Mike Milojevich, certified financial planner and a principal and lead adviser at Highland Private Wealth Management in Bellevue, shares five tips on preparing for retirement from the standpoint of someone nearer retirement than not, the context being within roughly five to 10 years of that (hopefully) magical time.
Know Your Numbers
We encourage our clients who are thinking about retirement to develop a very realistic budget for their expenses in retirement. Think about how those might differ from today — whether they include more travel, remodeling the house, whatever those things look like. Then inventory their current resources and potential sources of income in retirement … things like their retirement accounts, IRAs and 401(k)s, as well as Social Security income and pension. … And if there’s a gap, lay out a plan, whether it’s someone that needs to work a little bit longer, or whether there’s some give and take in those expenses in retirement.
Don’t Leave Money On The Table
Many employers will offer retirement plans, such as 401(k)s; some of these will offer matches, so make sure that you’re taking advantage of the free money. Make sure that you’re understanding where you can save and get tax benefits. … Employers may also offer things like Health Savings Accounts (HSAs), which allow for pretax savings to be used tax-free on medical expenses in retirement. For those folks that are closer to that Social Security age … (think) about when to take it. … You can take Social Security as early as 62, but your benefit increases fairly substantially if you delay taking it until later ages, the maximum age being 70.
Patch Your Cash-Flow Leaks
After taking advantage of any of the free money, instead of contributing to additional savings, it may actually be beneficial to pay down debt, … particularly if someone has high-interest debt such as credit card debt. … Paying down that debt by the time one retires will really ensure that we maximize the cash flow in retirement. Some people think, “If I pay down debt, I can’t save”; well, your savings probably is not going to keep up with 19% (credit card interest). So people need to think about paying down debt as a guaranteed return … on your savings. … Sometimes that would include mortgage debt, even though that tends to be a little bit more affordable, but entering retirement … eliminating those unnecessary or burdensome cash outflows is really beneficial.
Be Health Care Aware
Medical care and long-term care can be hugely significant expenses and risks to most people’s retirement plans. If someone’s planning on retiring before they’re eligible for Medicare at age 65, (they) really need to factor in the cost of individual health care plans. They tend to be more expensive and not cover as much as plans through an employer. … If someone’s retiring fairly early, at age 60 or something, it’s likely they’ll have to have an individual plan until they get to Medicare. (Make) sure to factor that in. … Be educated about Medicare when you approach that age, because there are a couple of different options to supplement Medicare: basic Part A and B, which are Medicare supplemental plans, and then Medicare Advantage plans. … (Something like half of men and almost half of women) will need long-term care at some point during their life … so have a plan for that, whether it’s through a long-term care policy or through self-insuring. For many people, the equity that’s built up in their home can be an emergency source of liquidity for long-term care, and that could be a plan, for a reverse mortgage.
Living Life By Design
Whether someone is passionate about their career or business or not, oftentimes they underestimate the sense of identity and purpose that a career provides, and how they replace that in retirement is going to be important. … We encourage people to think about, “What have you always wanted to try for the first time that you hadn’t had time for?” — write a book, become an adjunct professor, get involved in your local community and in nonprofits you care about, spend more time with your grandchildren, be a mentor. This is also an adjustment, particularly if there’s a nonworking spouse at home; it’s a very big adjustment for them, too. Take the time to think about it, and discuss well in advance what an ideal life in retirement looks like for both the retiree and the nonworking spouse, if that’s the situation.
