Did you get the memo? Retirement is the new American Dream. Here are a few ideas for those within five years of retirement:
Suppose you carry a monthly mortgage payment into retirement, and you rely on your investments to produce retirement income. During the years when the value of your investments increase, then you are in good shape. It is during the years when the value of your investments decline that cause concern.
Even though the dollar amount of the mortgage payment is the same, the impact of that withdrawal on your account value is more dramatic. Lenders still want to be paid on time regardless of how your investments perform. Therefore, work towards eliminating, or at least reducing, your debt load as you approach retirement.
One way to prepare for this pending pay cut is to adjust your budget ahead of time. Two years before retiring, ask your benefits specialist for an updated after-tax pension estimate. Then, begin adjusting your lifestyle to that income. One way to force this adjustment is by increasing your retirement contributions. Or, you could defer the difference in your expected retirement income and current pay into a separate account to save for a special goal. An example might be the vacation of a lifetime that you postponed until retirement.
Either of these options allow you to get comfortable with the anticipated income change while simultaneously making progress toward an important personal goal.
With retirement comes many important decisions including: how to invest your money; how to turn a lump sum into income that you can use to pay your bills; and most importantly, how to help your money last as long as you do. In a perfect world, this should be someone with whom you have an existing professional relationship and want to entrust with this responsibility as you transition to this new phase.
Keep in mind that retirement is not an event. Instead, it is an ongoing period of your life that is segmented by multiple stages. Nothing can replace the value of preparation for what could be the next best years of your life.
Life is a journey. Plan for it.