Preparing for Retirement: Steps to Take 5 Years Prior

If you’re within five years of retirement, now is the time to take the following steps to ensure your retirement goes smoothly.

Why? Because retiring is like landing a big airliner; you can’t do it on a dime. This is why 747s line up 20–30 miles from the airport, maneuvering from one direction to another to ensure they’re in the right location. Preparing for retirement is similar: you have to start thinking about the detailed tactical aspects before you retire; otherwise, you risk a crash landing.

Retiring is like landing a big airliner, you can’t do it on a dime or you risk a crash landing.

To ensure a smooth flight:

  1. Realize that retiring with debt it going to cause major consternation. When you retire, having the lowest fixed costs possible will provide the most flexibility. The standard rule is to not withdraw more than 4% from your retirement account annually. However, if you have to take 4% when the market declines then you’ll be withdrawing capital that could rebound when the market moves back up. By keeping your fixed costs as low as possible, you’ll have the flexibility to take less out if the market declines.
  2. When you retire, having the lowest fixed costs possible will provide the most flexibility.
  3. When you’re five years out, think about downsizing now rather than later, especially if it’s a good time to sell. The sale of the house will allow you to pay off debts now while also reducing your fixed costs, real estate taxes, insurance and utility costs.
  4. When downsizing, take location into consideration. Some states and/or counties have exclusionary amounts for retirees or senior exemptions for real estate taxes. States such as Florida and Texas have no state income tax at all.
  5. Build cash. Proper portfolio distribution within your investment account is crucial, but you also need cash. Having cash gives you flexibility when markets fluctuate. It also provides you with emergency money for large unexpected expenditures such as roof leaks and new cars. Knowing that you have the money, easily accessible, also provides an emotional blanket that you’re going to need in retirement. By starting five years out, you only need to put away a little away each month (in addition to maxing out your 401K).
  6. Build cash. Having cash gives you flexibility when markets fluctuate.
  7. Start gathering information on Social Security. Run the numbers on the different scenarios with a financial advisor to determine how to max the amount of your Social Security income.
  8. Create a relationship with a financial professional now, so it’s already in place when you retire and need to roll over your 401K and pension. By finding that person early, when you do retire, you’ll already have a relationship with someone you trust.

If you have any questions about planning for your retirement, please contact us.

This article originally appeared in the IRC Wealth blog

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