If you’re in your 60s, your time before retirement is running really short. That means it’s more important than ever to make sure you’ll actually be ready to leave the workforce within just a few years.
In order to be as prepared as possible to start enjoying a life of leisure as a retiree, there are three key steps you should take ASAP. Here’s what they are.
1. Calculate your Social Security benefits
If you’re like most Americans, your Social Security benefits are going to be one of the key income sources you depend on after you stop getting a paycheck. As you get closer to the time you’ll begin relying on them, it’s a good idea to see what Social Security is actually going to do for you. You can do that by signing into your online Social Security account where you’ll see an estimated monthly benefit at 62, full retirement age, and age 70.
Your benefit amount differs depending on the age when you claim it because of the way the program is set up. Those who file for benefits early face penalties that reduce their monthly checks since they’ll likely receive more of them over their lifetime, while anyone who delays past full retirement age gets a benefit boost thanks to delayed retirement credits. The extra money they get is supposed to make up for the fact they’ll receive fewer checks. The goal of these penalties and credits is for retirees to get the same amount of lifetime benefits regardless of when they decide to first claim them.
By checking how much money you’ll receive, you’ll be better able to assess the amount of supplementary savings required to support yourself in retirement. You can also make an informed choice about when you actually want to start your benefits. You may find it’ll make sense to work a little longer to enable a delayed claim and a larger check if you’re worried about not having enough money.
2. Make catch-up contributions
Speaking of supplementary savings, you’re going to need money in retirement investment accounts since Social Security likely won’t cover all your costs in your later years.
If your retirement account balance isn’t as big as you’d like it to be, you have a great opportunity to bulk it up. That’s because by the time you’re in your 60s, you have a chance to make catch-up contributions. These raise the annual amount of tax-deductible contributions you can make to a 401(k), IRA, and health savings account.
If you have the ability to do so, aim to max out your retirement accounts, including your catch-up contributions. By adding this extra money, you can get back on track if you aren’t already on pace to have enough saved for retirement or can pad your accounts and give yourself a little extra leeway.
3. Check your asset allocation
As you get older, the day when you’ll have to start making retirement account withdrawals draws closer. When you’re just a few years away from retirement, you can’t afford to have as much money in the stock market since you may not be able to wait out a prolonged downturn if the market crashes just before you need to begin taking money out.
It’s easy to get complacent about asset allocation, but you don’t want to find yourself forced to sell assets at a loss and potentially reduce your account balance to a dangerously low level if you end up retiring in a bear market. Make sure you have some liquid cash set aside and that you aren’t over-invested in stocks and taking on more risk than you should be. If you aren’t sure how much equity exposure you should have at this point in your life, try subtracting your age from 110 to get a good idea of the percentage of your portfolio that should be in the market.
By maintaining the right asset allocation and increasing your investments, hopefully you’ll get your accounts in good shape to supplement the Social Security benefit that you may have discovered is smaller than anticipated.