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10 tips to prepare for retirement

May 16, 2024 | 5 min read

After decades of dedication to your career, retirement may finally be in sight. But it’s essential to have a clear financial plan before you take the stage for your second act. Many Americans in the pre-retirement age range are discovering that their retirement balance is not enough to cover basic living expenses after they leave the workforce. 

The average retirement savings balance for people aged 55-64 is $537,560.1 But with the average American living longer and health care costs continuing to increase, people find that their first savings target misses the mark.

The good news is that you may still have time to improve your situation. To help you with a smooth transition, here are 10 tips to prepare for retirement. 

1.    Keep on saving.

Resist the urge to pump the breaks on saving as you get closer to retirement. Keeping up your savings habit could lead to a higher monthly income, more opportunity for growth on your investment balances and greater financial security in retirement. It’s also a good idea to consider talking to a financial professional about diversifying your investment portfolio, which can potentially increase your retirement savings. 

Diversification involves spreading your investments across different types of assets, such as stocks, bonds and real estate, to minimize potential losses. It's a strategic way to manage risk because if one investment performs poorly, others may compensate for the loss.  

2.    Create and follow a budget.

When planning for retirement, it’s important to create a budget that takes into account current and future expenses. This will help you develop a well-thought-out strategy that prepares you for life after your working years. By forecasting future expenses, you can gain a better understanding of whether your existing savings and investment plans will be sufficient to meet your financial needs in the long term.

There are many online tools out there that can help determine a safe monthly spending limit. Some tools can factor in rising inflation, cost-of-living increases and potential health care expenses. Test out several to gain a more realistic view of your post-retirement financial situation.

3.    Monitor your investments.

Monitoring your retirement investments in the 5-10 years before retiring helps build confidence that your investments are well-positioned based on your goals. This transition period potentially allows you to adjust your asset allocation to a more conservative approach that’s structured to provide stable income. Schedule regular check-ins with your financial advisor to evaluate factors like time horizon, risk tolerance and performance so they can recommend changes as needed.

Beyond regular check-ins, it's also important to stay informed about financial market trends and changes in legislation that could impact your retirement savings. You could ask your advisor about this as well.

4.    Include inflation as a variable.

The undeniable realities of inflation can determine whether you have enough money to support yourself through retirement. Inflation affects the purchasing power of your savings balance, and its effects can be major. Rising prices can make it difficult to stretch retirement balances across several decades.

When calculating your projected living costs for the future, applying an estimated annual inflation percentage is a good idea. By doing so, you're essentially factoring in the likelihood of higher expenses decades from now compared to the present-day dollar values. This approach to financial planning lets you account for the steady increase in costs over time, creating a plan where your savings pace is aligned with the projected rise in living expenses.

5.    Get on the same page with your partner.

When considering retirement, couples should discuss their expected living expenses and lifestyle goals. This conversation might cover everything from daily living costs to large expenses or trips you may want to take during retirement. By talking openly, you both can start to get ready for the big changes that come with retirement. It can help you understand what life might be like and how to get ready for it, both financially and emotionally.

These conversations can be difficult, but couples who don't understand each other's finances risk having conflicts later on in retirement. This is a time to explore new passions and spend quality time together, so it's important to communicate well from the beginning. This is a key step to having a happy and fulfilling retirement with your partner.

6.    Don’t forget about physical health.

Physical wellness and fiscal well-being in retirement go hand in hand. Small lifestyle choices now can significantly impact health care costs as we age, directly affecting the longevity of retirement funds. Taking proactive steps for your health is vitally important to making retirement finances last as long as you need. This might include weekly cardio exercises, a weightlifting routine and switching to a healthier diet.

You can also build fiscal fitness by learning the ins and outs of Medicare now. This could help reduce surprises when you’re ready to transition from workplace benefits to individual coverage. Learn about your Medicare options by registering for A Deep Dive into Medicare Benefits, a free, educational workshop where you can learn:

•    Coverage types.
•    Coverage timelines.
•    How to shop for  plans tailored to you.
•    How to switch coverage, if needed.

7.    Look into your Social Security benefits.

Requesting a copy of your Social Security benefits estimate can provide context for retirement planning. Review your earnings history and projected benefits to better understand how much you need to save to supplement Social Security in retirement. While these are just estimates based on your wages to date, this document can let you know the role government assistance will play in your retirement years.

Create a mySocialSecurity account to view your statement, then model varying timelines to estimate benefits in different scenarios.

8.    Expect to spend more.

Unexpected costs pop up at every life stage, including retirement. A major home repair or medical expense could disrupt your long-term plans. Setting aside extra funds for the unknown protects your hard-earned savings.

Some people also choose to work longer to build their savings beyond their initial goals. Whether you decide to prioritize saving more upfront or extending your working years, it’s always a good idea to plan for unexpected expenses.

9.    It’s not too late.

If you’re not saving money for retirement, you can still make it a priority – starting today. Even small deposits can benefit from the power of compound interest, which can help bolster your financial security. Start by saving an amount you're comfortable with, then aim to gradually increase your savings contributions by 1-2% each year. This incremental approach can make saving less daunting and more manageable. 

While you may need to save more to compensate for the lost time, remember that building a substantial nest egg is possible when you have a plan. If you haven’t done so already, don’t forget to take advantage of employer-matching opportunities if they’re available through your workplace retirement plan. The extra funds could boost your retirement savings without any extra effort.

10.    Find a dependable advisor.

Just like you’d find a doctor you trust to care for your physical health, finding an advisor you can trust with your money is essential for your financial well-being. They can review your portfolio and make personalized recommendations based on your goals and timelines.

You’ll want an advisor who communicates well and asks thoughtful questions to understand your needs. Read online reviews, ask for referrals and schedule a complimentary portfolio review with an advisor near you. 

Proactive planning is crucial to a comfortable retirement. It allows you to reduce obstacles that may otherwise get in the way of an enjoyable post-work life. Schedule an appointment with an advisor to help you prepare for retirement. They can review your situation and help identify a personalized roadmap to help you reach your goals.

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