1. Know how much money you’re going to need to retire. The expenses you face now, when retirement is 15 to 20 years away, might give you an idea of what your monthly expenses might be like in retirement. One approach is to look at the bills you’re paying now and make adjustments for expenses that might change down the line, say, if you expect you’ll be done paying your mortgage, car loan or other debt by then.
Then compare that number against the amount of income you’re expecting to have in retirement. Check the Social Security Web site for the most recent estimate of what your retirement benefits might be. And use the online tools for your retirement plan provider to see how much income you’re expected to receive from your savings and any pension. The tools can also help you determine how much more you’ll need to save to hit your target.
Ideally, your Social Security benefits and any other fixed income from annuities or pensions should be enough to cover your basic expenses, such as housing, utilities and food, says Jamie Kalamarides, head of Institutional Investment Solutions at Prudential Retirement. If it looks like you might fall short, you still have time to make adjustments by saving more, working longer or buying an annuity, he says.
2. Ramp up retirement savings. Of course, the estimate for how much you’ll need in the end is likely to change many times between now and retirement. But having a target in mind might motivate you to increase your savings. People age 50 and up can make catch-up contributions of $6,000 a year to their 401(k) plans, on top of the $18,000 maximum allowed annually for all workers. People 50 and up with IRAs can contribute an extra $1,000 to their IRAs or Roth IRAs, on top of the $5,500 allowed for everyone else.
If you can’t save the maximum amounts toward your retirement accounts, save as much as you can. The move can lower your tax bill and boost income in retirement. For instance, workers who save 15 percent of their pay into their 401(k) starting at age 50 can save 2.25 times their salary by the time they’re 65, Kalamarides says. And that’s not counting investment growth or any savings they might have had before then, he says. So, it’s not too late to start.
3. Stay invested. It might feel like the time to start scaling back your exposure to stocks and moving more of your savings into bonds. But with interest rates as low as they are, retirees are having a difficult time growing their savings through conservative investments such as certificates of deposits or bonds, says Clark Kendall, president of Kendall Capital Management in Montgomery County, Md. Plus, it’s likely that the start of retirement is still 15 to 20 years away, he says. And with life expectancies growing, the period could go on for another 20 to 30 years — or more — beyond that.
Staying invested in stocks could give your savings more time to grow and increase the chances that you’ll be able to stretch the money to last for another four or five decades, he says. Some people who want to move to a more balanced approach can transition to a portfolio that holds roughly 50 percent stocks and 50 percent bonds over the course of their 50s, Kalamarides says. If it’s too much to think about, use a target-date fund that will transition to a more conservative allocation over time, he says. (But look up what that fund’s allocation will be when you reach retirement age, since the exact breakdown between stocks, bonds and other assets will vary depending on the fund.)
4. Care for your parents. Getting close to retirement means that your parents are likely already there. If you haven’t already, talk to your parents about what their preferences are for receiving care, if they reach a point when they can no longer care for themselves, says Cary Carbonaro, a financial planner and author of “The Money Queen’s Guide.” Ask your parents about their plans and their finances, Carbonaro says. Do they have long-term care insurance? Would they prefer to live in a senior community or to receive care at home? How much do they have in savings? “The issue is that if your parents haven’t prepared, you’re going to probably have it fall in your hands,” she says.
If your parents are already facing health issues, you may struggle to balance work with spending time to watch after them, she says. But leaving the workforce completely to care for a parent may have the unintended consequence of leaving you with fewer savings and income in retirement, Carbonaro says. And some boomers who leave work completely may struggle to find a job later and may need to enter an early retirement, she says. If you can afford it, use Web sites such as Care.com and GrannyNannies.com to find a home health aid that can provide care on a part-time or full time basis. and find out what federal or state assistance your parents might qualify for.
5. Buy long-term care insurance. You might not have any health issues yet. But advisers often recommend people buy long-term care insurance, which would help pay for assisted-living costs or at-home health care, while they’re in their 50s. “The older you get, the more expensive the products can get because you become a greater risk,” says Clark Smith, head of insurance and annuity sales for SunTrust Private Wealth Management. Costs will vary based on a person’s health, age and other factors, but a policy can typically cost a married couple between $2,000 and $5,000 a year, Carbonaro says. Some people with substantial savings of say $2 million or more may have enough money set aside to pay for long-term care as costs come up, Kendall says. On the other end of the spectrum, retirees with low incomes may qualify for Medicaid or state assistance. But retirees in the middle may find that the costs can dramatically deplete their savings, Kendall says, which is why the coverage can be a smart investment.
6. Check other insurance needs. People in their 50s, who are 20 years or so away from retirement, should have long-term disability coverage, according to a survey by the National Association of Personal Financial Advisors. This would help them pay for basic living expenses, such as housing, food and utilities, should they reach a point where they can no longer work because of a disability. The coverage may prevent needing to dip into retirement savings prematurely. Workers should also review their life insurance policies, which would help cover living expenses for the spouse and kids after an unexpected loss.
7. Plan your second act. Does your retirement plan involve opening up a franchise or transitioning into freelance work? Hoping you’ll finally have more time to paint? Planning now for your second act can give you more time to set aside the savings and other resources you’ll need, Kalamarides says. Say you’re willing to take a pay cut in five years to work at a nonprofit. Temporarily boosting retirement savings now while you’re earning a bigger paycheck can help offset the lower savings you’ll have later on, he says. And if you will need a certificate or second degree to transition to that new job, you should start taking courses now, especially if it will take a few years to complete, he says. Or if you’re planning to hang up a shingle and work as a freelancer, starting the business while you still have a full-time job can help you get the hang of it and build up your clientele. Organizations such as Encore.org, offer fellowships for people who want to transition into nonprofit work. And RetirementJobs.com matches companies with people age 50 and up who are looking for work.