As you approach the golden years of your career, it’s crucial to have a solid financial plan in place to ensure a comfortable and secure retirement. While many people think they are ready to transition into this new and exciting phase of life, several things must be put in order first. Here are the top things you need to do financially to prepare for retirement:

Assess Your Financial Situation

Begin your retirement preparations by thoroughly examining your current financial status. Creating a balance sheet encompassing savings, investments, real estate, and debts can benefit many. This initial step of understanding your financial standing is crucial as it forms the bedrock of your retirement plan, ensuring a secure future.

Pay Off Debts

Most people prioritize entering retirement debt-free. However, the type of debt and the interest rate should be analyzed first. If your only debt is a mortgage with a low interest rate, such as 3-4%, paying off the debt might not make sense. If you have other debt, focus on paying off high-interest debts, such as credit card debts.

Maximize Your Retirement Contributions

If you’re in your 50s or 60s, you are likely in your peak earning years, and maximizing your retirement contributions is essential. Take advantage of catch-up contributions if you’re over 50, which allows you to contribute more to your retirement accounts like 401(k) or Individual Retirement Accounts (IRAs).

For 2024, the maximum amount someone age 50 and older can contribute to most employer-based retirement plans is $30,500, plus any employer contributions. The maximum amount someone age 50 or older can contribute to an IRA or Roth IRA for 2024 is $8,000.

Create a Retirement Budget

As you approach retirement, one of the first things to analyze is your lifestyle and the cost of continuing it. Consider costs like housing, food, healthcare, hobbies, and travel to estimate your retirement expenses. Typically, rules of thumb, such as assuming you will spend 85% of your current paycheck, are not helpful because retirement generally has many new expenses, such as increased travel and health insurance you didn’t have while working. Putting together a retirement spending plan is paramount to a successful retirement.

In addition to your retirement expenses, estimating your retirement income from sources such as pensions, annuities, rental income, and Social Security is important. The difference between your retirement income and your retirement expenses is the “gap” that needs to be funded by your portfolio.

Social Security Strategy

One of the most critical retirement decisions is when to start taking Social Security benefits. While you can start receiving benefits as early as 62, waiting until full retirement age (or even as late as 70) can significantly increase your monthly benefit. Married couples have additional strategies to maximize their benefits, and it typically makes sense to protect and potentially maximize the higher benefit between the two spouses, also known as the survivor benefit.

Plan for Healthcare Costs

Healthcare can be a significant expense in retirement, and Medicare is generally one of the most complex issues to navigate. During your career, you can choose between Preferred Provider Organizations (PPOs), Health Maintenance Organizations (HMOs), and usually High-Deductible Health plans that offer Health Savings Accounts (HSAs). When turning 65, depending on whether you are still working or retired before age 65, you will have different options for which you will need a plan.

Retiring before 65 means you will have to go on private insurance, which can be costly, and retiring at age 65 and older means you must navigate Medicare. Medicare has multiple options, and you will also likely need a supplement to go along with the base policy.

Diversify Your Investments

For many people, such as business owners and corporate executives, concentrated positions in their companies that have performed well may have been one of the reasons they are in a solid financial position today. However, at this stage in life, diversification is critical to managing investment risk. Ensure your portfolio is a mix of stocks, bonds, and cash.

You should view these different investments by imagining buckets of money: stocks are for your 7+ year horizon; bonds are for needs 3-7 years away; and cash is for needs within the next three years.

Organize and memorialize your estate plan

Ensure your estate plans are current every few years. This includes your will, trust, power of attorney, and healthcare directives. Also, review your beneficiaries on retirement accounts and insurance policies to ensure they are current, and don’t forget to add contingent beneficiaries.

Stay Informed

Laws and regulations change, and staying informed will help you make the best decisions for your retirement. Decisions you made years ago and maybe within the last year could no longer be the best decision for you, your retirement, or your family.

Consider Professional Financial Advice

A CERTIFIED FINANCIAL PLANNER™ (CFP®) professional can provide personalized advice based on your financial situation and retirement goals. They can help you create a retirement savings strategy, optimize your investments, and plan for tax efficiency in retirement.

It is important to make sure that the financial professional you choose is required to act in your best interests. CFP® professionals are fiduciaries, which means they must always put your interests first.

Remember, it’s never too late to start planning for retirement. The steps you take now can significantly impact your financial security in your golden years. So, start today and look forward to a financially independent retirement.