One way to make an event stressful: head into it unprepared. If you’re within five years of retirement, don’t procrastinate. Five years may seem like a long time, but it goes fast. And research shows those who start planning at least five years out have a happier retirement! There is nothing to lose and only happiness to gain by taking the following five short-term retirement planning steps as soon as possible.
Increase Cash Reserves
Applying for pensions and Social Security, as well as setting up withdrawals from IRA’s and 401(k) plans, takes time and paperwork. Things can get delayed and you may not always get your first pension check on time, so you want to plan for a glitch or two along the way.
Prepare for delays by having extra cash reserves tucked away in safe investments; things like savings, checking and money market accounts. The amount to tuck away is anywhere from three to six months worth of living expenses.
Estimate how much money you need to retire
To decide if you have enough to retire, you must develop an accurate estimate of the amount of money you spend, and the amount of income you will have each month. Although boring, this is the most important retirement planning step you can take.
Start with a yellow pad and write down your current take-home pay and your current monthly expenses. Don’t forget about variable costs like hobbies, home improvements, and vehicle repairs.
Then write down the monthly income that will be available from pensions, Social Security and IRA/401(k) withdrawals. Is this number close to your current take-home pay? If not, you have four choices: spend less in retirement, save more now, work a few extra years, or earn a higher rate of return on your investments.
If you’re not great at doing these calculations on your own search for a qualified financial advisor to help. Retirement is, hopefully, something you only do once, so seeking professional help is perfectly okay.