As you wind down your career, it's a good idea to take stock of your retirement planning while you still have some time to make any necessary changes to ensure a successful and comfortable retirement. If you plan to retire in the next five years, here are some important steps to take now.
1. Take Your Financial Temperature
Whether you've been diligently setting money aside for retirement since your 20s or you only recently started saving, your first order of business is to check on your potential retirement finances. You'll want to figure out how much money you will be living on in retirement based on the size of your nest egg, the benefits you expect from Social Security and any pensions you might receive. Calculating your projected annual retirement income can help you determine whether you're on track and if you need to set aside more money to live within your budget.
2. Meet With a Financial Professional
Partnering with a certified financial planner (CFP) can help you assess your financial situation and figure out how to improve it. Your CFP can guide you through a number of potential scenarios that could affect your retirement income, and they can also assist you with producing a pre-retirement budget to help you maximize your retirement savings.
If you don't already work with a financial planner, the National Association of Personal Financial Advisors (NAPFA) can be a good resource for finding one in your area. Make sure you interview your prospective CFP before you decide to work with them. At a minimum, you'll want to know how they're compensated and should ask to see some sample portfolios before you partner with them.
3. Make a Plan for Health Care in Retirement
If you are 60 years old and plan to retire in five years, you may assume that your health care will be taken care of in retirement, since you will be eligible for Medicare once you turn 65. However, health care in retirement may be more complex and expensive than you might expect.
If you retire prior to age 65, you will need to find alternative health insurance coverage to bridge the gap between when you retire and when you reach the age of Medicare eligibility. Purchasing individual coverage through the Affordable Care Act's health insurance marketplace may be the simplest method.
In addition, while Medicare will cover a majority of your health care costs in retirement, it may not cover everything you need. For example, prescription drug costs are often a coverage gap that can take retirees by surprise.
Planning ahead for your health care costs — which should include taking good care of yourself and learning what coverage you can expect to receive — can help you protect your retirement income.
4. Consider Insurance
There are two types of insurance that anyone planning to retire in five years may need. The first is disability insurance. This type of policy will protect your income in the event that you're unable to work due to an illness or injury. This is important in the years leading up to retirement, as losing your ability to earn an income during that time could seriously derail your plans.
Additionally, you may want to look into long-term care insurance. Long-term care, which is the kind of nonmedical daily living care that is not covered by Medicare, can be quite expensive. While the cost of long-term care insurance can be prohibitive, it is worthwhile to see if a policy would make sense for you. You may even be able to get a life insurance policy that has a built-in long-term care option. Your CFP can help you figure this out.
If you will retire in five years, now may be a good time to look for and move into a smaller place. Not only can you access your current home's equity that way, potentially bolstering your nest egg, but you may also be able to lower your property taxes and get settled into a new home before you make the big transition to retirement.
Now is the time to make proactive choices about your finances. This may include partnering with a financial professional, planning for health care, getting adequate insurance and downsizing. Taking these steps now can help you set yourself up for a successful and less stressful retirement in five years.