Ready for retirement? Tips for Baby Boomers
Time is ticking for those in their 50s and 60s and retirement is looming. While many are likely excited to spend more leisure time with their families and tackle hobbies they have been putting on the backburner, it’s important that financial plans are in order. Otherwise, these retirement goals might not be achievable.
For those nearing their retirement date, there are a few things that should be organized in the years prior.
- Calculate your budget: As you approach retirement, you must get a handle on your typical monthly expenses. That is the basis of what you will need in retirement to maintain your current standard of living. Don’t assume that you will spend less, you will likely spend at the same rate as you did before retiring. For the first few years, you may spend more now that you have the time to travel or pursue your hobbies.
- Investment portfolio allocation: Everyone is different, but the danger is in being (or becoming) too conservative with your investment allocation. We do not typically recommend people change their allocation until they are five years away from retirement. Five years represents a typical market cycle and once in retirement, the portfolio will likely be working for another 20+ years, so there is no reason to get too conservative too soon. The most important thing is to have at least two to three years’ worth of your income needs in more conservative investments. If you plan to withdraw $50,000 from your portfolio each year, you should have between $100,000 and $150,000 in cash or fixed income. Consider an 80/20 stock to bond mix in your portfolio until five years from retirement and then gradually shift to a 60/40 stock to bond portfolio. If market volatility frightens you, keep a 70/30 or 65/35 mix until five years prior to retirement. Then shift to a 50/50 split. You give up potential gains, but you should experience less volatility in your accounts.
- Debt: My advice is always to avoid debt in the first place. But, if the horse is already out of the barn, whatever monthly payment you make to pay off debt becomes another expense that you have to build into your retirement income needs.
- Income in retirement: Gone are the days of just investing ALL your money in bank CDs or bonds and living off the interest payments, since interest rates are only in the two percent range. Everyone should consider having a significant portion of their retirement nest egg invested in stocks. As stocks appreciate, you will periodically sell off some to get your needed income. Any bonds in your portfolio are for times when stocks are not performing well.
- SAVE, SAVE, SAVE: Don’t invest the savings too conservatively. This is your last chance to sock away money for retirement. People in their 50s and 60s usually are close to their peak earning years. Kids are grown and gone by this time (usually), so max out your 401Ks and put additional savings into the bank and a brokerage account.
- Don’t neglect your estate plan: While you want to enjoy your golden years for a long time, be cognizant that you will not live forever. What do you want to do with your money once you are gone? Talk to an estate planning attorney to figure out how best to dispose of your assets.
I was recently included in a US News & World Report article on this topic and for more information on preparing for retirement, visit the site here: http://money.usnews.com/money/personal-finance/mutual-funds/slideshows/12-tips-for-investors-in-their-50s-and-60s.
It’s exciting to be embarking on a new chapter of your life and being prepared financially will only serve to make that chapter a more rewarding one!