If retirement is just around the corner, here are some tips you might want to consider in preparation for the big day.
Protect your 401k.
If your plans are to retire in the next 12 months or so, you might want to consider getting ultra conservative in your 401k. If you plan on taking your 401k and rolling it over to an IRA, protect your current balance from potential market declines by moving into a common 401k option, a stable value fund. You could give up some upside potential, but you may sleep better at night knowing you have limited downside risk.
Even if retirement is more than 12 months away, get the 401k ready for the future. Now is probably not the time to be taking on additional risk; the opposite could be your best option. But be careful using bonds; many 401(k) investors invest in bonds to reduce risk and lock in more stable returns. But if interest rates continue to rise, bond fund returns could suffer. Don’t jump from the frying pan into the fire!
Pick pension option.
If you’re among the one in five private sector workers who still have a pension, you may be offered the option of taking a lump sum rather than a stream of checks for life. Do your homework before you make any decision; this decision will be carved in stone. If you’re a disciplined investor, you theoretically could do better by taking the lump sum and investing it. The lump sum might also be a smart call if your annual pension reports show the fund is seriously underfinanced or the company is in trouble. Opting for the stream of checks might be better if you’re not that good an investor or money manager, or if your family is long-lived, since the checks would continue for life. If a financial goal of yours is to leave money to kids, the lump sum could be utilized to help meet that goal.
Don’t spend too much.
You are probably an empty nester at this stage, and have cash flow that used to support the kids to enable you to improve your lifestyle. Be careful; don’t spend now at the expense of short changing yourself in retirement. It might be tempting to spend that extra cash, when the best long-term move might be to use it to ramp up your retirement accounts. If you are age 50 or older and are contributing $18,000 to your 401(k) account this year and think that's the most you can contribute, think again. Workers age 50 and over in 2015 can make a catch up contribution for an additional $6,000, for a total contribution of up to $24,000 this year to their 401(k) plan accounts.
As you head into the homestretch see what it will be like to live on your retirement income. 1 to 2 years before you retire budget yourself to live on your retirement monthly income. That way they can make any necessary adjustments prior to retirement; reduce spending, increase savings, decide to work a few more years, or reduce the car and home loan.
Assess your workplace retirement benefits.
Make an appointment with your human resources department to determine which workplace retirement benefits will carry over into retirement.
Decide when to sign up for Social Security.
When you sign up for Social Security drastically affects how much you will receive each month. Most baby boomers are eligible to receive full benefits at age 66. If you sign up before age 66, your monthly payments are reduced, and if you delay claiming up until age 70, your payments increase by 8% per year.
Decide how you will spend your time.
What you decide to do in retirement will have a big impact on your costs and quality of life. Stopping work, stopping saving, and adjusting to a new schedule is a shock to many new retirees; make plans now!
Big decisions!!! You might want advice; Lineweaver Financial Group is there for you.