Recently, I called a long-time client to ask how he was feeling considering it was the first day of his retirement after working 42 years. He was obviously overwhelmed with excitement! I’ve made this call dozens of times over my career and it’s always exhilarating to share in the joy that comes when my clients enter the retirement phase of life. It’s no wonder the number one question I’m asked as a financial advisor is, “How do I turn my retirement dreams into a reality?”
I challenge you to consider these five action steps that can help improve your chances of retirement success:
- Review your savings. I believe the biggest reason people won’t be able to retire is because they don’t save enough. If you have access to an employer-sponsored retirement plan, you should be using it to your advantage. In 2021, the IRS will allow you to save $19,500 into a 401(k) or 403(b) plan. If you are age 50 or older, you also have the ability to make an additional $6,500 catch-up contribution into your 401(k) or 403(b) plan in 2021. If your employer matches your contributions, don’t miss out on money that is essentially “free” to you just for participating. Even a small increase in your savings rate now can make a big difference later.
- Review your lifestyle and retirement progress. It’s essential to know where your money goes if you want to get out of debt, spend less, or save more. Consider reviewing your spending habits using a free online tool such as mint.com. Once you know your living expenses, you can access tools available on your retirement plan’s website or work with a professional to determine whether you have a retirement gap you need to fill. Knowledge is power and knowing where you stand today is the key to making progress.
- Review and rebalance investments. If you don’t check your retirement account at least twice a year, you could be making a huge mistake. As you get closer to retirement, you should check it more often. You should consider whether you are taking an appropriate amount of risk and if your investment allocation matches the amount of risk you are comfortable taking. For example, a portfolio that was once divided evenly between stocks (typically aggressive) and bonds (historically more conservative) could have become unbalanced as the stock portion has grown rapidly. If you do not rebalance back to your original allocation on a frequent basis, your account may become too aggressive. Keep in mind that many employer-sponsored retirement plans offer “do it for me” investment options that will help manage your risk and investment strategy for you. If you are concerned your investments are no longer in line with your risk tolerance, take this quick quiz that will help you determine if you need to make some changes.
- Determine an appropriate withdrawal strategy. Having a defined investment distribution strategy is important in order to avoid outliving your assets. Even after you retire you may consider postponing certain types of withdrawals to help boost the long-term income power of your tax-advantaged accounts. You may want to tap your taxable investments first and postpone withdrawals from your workplace retirement plans and traditional IRAs for as long as you can. Keep in mind that today’s lifespans and retirements last longer than they used to.
- Don’t go it alone. Even when the market performs well, your emotions can get in the way of making good decisions. A qualified financial advisor has the knowledge and expertise to help you stay on track, regardless of what’s going on in the markets. Coaching and support from an experienced professional can provide valuable perspective and help you make decisions with confidence.
If you would like an independent perspective of what you could be doing better to plan for retirement, let me know. I’d love to make a phone call one day to ask you how your first day of retirement feels! Click here to view my calendar and schedule an appointment that is convenient for you.