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• Just 29% of people said they have a written retirement plan, according to a survey of 1,000 people with household income of $50,000 to $100,000, conducted for Wells Fargo Bank by Harris Interactive in 2013.
• 31% of workers are worried their money will run out as early as 15 years into retirement, according to a 2015 survey of about 5,000 U.S. workers by consulting company Willis Towers Watson.
• 31% of retirees said they had no specific expectations about retirement spending, according to a 2014 survey of 1,206 adults by financial-services firm PNC.
It’s time to start looking ahead, people. A simple pen-to-paper approach may help ease your worries. Consider, too, that retirement may come earlier than you think. While the median expected retirement age is 65, the median actual retirement age is 60, according to a survey in 2015 by the Society of Actuaries.
“Pre-retirees are consistently expecting to retire at a lot later age than they are actually retiring,” says Anna Rappaport, chair of the Society of Actuaries Committee on Post Retirement Needs and Risks.
Another reason to plan early: there’s no one right answer for everyone. You’ll need time to research topics. For example, creating retirement income may mean taking bigger withdrawals from savings so you can delay Social Security.
Here are some ideas to get you started:
Take a stab at a plan
Start looking at what your retirement income and expenses might be. Use a spreadsheet, pick up that pen, or use an online tool, such as this one from Vanguard. Or this from Fidelity.
Don’t forget one-time expenses. In focus groups, Rappaport says, retirees often fail to account for one-time outlays, such as a new roof or dental care.
Next, think about income. Generally, that means Social Security and personal savings.
Read more: The best way to tap retirement investment accounts.
Consider carefully when to claim Social Security. Each year you delay claiming brings an 8% boost to benefits, up until age 70. Try this Consumer Financial Protection Bureau claiming calculator.
For homeowners, the house may be a source of retirement income. Weigh your options, including downsizing or a reverse mortgage (big upfront costs but can provide much-needed retirement income).
“In some instances, people are very house rich and cash poor,” Frank Paré, founder of PF Wealth Management Group LLC in Oakland, Calif. “To the extent that they have no mortgage or their mortgage is very low, they might want to monetize that home.”
Simplify finances
Consider consolidating financial accounts.
“We tend to accumulate these accounts” such as IRAs and 401(k)s, says Mike Lynch, the Charlotte, N.C.-based vice president of strategic markets at the Hartford Funds. That can make it difficult to manage money.
At the least, get all accounts with one provider to make management easier, he suggests.
It’s also a good time to review fees, says Don Linzer, chief executive of Schneider Downs Wealth Management Advisors.
He says he’s seen people investing in mutual funds with expense ratios in excess of 1.5% that don’t perform any better than ETFs charging eight basis points.
Look at tax diversification
Having accounts with different tax treatment can help you manage your tax bill. For example, you might withdraw just enough from an IRA (taxable income) to keep your income within a lower tax bracket and then pull the rest of your income from the Roth (tax-free distributions).
If you don’t have a Roth, research the idea of converting some money from a traditional IRA. You’ll owe taxes on the amount you convert, but it might be smart to pay those taxes sooner rather than later.
“There’s nothing wrong with doing a little bit at a time. Maybe five years out from retirement, maybe you do one-fifth a year,” Lynch says.
Adopt asset allocation
Consider asset allocation holistically, across all accounts. (Asset allocation, speaking very generally, means deciding what portion of your portfolio is invested in stocks and what portion is in bonds.)
Read: How to juggle multiple retirement accounts.
Retirement investing is simpler than you may realize. Check out what early retiree Mr. Money Mustache says about it.
Eradicate debt
Work on getting rid of consumer debt. “Can they start to really aggressively de-leverage, particularly the consumer debt portion of their balance sheet?” Paré says.
Fully 48% of pre-retirees and 35% of retirees said they had credit-card debt, and 40% of pre-retirees and 24% of retirees had car loans, according to the 2015 Society of Actuaries survey.
And we’re not talking small debt loads: 28% of pre-retirees with debt said they were carrying at least $30,000 in debt, excluding mortgages. Another 34% owed between $10,000 and $29,999, according to the SOA survey.
Once you’ve eradicated consumer debt, the next question is whether to pay off the mortgage. The decision depends on individual circumstances. If mortgage debt still provides a hefty tax deduction or if paying it down would decimate liquid assets, keeping it may make sense.
Consider health insurance
If you’ll be 65, then plan ahead to claim Medicare (avoid a late application, which can lead to a permanent penalty). If younger, will you get health care via a health-care exchange, spouse’s plan, Cobra through your job, or some other means?
Some health-care costs must be included in out-of-pocket retirement expenses. For example, Medicare doesn’t cover dental costs. Read: A smarter way to budget for retirement health-care costs.
Ramp up savings
Maximizing savings has the dual benefit of growing your nest egg while increasing your ability to live on less. (The more you save, the less you spend.)
“Most people don’t save enough for retirement. If you have five years to think about it, maybe you can make some last attempt to build that nest egg,” Linzer says.
Prepare to work
Planning to work part-time or as a consultant? Don’t assume you’ll be a shoo-in. “It’s a lot harder to make it happen than people expect,” Rappaport says.
Think about what you offer an employer. “What’s a match between what you will do well and what an employer wants you to do?” she suggests.
Develop skills and contacts, and assess how you approach employers. Attitude and inflexibility can hinder older Americans’ search for jobs (that’s not to discount age discrimination, which is alive and well in the U.S.).
“If
you’re used to having a certain respect, being treated in a certain
way, it’s easy to act entitled,” Rappaport says. “You need to be
flexible, accommodating and able to work with multiple generations.”
Culled from MarketWatch
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