Ten years may seem like forever, but it’s a perfect time to start plotting your final approach toward retirement. Planning this far in advance (or further) will give you ample time to make even massive changes in your financial picture. Here are ten things to do when you’re ten years from retirement.
Start With The 5 Things To Do When You’re 5 Years From Retirement.
In my previous blog post, I listed the Five Things To Do When You’re Five Years From Retirement. This is a great starting place if you’re ten years away – and it prepares you to revisit these items again in five years.
To quickly summarize, here are the first five steps of the process:
- Estimate Your Monthly Investment Income
- Plan Your Retirement Income and Taxes
- Price Out Healthcare
- Create a Retirement Budget
- Make a Plan for Your Debt
If you haven’t read the post, you can read it by clicking here. Once you’ve completed those first five items, it’s time to take things a step further.
6. Take Massive Action, If Needed
If you complete the first five steps, you may find that you are well short of having the kind of investments that you’ll need in order to have a comfortable retirement. If this is the case, don’t stress; it’s more common than you’d expect. However, now is the time to take massive action toward changing things.
Quite often, those who don’t properly plan ahead arrive at retirement with too few assets and even fewer options. Fortunately, you have time to create massive change if you start planning with a ten-year time horizon.
You may find that, in order to realistically have a comfortable retirement, you may need to:
- Downsize your home and move to a less expensive city,
- Reduce your lifestyle expenditures, including cars, boats, vacations and clothes, or
- Leave your spouse or partner if they have unrealistic lifestyle expectations and are unwilling to compromise.
I did say massive action, didn’t I? These are incredibly uncomfortable realities to face. However, it’s best to confront them before you’re retired and still have time to right the ship.
7. Make Catch-Up Contributions and Roth IRA Conversions
With retirement ten years away, it’s time to take advantage of catch-up contributions if you haven’t already. At age 50, you become eligible to save additional funds to your retirement accounts. For example, in 2020 you can save these additional amounts:
- $6,500 to a 401(k) or 403(b) plan
- $1,000 to a IRA or Roth IRA
By increasing your pre-tax savings into tax-deferred accounts, you not only increase your total retirement savings, you also reduce your income taxes. It’s a double dip toward a more secure retirement.
In addition to catch-up contributions in your retirement accounts, at age 55 you are eligible to make an additional $1,000 catch-up contributions to your Health Savings Account (HSA) each year. If you are eligible and haven’t taken advantage of an HSA, now is the time. When you turn 65, your HSA account essentially turns into an IRA, essentially giving you one more option for tax-deferred retirement savings.
Finally, look to make strategic partial Roth IRA conversions. This is different than a Roth IRA contribution, which can be limited based upon how much you earn. Instead, we’re talking about taking a portion of your existing IRA and converting them into Roth IRA assets.
Of course, you’ll have to pay income taxes on the amount you convert, so if you’re in a high tax bracket, partial Roth conversions may not be for you. Instead, plan to revisit this strategy in retirement when you have a lower tax bracket.
8. Make a Decision on Long Term Care Insurance
Long term care insurance can be a good option to pay for any potential assisted living or nursing home care expenses later in life. Unfortunately, the premiums on these policies are fairly high since the expenses can be quite significant.
The current environment for these policies is such that it creates a “Catch-22” for consumers. If you can afford the premiums, you can probably pay out-of-pocket. If you do need the policy, the premiums will most likely be too high to afford.
Because of the potentially steep premiums, it is good practice to make a decision on purchasing long term care insurance between age 50 and 55. The longer you wait, the higher the premiums. This includes the now popular hybrid universal life / long-term care insurance policy products.
No matter what your choice, it’s important that you have a plan for these late-in-life expenses. Ten years before retirement is the perfect time to make this decision.
9. Plan For The Lifestyle Transition
One thing that retirees very often overlook is the lifestyle transition that comes with such a big life change. Years of routines and social relationships at work are suddenly upended with retirement. Many people (and their spouses) struggle with the transition.
One successful strategy I’ve seen over my career as a financial advisor is to incorporate passion projects into your retirement plan. Whether it’s a business mentoring opportunity, volunteering at an animal shelter, starting a new hobby or simply being active in the community, having a sense of purpose and fun in your “next phase” can reduce the anxiety that comes with such a big life change.
Many people (and their spouses) struggle with the transition.
Start having conversations with your spouse or significant other about their vision of retired life. How does it look to them? Are there any agreements that need to be created to address a potential conflict? There can be relationship issues that arise when, after years spent at work, you’re suddenly spending all day together.
10. Get Professional Advice
Your retirement deserves to be more than a DIY project. A small number of people can remodel their home just as well as a contractor could – but not many! The same can be said for your retirement. Surrounding yourself with seasoned experts can help you ensure the job gets done right.
Your financial team should consist of the following:
- A financial advisor who is a member of NAPFA and has the CFP® designation
- A CPA who does both tax preparation and tax planning
- An attorney who focuses primarily on estate planning
This team of professionals can help by bringing in specialists when needed, such as insurance agents or business valuations experts.
Help from competent, experienced professionals is never free, but how much is your peace of mind worth?
If you are not working with a financial advisor (or if you are unhappy with your current advisor), click here to set up a quick, complementary introduction call to see if we are potentially a good fit. Prana Wealth is a fee-only financial advisor in Atlanta that works virtually with clients all across the U.S.
Revise and Update
Ideally, this process is an iterative one. You may find that your plan to pay off your debt may affect your retirement savings, which may affect your retirement budget. Be sure to lather, rinse and repeat this process annually.
To summarize, here are the ten things to do when you’re ten years away from retirement:
- Estimate Your Monthly Investment Income
- Plan Your Retirement Income and Taxes
- Price Out Healthcare
- Create a Retirement Budget
- Make a Plan for Your Debt
- Take Massive Action, If Needed
- Make Catch-Up Contributions and Roth IRA Conversions
- Make a Decision on Long Term Care Insurance
- Plan For The Lifestyle Transition
- Get Professional Advice
You can change a surprising amount in ten years, but it also has the potential to pass in a blink of an eye if you procrastinate. Unfortunately, too many people wait until the last minute to start their retirement planning. Don’t be one of them.
If you can begin working on these ten things to do when you’re ten years from retirement, you’ll be shocked at the progress you can achieve.
