepared for the big leap?

Estimating your annual expenses is a crucial part of the planning process. Don’t assume that your retirement costs will stay the same. Your expenses will be different once you retire.

The good news? Costs like commuting, dry cleaning and mortgage payments may no longer play a part in your budget. But that doesn’t mean you’re completely out of the woods. You will begin to incur different expenses, some of which are discretionary (more travel, sailing, tennis) and some of which are associated with the high cost of aging. For example, you may hire someone to scrub the toilets, pull weeds or clean the gutters — tasks you used to handle yourself — as you enter your 70’s or 80’s.

Broadly speaking, you should try to replace somewhere between 70-85% of your pre-retirement income. If you earn $100,000 annually, in other words, you should ideally be on-track to collect a retirement income of $70,000 to $85,000 per year (although that’s just a general rule of thumb).

In the event that you’re not on-track, avoid the temptation to invest more aggressively as a method of making up for lost time. Your asset allocation should mirror your age and timeline; any attempts to invest aggressively could backfire, leaving you in a worse position.

Likewise, avoid the temptation to invest too conservatively based on the fear that your portfolio might drop further. Speak with a financial advisor or use a trusted online advisory service to help you find an appropriate mix of stocks, bonds and other assets that’s based on your age, timeline, goals, risk tolerance, expected Social Security income and other factors.

If you’re still concerned, you can delay your retirement, cut your retirement budget or contribute more to your coffers in the coming years.

2. Understand Your Care Plan

What happens if you’re no longer able to care for yourself or live alone? Do you have a plan?

Long-term care arrangements, like assisted living facilities or in-home care, have become increasingly more expensive in recent years. The average price of a one-bedroom apartment in an assisted living residence is $3,022 per month, according to the nonprofit group Assisted Living Federation of America.

It’s also likely that many retirees will need this type of care. According to U.S. Department of Health and Human Services, 70 percent of people aged 65 and higher will need long-term at some point in the future.

Check out an online long-term care calculator to get an idea of how much you may need. If you don’t have money set aside for these additional costs, it’s time to start thinking about long-term care insurance to avoid putting your loved ones under any unnecessary stress over how these bills will be paid.

3. Invest in Cash Equivalents

Your retirement portfolio isn’t just comprised of stocks and bonds. Cash equivalents like money market funds, marketable securities and treasury bills play a huge role in your overall asset allocation.

Make sure you have an appropriate amount of cash equivalents in your portfolio as you near your retirement date. As a retiree, you’ll want the liquidity and low-risk profile that these assets carry.

4. Plan Your Asset Location

You probably know that diversifying your investments is crucial — but you may not be thinking about what assets should get placed in a particular location.

High-dividend assets and fixed-income assets should be located in accounts that are tax-advantaged. Assets that grow primarily through capital appreciation can be placed in non-tax-advantaged brokerage accounts.

Bond funds, for instance, tend to be more tax-sensitive than equity funds. Interest on bonds gets taxed at a higher rate than long-term equity capital gains.

As a result, you might decide concentrate more of your tax-sensitive investments in a 401(k) or traditional IRA, where they receive tax-deferred treatment. You can then leave your less tax-affected funds in your taxable investment accounts.

This means that your tax-advantaged and taxable accounts won’t have the same allocation split. And that’s fine, as long as your overall allocation is aligned with your retirement goals and risk tolerance.

Speaking of taxes …

5. Tax Planning

When you retire, you may be inclined to move. But will you retire somewhere that doesn’t have income tax, like Texas, Nevada or Washington? Or will you decide to wind up where the income taxes are higher, like Minnesota, Iowa or Oregon?

While your desires — where you want to live — should be the ultimate factor, you should still keep taxes in the back of your mind when you’re making moving decisions. Something as seemingly insignificant as the day you move may carry huge tax ramifications. If you move mid-year, for example, the difference between living in one state for 7 months and the other state for 5 months may influence which state you’ll owe taxes to.

Talk to your financial advisor and conduct some research so that there will be no unexpected ramifications.

6. When to Collect Social Security

The longer you wait to claim your Social Security benefits, the more money you’ll receive per month.

You’re eligible to start collecting at age 62, but you’ll get a reduced rate. You can collect “full” benefits around age 65 or 66 (there’s a formula that’s tied to your year of birth), but that doesn’t mean you should. If you can afford to keep waiting, you may want to consider doing so. You’ll get a “raise,” so to speak, for each year that you delay collecting benefits, up to age 70.


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