Most of the clients I work with that are on the glide slope to retirement are relatively well-prepared. Even so, many have a lingering feeling that they’d like to save a bit more before their retirement party.
When you think about your future retirement, are you excited and confident? Or do you feel uncertain and stressed? If you’re looking to save a bit more before you stop working to give you greater confidence, start by taking these six steps.
1. Save More
The most obvious thing you can do is increase your savings rate. Purchase necessities, not luxuries. Channel any bonuses or raises directly to savings. Automate your savings increases of 1% every month or so.
With more saved, invest it in your 401(k) plan or personal IRA. If you’re over age 50, you can invest an extra $1,000 per year into an IRA for a total of $6,500 for 2016. The catch-up contribution for those over 50 is even greater for 401(k) plans at $6,000, for a total contribution limit of $24,000.
2. Invest For Growth
Your goal retirement date doesn’t have to dictate all of your investments’ time horizon. You may be retiring in under 5 years, but you don’t need to set a 5-year horizon for your total portfolio because you’ll only need a small portion of your nest egg in the early years. The rest of your money may stay invested for another 20 to 40 years. Invest with an appropriate perspective so you don’t end up cheating yourself out of years (or even decades) of growth.
On the other hand, don’t chase unrealistic returns in the hopes of cashing in big rewards. You still need to maintain a proper asset allocation so your portfolio can grow healthily without too much risk.
3. Evaluate Your Insurance Coverage
It’s all too common for people to purchase an insurance policy and then let it gather dust in a drawer. As you approach retirement, it’s time to review your policies to ensure you need the coverage you have. There’s a good chance your needs may have changed since you first purchased the policy and you had a young family. Cut back on the coverage you don’t need to save on your premium.
4. Reduce Your Consumer Debt
The less debt you have when you enter retirement, the better. Reducing your consumer debt before retiring helps you lower your monthly expenses and enables your savings to grow and last longer. While this sounds obvious, some wealthy clients I work with haven’t made a point to eliminate debt before they retire, which leaves them with higher expenses than are desirable.
Review all current debts you face and compare interest rates and balances. This can help you decide which to pay off first. Once you’ve eliminated credit card and auto debt, see how you can aggressively pay off your mortgage. Not having a mortgage could reduce your monthly expenses by up to a third and make a significant impact on how slowly you deplete your savings.
5. Downsize Your Home
If you’ve been in your home for many years, you may have more room than you need. Now that the kids have moved out, you may consider downsizing to a smaller home that’s more affordable. Downsizing may help you pay off the rest of your mortgage and reduce utility expenses. Beyond the financial benefits, a smaller home means less time cleaning and doing repairs.
I even have some clients who have sold their large homes and are renting a smaller residence or condo. These clients enjoy not having to worry about the costs and work of home upkeep, which lowers stress considerably. They also enjoy the added flexibility and freedom to live somewhere new.
6. Push Out Your Retirement Date
If you’re considering retiring before your Social Security kicks in, you may want to think again. In that case, you would have to draw down your retirement assets for 100% of your monthly expenses. Waiting to retire until your Social Security benefits begin allows you to let more of your retirement savings remain invested for the future.
There are several benefits to delaying retirement to work a few more years, or to work part-time during retirement. Here are some of the top reasons to work longer. The biggest reason is that you have more time to earn an income and save. And every additional year that you work is one less year that you will be depending on savings and draining your nest egg.
Working longer will also allow you to delay claiming Social Security. While Social Security benefits can be claimed as early as age 62, the longer you wait to file the greater the benefit you will receive. If you file at age 62, you will only receive 75% of your earned benefit, but waiting until age 70 allows you to receive 132% of your earned benefit. This can make a substantial difference in your retirement income for the rest of your life.
Next Steps to Take
There are a number of options for boosting your retirement savings, but investing, insurance, and Social Security rules can be complicated and confusing. If you encounter questions as you implement some of these steps, don’t hesitate to reach out to us. We would be happy to help you review your options or offer guidance. You can call our office at (913) 624-9548 or email me at BKeen@KeenWealthAdvisors.com.
Bill Keen is a Chartered Retirement Planning Consultant® and independent financial advisor with more than 24 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.