Here’s one last reminder: If you are looking at retirement in the next few years, the end of the year is the perfect time go get your house in order.
In a column last month, I offered five tips to help you get ready for that retirement, even if it’s a few years down the line.
Well, today, I have seven more retirement tips. And, as I said before, these are not necessarily year-end tax tips — or at least not all of them. These are things that you should be considering or preparing to do for the most successful retirement possible. And, many financial planners say, the end of the year is the perfect time to get them done — or to at least start thinking about them.
So, here you go.
1. If you have a 401(k), it’s time to start looking at the options. When you retire, are you going to leave your nest egg with your company? Or do you want to switch it to an IRA?
“If you’re nearing retirement you have multiple options on what to do with your 401(k)” says Chris Carosa, financial adviser and author of Hey! What’s My Number? How to Improve the Odds You Will Retire In Comfort.
“There is no consensus on what the best thing is to do,” says Carosa. If you have a really good 401(k), you may have some excellent, low-cost investment options. If you want to roll it over, you’ll get a broader array of investments from which to choose. “You should start researching it now,” he says.
2. Do a budget. “The first thing that any retiree should should do is know what their budget is,” says Dan McElwee, executive vice president of Ventura Wealth Management in Princeton, N.J. “And what I see very frequently is people do not have a firm grasp on what their expenses will be once they retire.”
He says one way is to simply track your monthly expenses, and do it honestly. “It has to be an honest evaluation of what your expenses are going to be,” McElwee says.
“Run the numbers,” says Dan Keady, senior director of planning at TIAA-CREF. “Get a start and run the basic numbers to get an idea of where you are. Here’s an amazing statistic: Between (the ages of ) 55 and 64, only 32% of people have actually run the numbers to see if they are on track for retirement, even though retirement readiness is one of the biggest things they are thinking about.”
Don’t be afraid to take advantage of technology, says Carosa. “If that means using software out there that helps keep track of your personal expenses, do that. A lot of times, people are surprised that they don’t have as many expenses after retirement. It’s a good thing. So they think they can spend more money. But as they get older, medical expenses can get out of control, and they have to adjust their living arrangements accordingly.”
3. Start thinking about how much and how you want to withdraw from your nest egg. Katherine Dean, senior vice president and managing director of wealth planning at Wells Fargo Private Bank, says people spend plenty of time figuring savings strategies, but little time figuring out withdrawals.
“The first thing is have a plan in place,” she says. “No one can guarantee you won’t run out of money. There’s always some unforeseen thing. If you have plan, you can adapt. Go into your plan realistically. You are setting yourself up for better likelihood of success.”
4. Review your beneficiary designations. “Year-end is a good time to review your beneficiary designations,” says Joe Jennings, wealth director of PNC. “Your family situation can change pretty dramatically from year to year, with marriage, divorce, births, deaths. Sometimes you can forget to review it and realize potentially too late that the beneficiary designation is no longer appropriate. We recommend that you do it at least once a year.”
5. Consider a IRA Roth conversion. You can convert a traditional IRA to a Roth, although you have to pay taxes on the amount you convert. The advantage: Withdrawals from a Roth, if done property, aren’t taxed.
“A person close to retirement should consider a Roth conversion in the new year,” says Herb White, of Life Certain Wealth Solutions in Denver. Putting retirement funds in a non-taxable account gives you much more control over your tax situation, he says.
“Once you are retired, you will reach a point where it’s great to have a pool of money you can tap into income-tax-free,” says Marcy Keckler, vice president of financial advice strategy at Ameriprise Financial. “Pulling the next dollar from a Roth won’t have income tax ramifications.”
6. Evaluate the quality of your financial relationships, says McElwee. That includes your financial adviser, insurance professional, your accountant and your attorney.
“These are the people who can have a significant impact on your life,” he says. “Their recommendations will have a long-term impact on you. Do they have your best interests at heart?”
7. Estimate out-of-pocket health care costs — beyond what Medicare will cover,suggests Debbie Banda, AARP interim vice president for financial security.
“Health care costs can have a significant impact on retirement savings, which many Americans underestimate and don’t plan for,” she says. “Know that you will most likely have health care costs that increase as you age, and AARP advises you to plan for those costs today.”