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The 5-year Countdown to Retirement

by Claire Kobylanski

While you should think about retirement planning as early as possible, the five years leading up to retirement are critical. If you believe you are 5 years or less away from retirement, now is the time to seriously take a look at your finances and get a plan in place.

The New York Times recently shared an article called “Countdown to Retirement: A Five Year Plan.” The article provides a list of key items you should be concentrating on in each of these five crucial years leading up to retirement. You can check out the original article here.

5 Years to Go

This is the year for a “financial check-up.” Are you on track to meet your retirement spending needs based on your saved assets and retirement income sources (Social Security, pension)? Even if your projections are not what you want them to be, it is important to know where you stand so you can make adjustments. Do you need to cut back spending now in order to save? Do you need to adjust your asset allocation to take advantage of higher expected returns? Rockbridge can help you run this analysis, develop recommendations for the next five years in a financial plan, and get you on the right track.

4 Years to Go

Now is a good time to think about where you would like to live in retirement in your later years. If you were thinking about living in a retirement community, it may not be a bad idea to start researching now. You can get an idea of the cost and plan for it if necessary, and many retirement communities have long wait lists. You should also consider how you would fund a long-term care event. Have you built up enough assets to self-insure? Is it appropriate to purchase long-term care insurance to cover the full or partial cost of care in a nursing home?

3 Years to Go

As important as it is to financially plan for retirement, it’s just as important to emotionally plan. How do you plan on filling your time? Many people say they want to travel, but what about from day to day? Whether it’s working part-time, volunteering, or devoting time to a hobby you love, you need to consider what your retirement looks like. This is also a good opportunity to evaluate your current home. Do you plan on selling and downsizing? If you plan on staying in this home, are they any updates you want to get done while you are still working? You may also want to consider if refinancing your home make sense or if you’d want to establish a HELOC for emergencies.

2 Years to Go

Talk to your tax advisor to see if there are any tax savings strategies you can benefit from. Roth conversions are popular if you have a large balance in pre-tax accounts (traditional IRAs or 401(k)s). Additionally, if you drop to a lower tax bracket in retirement, it may be a good opportunity to pay the taxes on some of that money and convert to a Roth IRA which will never be taxed again before you have to start your required minimum distributions. This is also a good opportunity to rerun your financial plan and practice” being retired. See how it feels to live off your retirement spending budget over the next couple of years!

1 Year to Go

Have you thought about health insurance once you retire? If you are retiring prior to age 65 when you would be eligible for Medicare, you will have to fund the cost of your own health insurance. Ask your employer if they offer any form of retiree healthcare benefits. You also have the option to use COBRA for your current coverage or to purchase a policy through the exchange. This is also a good time to take a look at your asset allocation again. If you’re on track, maybe you can start scaling back some of your stock exposure. It’s never a bad idea to have some extra cash available or to make use of short-term investments just in case the market takes a hit right when you retire.

We know there is a lot to think about when it comes to planning for retirement, and Rockbridge is here to help!

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