10 years out: retirement steps to take now
Retire
The final 10 years before retirement is the perfect time to make saving for retirement a real priority.1 Here are several ways you can boost your savings in the final stretch, to ensure your retirement is everything you dreamt it would be.
1. Take stock of your finances and goals
First things first. Before taking action, now is a good time to revisit what you think your income will be once you retire, what you’ve saved so far and what you’d like to have saved. At 10 years out, those goals should be clearer than the ones you set 20 or 30 years ago. These goals won’t look the same for everyone. They should be personal to you and based on the kind of retirement you want. Consider what the cost of living will look like in your desired neighborhood; what travel costs might be if family lives far away; how much money you’ll need for planned vacations…etc. Determining these things early on will help guide your next moves.
2. Pay down remaining debt
Managing debt before retirement is one of the best things you can do for yourself. Credit card debt is a good place to start, as interest rates can be high. If you can’t pay it all off now, consider reaching out to your credit card company to see if you can negotiate a lower interest rate.2 If you have a good payment history and you’ve been with the same company for a long time, they might consider it.
Mortgage debt, a big debt for most, is a good bet to tackle next. Refinancing or paying off your mortgage before retirement could help save you thousands of dollars in interest and free up those funds to put towards savings instead. Think about making extra payments or consulting a financial advisor.
Lastly, this one probably goes without saying, but now’s a good time to avoid taking on new, large debt3 just in case you decide you’d like to retire sooner than originally planned.
3. Take full advantage of catch-up contributions
You’ve been contributing to your retirement account consistently for years now, which is great, but did you know that once you turn 50, you can take things to the next level? (Less than half4 of Gen Xers, many of whom are eligible for this incentive, are aware of it.) If you’re 50 or older, and already contributing the maximum amount permitted, you can make what’s called a catch-up contribution to your retirement savings, giving your account balance a helpful boost in these crucial years.
You can add $6,500 annually to your 401(k) in addition to the max of $19,5005; and $1,0006 annually to a traditional IRA7 on top of the standard $6,000.8 These contributions can be made any time during the year you turn 509, even if you’re not 50 just yet. Note: These are the current rates, but they change slightly from year-to-year, so make sure to double check them.
4. Build out an emergency fund
This is one of the best ways to safeguard your nest egg during retirement. Experts recommend that by the time you retire you have at least 12 to 18 months of money saved for emergencies.10
A good place to start is to try to anticipate what unexpected costs11 might be — for example, your house might need a new roof in 10 years. Being prepared for these costs, and saving for them now, can provide powerful peace of mind. This is a good time to consider moving funds to a high-yield savings account12, which often offers better interest rates and charges no fees.
5. Adjust your risk tolerance and make smart investments
To help protect the assets you’ve already built up, it’s important to adjust your risk threshold in the years before retirement - the goal at this stage is a well-balanced portfolio. You want to invest in a mix that will allow you to grow your savings without taking on so much risk that you’d end up needing to push your retirement back a few years. Consider shifting your money more towards bonds rather than stocks but be sure to keep stocks in the mix – they can help ensure continued growth during your retirement years.13
No matter where you are in the retirement planning process, taking these steps will put you on the right path to an amazing retirement. For further tips and financial advice about how to make informed decisions and develop a plan for the future, connect with a John Hancock expert today.
Citations:
1 The Balance: “The Steps You Need to Take Before Retirement” by Scott Spann, November 28, 2020 https://www.thebalance.com/steps-to-take-before-retirement-4144782
2 The Balance: “How To Lower Your Credit Card Interest Rates” by Miriam Caldwell, February 23, 2021 https://www.thebalance.com/how-to-lower-your-credit-card-interest-rate-2385757
3 CNBC: “How you manage debt will impact those retirement dreams” by Kelli B. Grant, December 18, 2018 https://www.cnbc.com/2018/12/17/how-to-manage-debt-ahead-of-retirement.html
4 Transamerica Center for Retirement Studies: “What Is “Retirement”? Three Generations Prepare for Older Age” April 2019 https://transamericacenter.org/docs/default-source/retirement-survey-of-workers/tcrs2019_sr_what_is_retirement_by_generation.pdf
5 Forbes: “How Much Can You Contribute To Your 401(k) For 2020?” by David Rae, January 16, 2020 https://www.forbes.com/sites/davidrae/2020/01/16/401k-for-2020/#56e817637903
6 Investopedia: “Catch-Up Contribution” by Julia Kagan, January 26, 2021 https://www.investopedia.com/terms/c/catchupcontribution.asp
7 IRS.gov: “Retirement Topics - Catch-Up Contributions” November 10, 2020 https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions
8 NerdWallet: “IRA Contribution Limits for 2020 and 2021” by Arielle O’Shea, March 17, 2021 https://www.nerdwallet.com/article/investing/ira-contribution-limits
9 U.S. News: “IRA Contribution Limits for 2020 and 2021” by Emily Brandon, December 8, 2020 https://money.usnews.com/money/retirement/401ks/articles/how-to-take-advantage-of-401-k-catch-up-contributions
10 Money: “Here's How Much Cash You Need in Retirement” by Donna Rosato, July 9, 2015 https://money.com/retirement-savings-emergency-fund-cash/
11 Investopedia: “Will Your Retirement Income Be Enough?” by Jean Folger, February 21, 2021 https://www.investopedia.com/retirement/retirement-income-planning/
12 The Balance: “What Amount Do Retirees Need in an Emergency Fund?” by Rebecca Lake, December 1, 2020 https://www.thebalance.com/how-much-emergency-savings-do-retirees-need-4582473
13 Investopedia: “How to Adjust and Renew Your Portfolio” by Amy Fontinelle, January 24, 2020 https://www.investopedia.com/investing/how-renew-and-adjust-your-portfolio/
Financial planning and investment advice provided by John Hancock Personal Financial Services, LLC (“JHPFS”), an SEC registered investment adviser. Investments: not FDIC insured – No Bank Guarantee – May Lose Value. Investing involves risk, including loss of principal, and past performance does not guarantee future results. Diversified portfolios and asset allocation do not guarantee profit or protect against loss. Nothing on this site should be construed to be an offer, solicitation of an offer, or recommendation to buy or sell any security. Before investing, consider your investment objectives and JHPFS’s fees. JHPFS does not provide legal or tax advice and investors should consult with their personal legal and tax advisors prior to purchasing a financial plan or making any investment.