Here’s what you need to do now if you hope to retire in 2018
Ideally, you've engaged in retirement planning and saving for many years before making this decision. Now is the time you want to enjoy a happy retirement and relax after spending most of your life in the working world. The good news is, with some preparation you can glide into your retirement party and bask in your co-workers' wishes for a happy retirement. We'll show you how to prepare for the next step.
Here's what you need to do now if you hope to retire in 2018.
Keep saving as much as you can
Don't relax when it comes to saving. Keep pushing toward your goal. Instead of spending raises and bonuses, save that money. Also, continue to take advantage of catch-up contributions. For 2018, if you participate in a 401(k), 403(b), most 457 plans, or the federal government's Thrift Savings Plan, you're allowed to contribute an annual maximum of $18,500. If you're age 50 or older, you can make catch-up contributions in the above plans up to $6,000. Maximum annual contributions to an IRA are capped at $5,500. The annual catch-up contribution for an IRA is $1,000.¹
Decide what to do with your 401(k)
Just because you're close to the end of your working years doesn't mean retirement planning stops. Once you get closer to retirement, you'll need to decide what to do with the cash in your 401(k). You have several options. You can decide to take a lump-sum distribution, leave your money in the retirement plan, purchase an annuity, roll your retirement savings into an IRA, or take periodic distributions. An advisor can help you go over the pros and cons of each, so you can decide what makes the most sense for your situation.
Know what income will be coming to you
Take time to check how much your Social Security benefits will be. "My Social Security Account" lists earnings history, taxes paid, and a personalized estimate of your future Social Security benefit. You can use this tool to find out how much you'll be eligible to receive from Social Security during retirement. You can also discover the amount you'll qualify for if you become disabled and how much your family members might receive if you die.
Make a plan for additional income streams
If one of your retirement concerns is that you'll outlive your money or have a reduced standard of living, you're not alone. Roughly 40% of baby boomers say they expect to experience a reduced standard of living during their golden years, according to the Transamerica Center for Retirement Studies.² However, you don't have to have a $1 million nest egg to get by. You can live comfortably in retirement by planning ahead. For example, consider speaking to your employer about continuing your work relationship as a consultant or freelancer. Also, if you have space, think about renting out a room in your home.
Pay down debt
Padding your retirement nest egg with additional income streams won't matter much if you're still paying down high-interest debt. All of that extra money will just go toward debt payments. Make sure debts such as credit cards are under control before you leave the workforce for good. Also get a handle on poor spending habits. If you have a problem with spending, seek out services such as Debtors Anonymous.
Make sure you're properly insured
Make sure the details of your life, disability, and health insurance are sorted out before you retire. If you're not sure how much life insurance you'll need, consider the life insurance calculator developed by Life Happens to help calculate your needs. When it comes to health insurance, have a plan in place if you quit before the retirement age required to receive Medicare. You'll need to make sure you're covered during the period between when you retire and become eligible for Medicare benefits.
Make a retirement budget
Retirement planning can be overwhelming. One way to ease your anxiety is to devise a clear plan for your money. Your financial situation will change after you leave your job so it's important to take that into account when managing your money. Once you have an idea of what you will be getting from pensions, Social Security, and other sources of income, take note of expenses and any outstanding debts. From there, you'll be able to see how much money you'll have to live on.
Cut off unhealthy financial relationships
Last but not least, take time to reevaluate your financial relationships. If you've been a human ATM for friends and family, it's time to stop. Lending money to friends and family might be the way you show concern, but this behavior could eventually cause a retirement crisis. This is because most of the time you won't get all your money back. A study by the Journal of Economic Psychology found that borrowers have a tendency to treat loans as gifts.³
Take a close look at toxic relationships and take the necessary steps to remove or at least distance yourself from them. This way you can have peace of mind and increase your chances of retiring in 2018.
² Transamerica Center for Retirement Studies, Perspectives on Retirement: Baby Boomers, Generation X, and Millennials: 17th Annual Transamerica Retirement Survey of Workers, August 2016
³ Journal of Economic Psychology, Lenders’ blind trust and borrowers’ blind spots: A descriptive investigation of personal loans, October 2012