If you haven't done these things by age 50, it could be too late to do them well. The year before your retirement is not the ideal time to ask for advice.
U.S. News & World Report’s article, “What 50-Year-Olds Should Have Already Done to Prep for Retirement,” explains that some people in their 50s and 60s don’t have the savings or the income to retire. As a result, they’ll need to keep working or reduce their expectations about their lifestyle once they’re done working. Don’t learn this lesson in the weeks before you plan on retiring. At that point, the damage has been done. By the time you hit retirement age, you should’ve had years of planning and advice. Your planning should begin to firm up when you reach age 50. At that point, here are the things you should have accomplished:
Increase contributions to retirement savings. You should have started regularly saving for retirement early in your career, maximizing what you can put into retirement plans and increasing the amount saved every year.
Save outside of your 401(k) or IRA. You don’t want to deposit all your savings in a retirement account. If you do, the withdrawals are taxed as ordinary income. Instead, diversify your savings into three tax buckets: taxable, tax-deferred and tax-free. There are limits on how much money you can put into a qualified retirement plan. You should also have another bucket of income when you retire that isn’t tax-deferred or taxable at your income tax rate, when you take out this money out.
Create an emergency fund. You should have or should create an emergency fund separate from your retirement savings. About 40% of Americans, if faced with an unexpected expense of $400, couldn’t pay it or would pay it by selling something or borrowing money, according to a 2018 Federal Reserve report. You need some security for all of the things that can occur before you retire, whether unexpected medical expenses or the loss of your job.
Work with an estate planning attorney. Don’t wait until you’re ready to retire, to talk to an estate planning attorney. Your estate plan should be created long before you retire, because you need to have an idea of the amount of money you need to live the way you want to once you retire. Review this on a regular basis. In addition, you need to make tax planning decisions throughout the year, not just at tax time. An attorney can answer these questions.
Get rid of your debt. A debt-free lifestyle makes it easier to save money for the future. Eliminate expensive credit card debt and enter into retirement as debt-free as you can.
Use a health savings account (HSA). If you’re in a high-deductible health insurance plan, you’re eligible to participate in a health savings account. There’s no other type of account that has the triple tax benefit: tax-free input, tax-free deferral and tax-free output.
Create an estate plan. You should have your will and medical directives done. You never know what can happen. Make sure the money you worked for, goes where you want it. That’s important. You should also check your beneficiary designations on your IRAs, brokerage accounts, and 401(k) to be certain they’re up-to-date.
Understand transportation and housing costs. If your mortgage or car payment is keeping you from saving for retirement, you need to make some significant changes to your lifestyle. You either have too much house or too much transportation, and that means you’re not saving enough for retirement.
Think of where and how you want to spend your retirement. Get some ideas about where you want to live in retirement and how you’ll pay for it.
Think about what you’re going once you retire. If you don’t start considering how you’ll spend your days, you may get bored.