If you are looking to retire in five years, now may be a suitable time to do a realistic retirement-needs analysis. The last five years before retirement may be a significant period, at least in terms of retirement preparation. This is because you must assess whether you can genuinely afford to leave your job within that time period. The amount of preparation you have done to date, as well as the results of that preparation, will greatly influence your decision.
- If you are financially prepared, you may only need to keep up your program and work toward your retirement goal. If you are not ready, you might be looking at more than five years—or a change in your intended retirement lifestyle.
- Let us look at an action plan you may use to assess your level of preparation as you embark on the five-year journey.
- Estimate how much you plan to spend each year by using your current budget.
- Compare your planned expenses to how much retirement income you can expect.
- Estimate your life expectancy and insure your assets against long-term illnesses.
- If your expenses are too high or your income is too low, you may have to make some changes or adjust your retirement schedule.
How Much Money Will You Need to Retire?
One reason many individuals struggle financially after retirement is a failure to do a good retirement needs analysis. An examination of your retirement needs may begin by multiplying your current income by a recommended proportion, such as 75% or 80%, for example. That is predicated on the idea that your expenses will decrease once you retire, which is not always the case. To gain a more accurate view of how much money you will need for retirement, do a comprehensive examination. This entails taking into account all areas of your money, including anything that may affect your cash flow and expenditures.
How Long Do You Expect to be Retired?
With a half-decade before your targeted retirement date, the main goal is to establish whether you can afford to retire by then. To get to this conclusion, you must first assess how long you plan to live. There is no way to know unless you are psychic. However, depending on your overall health and family history, you may make an educated guess. For example, if your family members live into their 80s and you are in good health, you may want to plan on being around at that age.
Do You Need to Insure Your Assets Against Long-Term Illness?
While you are thinking about life expectancy, examine whether your family has a history of costly, long-term illnesses. If this is the case, safeguarding your retirement funds should be high on your list of considerations. You should think about long-term care (LTC) insurance to pay for nursing home care or equivalent services if you ever need them. Having to utilize your retirement funds to cover costs might quickly deplete your nest egg. This is especially true if your assets are substantial enough that you are unlikely to qualify for Medicaid-funded nursing home care—but not so substantial that your assets would readily pay whatever happens to you. Consider what would happen if one couple grew ill and depleted the savings meant to sustain the other partner following the death of a spouse.
What Will Your Expenses Be When You Retire?
Another aspect of your retirement’s analysis is projecting your spending throughout retirement. This consists of compiling a list of the things or activities you intend to purchase and estimating how much they will cost. One approach is to start with your present budget. Then, delete or reduce expenditures that will no longer apply, such as the gasoline you need to go to and from work, and add or raise expenses that will be new after retirement (such as higher home utility bills or greater leisure trips, for example).
Are You On-Track or Off-Track?
Congratulations if the results of your retirement-needs study suggest that you are on track! You should continue to save the suggested amounts—and more if possible—and rebalance your portfolio as needed to ensure that it is appropriate for your retirement horizon. If the findings of your requirements analysis indicate that you are not financially prepared to retire in five years, consider the following: Could you alter your planned retirement lifestyle to dramatically cut your annual expenses? Would you be able to boost your retirement account contributions sufficiently over the next five years to generate enough income when you retire? Could you work part-time in retirement to supplement your income? If you are unable to lower your spending or raise your income, your best alternative may be to postpone retirement for a few more years. The longer you work, the more time you may have to save money, and the fewer years you may have to rely on your retirement resources to support yourself.
The Bottom Line:
It is always a good idea to assess and prepare for your retirement funds regularly. However, the last five years before your planned retirement date may be the most crucial. Because things may change, whether it is your career, your family circumstances, or your personal objectives. You will know whether you are on track and whether retirement is still a possibility at this stage. However, be prepared. If the stars do not align, you may have to adjust your date. You may also need to make additional changes, such as rebalancing your portfolio.
Contact us today for a complimentary review of your finances and to take the next step in executing a successful retirement strategy!
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This is for informational purposes only, does not constitute individual investment advice, and should not be relied upon as tax or legal advice. Please consult the appropriate professional regarding your individual circumstance.
There are retirement account risks that could diminish investor returns, such as, but not limited to: low interest rates, market volatility, withdrawal timing and sequence of returns risk, government policy uncertainty and increased longevity. Prospective investors should perform their own due diligence carefully and review the “Risk Factors” section of any prospectus, private placement memorandum or offering circular before considering any investment.
Advisory Services are offered through Asset Strategy Advisors, LLC (ASA), a SEC Registered Investment Advisor. Securities offered through registered representatives of Concorde Investment Services, LLC. (CIS), member of FINRA/SIPC. Insurance Services offered through Asset Strategy Financial Group, Inc. (ASFG). ASA, CIS, and ASFG are independent of each other. All research reports from third parties are for informational purposes only.