The Home Stretch: Seven Essential Steps for Pre-Retirees
As you approach retirement, it’s crucial to take proactive steps to ensure a smooth transition into this new phase of life. The decade before retirement is a critical period for financial planning and decision-making.
During this time, the impact of financial missteps is amplified because there is less time for investments to recover compared with earlier stages of the investing journey.
As in a foot race, the home stretch is the time to be sure-footed to make sure decades of savings are not lost just before the finish line of retirement.
Subscribe to Kiplinger’s Personal Finance
Be a smarter, better informed investor.
Save up to 74%
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.
Profit and prosper with the best of expert advice – straight to your e-mail.
Here are seven essential steps that pre-retiree investors should consider:
1. Determine the right time to retire
Deciding the right time to retire involves evaluating various factors such as health care costs, the size of your nest egg and anticipated expenses. It’s important to have a clear understanding of your financial situation and retirement goals.
At what age do you think you’ll retire? This critical question is not that easy to answer. When the Employee Benefit Research Institute asked workers over age 25 to estimate when they’d retire, some surprising results emerged.
More than half of workers said they expect to retire at the age of 65 or later. However, most retirees (70%) reported retiring before 65.
2. Take aim at your retirement target
Your income needs in retirement will differ from your working years. A common rule of thumb is to save enough to generate 70% to 90% of your pre-retirement income.
Another rule is to measure your savings mile markers by how much you should have saved at various ages.
For example, if you are making $100,000 at age 55, you should have retirement savings of six to eight times that, or $600,000 to $800,000.
Another rule is to determine what target savings it would take to sustain a 4% withdrawal rate while exhausting a particular bucket of savings over a 20- or 25-year time frame. The amount of savings needed will be determined by how much risk can be tolerated to earn a targeted rate of return.
3. Maximize your nest egg
Take full advantage of workplace plans and participate in catch-up contributions if you’re over age 50. Consider adding personal retirement savings and a spousal IRA for a spouse without income.
By maximizing IRA and catch-up IRA contributions, as well as retirement plan contributions and catch-up contributions, a couple, both aged 50 or older, would be able to contribute as much as $46,500 a year to tax-advantaged retirement accounts, assuming one spouse is working and has an income of $150,000. (See the IRS notice on retirement account limits for 2025.)
4. Get a portfolio checkup
Regularly review your portfolio to ensure it aligns with your retirement goals. Consider the impact of job changes on your retirement planning and the importance of maintaining a balanced.
Looking for expert tips to grow and preserve your wealth? Sign up for Building Wealth, our free, twice-weekly newsletter.
This is especially important given that the average worker today changes jobs 12 times during their working years, according to the U.S. Bureau of Labor Statistics.
5. Create a Social Security strategy
Understanding the financial outlook for and determining your full retirement age (FRA) is essential. Consider the benefits of delaying Social Security to maximize your monthly benefit.
While Social Security may be claimed at 62, waiting until your FRA or until age 70 will increase the monthly benefit. The Social Security Administration provides a benefits planner with expected benefits by date of birth.
6. Build a retirement income stream
Explore income-generating investments and systematic withdrawal plans to create a steady income stream in retirement. Evaluate different income-producing products and their potential impact on your retirement savings.
If your nest egg is large enough, current interest rates may generate enough income. Still, you may benefit from a systematic withdrawal plan that may rely on selling some of your investment principal to meet income needs.
7. Look beyond the money
Retirement is not just about finances. Consider factors that contribute to happiness in retirement, such as health, friendships and family. Create a retirement living plan that includes activities and goals beyond financial security.
By following these steps, pre-retirees can better prepare for a fulfilling and financially secure retirement journey.
Just like some runners choose to work with a trainer, working with a financial adviser may provide personalized guidance tailored to your unique situation.
All investments involve risks, including possible loss of principal.
Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as, investment advice, forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy or type of retirement account.
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.
The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as of publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested.
Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.
Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third-party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.
Related Content
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
Source link
