When you think about retirement, maybe you picture yourself at a beach house or traveling the world with your spouse and grandkids. At the same time, you might want to be able to leave money to your children and grandchildren.
Regardless of your plans, you want to retire smart. Planning ahead — while you are still working — is key.
Start early
“Time is often one of our largest assets when planning for retirement,” says Laura Nash, a financial advisor at Edward Jones in Rockville. “For those who can start the planning earlier, they will be in a better position.”
Nash advises developing a vision, setting goals and picturing what your ideal retirement looks like.
“Living within your means and having a budget are so important,” she says.
Make sure you understand your cash flow
An early step in planning for retirement is having a good understanding of your current financial situation.
“Take inventory of what’s coming in, what’s going out, and what’s left over,” says Ted Halpern, of Halpern Financial in Rockville.
Eric Dunner, client advisor at Glassman Wealth Services in Vienna, explains, “When you are trying to decide how to plan for those gap years when you aren’t going to have an income and you aren’t pulling from social security yet, it’s a good time to figure out exactly what you’ll need from your portfolio.”
Trim back expenses — now
Chances are, you have recurring monthly expenses that you don’t need. Without impacting your quality of life, look at your expenses and be honest about what you are getting value from.
“In today’s world, everything is paid monthly,” says Halpern. “We’ve all developed an inventory clutter of monthly expenses. There are things that accumulate in a monthly cash flow that are not used at all, or used only such a small frequency that you don’t need an automatic monthly subscription.”
From trimming HBO subscriptions to scaling back on fancy gym memberships, these seemingly small savings can add up and help you save for later.
Examine your debts
Don’t let your debts get in the way of living the retired life you want down the road. Where possible, pay off any debts so they don’t carry with you into retirement.
“Take a very good look at your debts,” says Halpern. “Anything that is variable, try to lock in.”
Halpern also explains that if you have a big purchase to make, like a new car, it could be a better idea to buy it while you are working than when you retire. “You have the cash flow to pay for it now. Anticipate future needs for other debts and take care of them while you are earning.”
Maximize your savings while you are working
“It’s important to take full advantage of an employer match,” says Nash.
Advisors recommend maxing out the legal amount of your 401k as a necessary step in planning for retirement. For 2018, you can invest up to $18,500 a year in your 401k. If you are over 50 years old, you can contribute up to $6,000 more for a maximum of $24,500 per year.
Work out a Social Security strategy
“You are eligible to start social security benefits at age 62,” explains Dunner. “Your primary retirement age is usually around 66. If you take Social Security benefits early, you get a decrease in benefits. But if you delay until age 70, for each year you delay, your benefits are increased by 8 percent. That can be huge for people.”
He advises thinking through your longevity and how much your Social Security income is relative to overall income. One other thing to keep in mind: “When you pass away, your spouse steps into your footsteps for Social Security benefits,” Dunner explains.
Plan ahead of how you will leave your legacy
Planning ahead can allow you to give to your children and grandchildren while still taking care of yourself.
Nash advises thinking through how much you want to leave, and what a legacy might look like. “For some, it’s planning a legacy to leave for family or charity,” she says. “Even if you don’t expect to need longterm care, we are seeing more and more people plan for because they don’t want to be a burden to
their children.”
For those who are interested and able, there are many ways to give to grandkids, such as trust funds or 529 college savings plans.
“The Jewish community puts a lot of emphasis on maintaining a strong family culture,” says Dunner.
“By planning ahead and taking variables into account, you can look at your legacy and the lifestyle you want to provide for future generations. That’s what makes this subject all the more important.”
Conduct a retirement readiness assessment
Halpern explains that a financial advisor can run a retirement readiness assessment, which should include these three steps:
1. Projections
2. Portfolio stress test
3. Retirement Income Security Plan
He suggests running through these steps three-to-five years prior to retirement, reviewing again each year.
“It helps people head into retirement with less worry,” he says. “When these three steps are done and repeated, it helps you enjoy retirement and spend some of this money without guilt because it’s part of an income plan.”
Although none of us know what will happen in our lives, following these guidelines can help you plan ahead so you can enjoy retirement the way you’ve always dreamed.
Anna Lippe is a Washington-area writer.
