7 steps to make a 10-year retirement plan

Creating a comfortable retirement life may be the biggest financial challenge anyone can face. Unfortunately, this is a challenge that many staff are not prepared for.

A 2019 GOBankingRates.com study found that 64% of employees surveyed saved less than $10,000 for retirement. To make matters worse, nearly 40% of workers 55 and older surveyed said they had no retirement savings. Some people in this group may have pensions to rely on, but most people are not financially prepared to withdraw from the labor market.

Social security is only used to replace part of the income in retirement.Therefore, those who find that they are about 10 years away from retirement, no matter how much money they have saved, need to make a plan to successfully reach the finish line.

Key points

  • If you still have 10 years to retire, it is possible to increase your savings significantly.
  • Take a moment to evaluate your situation-how much money you have saved, your source of income, your retirement goals, your retirement budget, and the age at which you wish to stop working.
  • If there is a gap between your savings and your needs, take steps to save more — increase 401(k) and IRA contributions, set up automatic salary deductions for savings accounts — and reduce spending.
  • It may be useful to hire a financial planner to help you stay on track and suggest other ways to increase your retirement savings.

Start a 10-year plan

Ten years is still enough to achieve a solid financial position. “It’s never too late! In the next 10 years, with proper planning, you may accumulate a fortune,” said Patrick Traverse, MoneyCoach Financial Advisor and CFP in Mt. Pleasant, South Carolina. (Patrick Traverse) says

People who have not saved a lot of money need to honestly assess where they are and what sacrifices they are willing to make. Taking the necessary steps now can create a different world in the future.

1. Assess your current situation

No one wants to admit that they may not be ready to retire, but an honest assessment of your current financial situation is essential to develop a plan that can accurately address any shortcomings.

First calculate how much you have accumulated in the account designated for retirement. This includes balances in individual retirement accounts (IRA) and workplace retirement plans, such as 401(k) or 403(b). If you plan to use taxable accounts exclusively for retirement, include taxable accounts, but omit money saved for emergencies or larger purchases (such as a new car).

64%

The number of Americans who save less than $10,000 for retirement.

2. Determine the source of income

Existing retirement savings should provide the largest share of monthly income after retirement, but it may not be the only source. Additional income can come from many sources other than savings, and you should also consider this money.

Most workers are eligible for social security benefits, depending on factors such as occupational income, length of work, and age at which they receive benefits.For workers who currently have no retirement savings, this may be their only retirement asset. The government’s social security website provides a retirement benefit estimator to help determine the type of monthly income you can expect after retirement.

If you are lucky enough to participate in a pension plan, you should add the monthly income of the asset. You can also calculate the income from part-time work during retirement.

3. Consider your retirement goals

This proved to be an important factor in retirement planning. People who plan to downsize and live a quiet, humble lifestyle after retirement have very different financial needs from retirees who want to travel extensively.

You should develop a monthly budget to estimate your regular expenses after retirement, such as housing, food, dining out, and leisure activities. Health and medical expenses (such as life insurance, long-term care insurance, prescription drugs, and medical visits) can be significant later in life, so be sure to include them in your budget estimates.

4. Set a target retirement age

People who are 10 years away from retirement, if they are financially prepared and eager to withdraw from the labor market, they may be only 45 years old, if not, they may be 65 or 70 years old. People with longer life expectancy should make estimates of their retirement plans, assuming they need to fund a retirement that may last three years or more.

Planning for retirement means not only assessing your expected spending habits when you retire, but also assessing how many years your retirement can last. A retirement that lasts 30 to 40 years looks very different from a retirement that may only last half the time. Although early retirement may be a goal for many workers, a reasonable target retirement date can strike a balance between the size of the retirement portfolio and the retirement time that can be fully supported by the reserves.

Kirk Chisholm, wealth manager and head of Innovative Wealth Management in Lexington, Massachusetts, said: “The best way to determine your retirement target date is to consider when you have enough money to spend your retirement life without running out of money.” If you The estimate is a bit off, and it’s always best to make conservative assumptions. ”

Eliminating debts, especially high-interest debts such as credit cards, is critical to controlling financial conditions.

5. Facing any shortcomings

All the numbers compiled so far should help answer the most important question: Do the accumulated retirement assets exceed the expected amount required to provide adequate funding for retirement? If the answer is yes, then it is important to continue to fund your retirement account to keep pace and stay on track. If the answer is no, then it is time to figure out how to close the gap.

With 10 years to go before retirement, those who are behind schedule need to find ways to increase their savings accounts. To make meaningful changes, it may be necessary to combine an increase in the savings rate with the reduction of unnecessary expenditures. It is important to figure out how much you still need to save to make up for the shortfall, and make appropriate changes to the amount of your contributions to IRA and 401(k) accounts. Automatic savings options that are deducted from payroll or bank accounts are usually ideal for keeping savings on track.

You should also work hard to eliminate debt. Experian data shows that in 2019, Americans’ credit card debt reached US$829 billion, and the average credit card balance was US$6194. Since most debt is tied to high interest rates, getting rid of it will have a huge impact on your monthly budget.

“Actually, financial advisors do not have any financial magic to make your situation better,” said Mark T. Hebner, founder and president of Index Fund Advisors, Inc., Irvine, California and author of Index Funds: For active investors 12-step recovery plan. “This will require hard work and getting used to living less after retirement. This doesn’t mean it can’t be done, but it’s crucial to make a transition plan and people responsible for accountability and support.”

High-risk investments are more meaningful early in life and are usually unwise during retirement.

6. Assess your risk tolerance

Different age groups have different risk tolerance. As workers begin to approach retirement age, portfolio allocation should gradually become more conservative in order to preserve accumulated savings. A bear market that is only a few years away from retirement may weaken your plan to exit the labor market on time. The current retirement portfolio should focus on high-quality dividend-paying stocks and investment-grade bonds to generate conservative growth and income.

One guideline suggests that investors should subtract their age from 110 to determine the amount of investment in stocks. For example, a 70-year-old man’s goal is to allocate 40% of stocks and 60% of bonds.

If your savings lag behind, you may increase portfolio risk in an attempt to generate above-average returns. Although this strategy may sometimes be successful, it usually produces different results. Investors who adopt high-risk strategies sometimes find themselves investing in riskier assets at the wrong time, making the situation worse.

Depending on your preferences and tolerance, some additional risks may be appropriate, but taking too much risk may be dangerous. In this case, a 10% increase in stock allocation may be appropriate for risk tolerance.

7. Consult a financial adviser

Money management is a professional field for a relatively small number of people. Consulting a financial adviser or planner may be a wise move for those who want a professional to monitor their personal situation. A good planner can ensure that the retirement portfolio maintains an asset allocation commensurate with the risks, and in some cases, can also advise on broader estate planning issues.

On average, the annual service fees charged by planners account for approximately 1% of the total assets under management. It is generally recommended to choose a planner who is paid based on the size of the portfolio under management, rather than someone who earns commissions based on the products they sell.

Bottom line

If you have hardly saved for retirement, you need to treat this as a wake-up call and take it seriously to turn things around.

John Frye, chief investment officer of Crane Asset Management, LLC in Beverly Hills, said: “If you are 55 years old and have’insufficient savings,’ then you’d better take drastic action while still being employed and generating income. Come and catch up.” California, “It is said that people in their 50s (and 60s) are their’earning years’, when they spend less-the children are gone, the house is either paid off, or a few years I bought it at a low price before—wait until they can save more take-home wages. Then get busy.”

It is better to tighten your belt now than when you were forced to tighten it in your eighties.

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