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While the traditional “retirement age” is 66, there’s no one-size-fits-all retirement age or plan. You may want to retire early or continue to work beyond the traditional age. This is a personal choice and event that deserves careful consideration and a comprehensive plan at any age. When you’re nearing your retirement age, there are a few things to keep in mind.
If you haven’t already been keeping track of what you’ll need to retire, it’s not too late to nail that number down. You can use Vanguard’s retirement calculator to get personalized insight into your future assets and spending. If you’ve done the math before, but you haven’t taken a look at it in a while, go through it again to make sure nothing has changed. Few personal finance paths are stagnant. They change, evolve, and grow in many different directions. Knowing what you’ll need will help you stay focused.
Planning and adjusting as you move toward retirement will help you take action and do what needs to be done to ensure a smooth transition into this new chapter of your life. Revisit your plan often to see where you stand, what needs to be done to get back on track, and what has changed – for better or worse. If you’ve found that you’re not on the right track, it may be time for a new budget breakdown, additional contributions to savings, and cost-cutting in other areas.
Many people have been dipping into their retirement accounts early this year instead of adding to it due to reduced hours or job losses. Changes under the CARES act made this easier. But there are a few things to consider before cashing out your 401(k) due to COVID-19. There may still be reduced penalties for early withdrawals, but it’s not all upsides. By pulling money out early, you’ll leave yourself less for later and you’ll also risk missing out on potential gains.
What will your days look like once you’ve retired? Will you live a frugal lifestyle, cooking each of your meals in your kitchen, and spending time inside your home and out in the yard? Or are you looking forward to having more time to travel, try new restaurants, and explore your options? Expensive hobbies, frequent travel, and luxurious meals can quickly eat away at your retirement savings. You may have budgeted for your bills (mortgage, utilities, food, insurance, etc.), but what about everything beyond that? Designing your days before you hit your desired retirement age will help you avoid falling short too quickly into your newfound freedom.
Look at each category of spending you have now and estimate how they’ll change once you’re retired. Mark which ones will be fixed and which ones will fluctuate. If you’re close to paying off your mortgage, a car loan, or other evolving costs, you can confidently stroll into your retirement knowing that you’ll need less income each month than you need now.
Now is a good time to see how well your expenses and retirement income align. Make a full list of each income stream you have to tap into. Write down how much money you have in your 401(k), what you expect to receive from Social Security (the Social Security estimator tool will give you a good idea of where you stand), funds from other retirement accounts, personal savings, and beyond. If you have an investment property, rent out a room, or practice a creative hobby like flipping free furniture on the side. Try to add these funds in, too. Determine whether your income more than covers your expenses and activities, meets them, or needs to be increased.
Adding an investment property to your portfolio or renting out extra space are two of the favorites for additional income among those nearing retirement age, but they’re far from your only options. Even small changes add up. Whether it’s grilling on a budget, making your home more energy-efficient, or saving on your next staycation, the more you can save now, the better off you’ll be later.