As the adage goes, “It’s never too early or too late to start planning.” Regardless of your age or stage in life, taking steps toward financial planning can always benefit your future. Proactive financial planning in Danvers, MA, can help you build security and reach your financial goals.

Now is a good time to fine-tune your financial planning and investment strategies, especially if you’re within ten years of retirement. In our blog, we’ll examine ten tactics you can use to prepare for transitioning from working years to retirement years, each with practical examples showing how these strategies can work for you and your spouse.

Our team of financial advisors with AIF designations in Danvers, MA, specializes in creating personalized, comprehensive retirement strategies aimed to maximize income, minimize taxes, and pursue a more secure financial future. 

Retirement Planning Tactic #1: Maximize Your Retirement Contributions

As your retirement date gets closer, you have limited time to make maximum contributions that will boost your retirement savings. If you’re over 50, take advantage of catch-up contributions in your 401(k) or IRA accounts, allowing you to increase your retirement savings.

Example: If you contribute the maximum ($23,000 for 2024) to your 401(k) annually, adding a catch-up contribution of $7,500 could mean an additional $75,000 saved over the last ten years of your work, not accounting for potential growth and reinvested income. This extra boost can significantly increase your retirement nest egg later in life, especially if it is invested wisely.

Retirement Planning Tactic #2: Reduce and Manage Debt

Debt can undermine your retirement plans by reducing your net income (gross income minus debt service). Aim to reduce as much debt as possible, especially high-interest debt like credit cards or personal loans. Paying off your mortgage before full retirement is another important strategy, as long as it aligns with your retirement goals and doesn’t have too big an impact on your tax bracket.

Example: Suppose you have $20,000 in credit card debt at 25% interest. By prioritizing paying this debt before retirement, you could save thousands in interest payments, freeing up funds for expenses that enhance your life after retirement.

Retirement Planning Tactic #3: Estimate Your Retirement Expenses

Accurately assessing your retirement expenses helps you plan effectively and avoid shortfalls. Be as realistic as possible when you create a budget. As you enter retirement, it may not be appropriate to try to “keep up with the Jones.” In other words, build a retirement budget that allows you to live within your means, including maintaining your lifestyle, healthcare, travel, and other anticipated costs.

Example: You anticipate needing $100,000 per year of pre-tax income in retirement. By identifying your income sources—Social Security, retirement accounts, personal savings, and any part-time work—you can assess whether your savings will meet your needs or if adjustments are necessary.

Retirement Planning Tactic #4: Diversify and Make Other Adjustments as Necessary to Your Investments

Diversification is the key to managing risk as you approach retirement. You want a mix of investments that provide growth and preservation of capital, particularly during your early retirement years.

Example: A balanced portfolio management strategy might recommend allocating 50% of your investments to higher-quality stocks, 40% to high-grade bonds, and 10% to cash equivalents. You also want to consider a 10% to 20% allocation to real estate and other alternative investments. This mix offers growth potential while cushioning against potential downturns in the securities markets. 

Retirement Planning Tactic #5: Maintain a Cash Reserve

A cash reserve can protect you from needing to sell off your retirement investments during an unexpected event—loss of a job, hurricane, catastrophic illness—which can be particularly damaging as you approach your retirement date or are recently retired. Your goal should be six to 12 months of living expenses in a money market fund.

Example: If your monthly expenses are $10,000, setting aside $60,000 to $120,000 in a higher-yield savings account thereby provides a financial cushion for emergencies and/or unexpected expenses. This reduces your need to dip into retirement savings that may have onerous tax consequences.

Retirement Planning Tactic #6: Plan for Healthcare and Long-Term Care

Healthcare costs can be a significant expense in later retirement years, so planning for them is essential. Evaluate Medicare options and consider long-term care insurance if appropriate for your situation.

Example: A typical 65-year-old couple, in reasonably good health, may spend around $300,000 on healthcare during retirement. This number can escalate dramatically if one or both spouses require prolonged Assisted Living, Skilled Nursing, or Memory Care. Budgeting for this expense and considering a long-term care insurance policy can protect your assets from being depleted by unexpected or long-term healthcare costs.

Retirement Planning Tactic #7: Plan Your Social Security Strategy

Beginning to claim Social Security benefits should be a strategic part of your retirement plan. That’s because, if you plan properly and live long enough, Social Security can represent more than $1 million of additional income for both spouses. 

There are many considerations, such as income needs and tax implications. Also, your Social Security benefits can help offset costs where you typically would have had to draw down on your retirement savings, so consider working with a Danvers financial planner to analyze the timing of this decision. 

Example: If your full retirement age (67) benefit is $2,000 per month, waiting until age 70 could increase it by 8% annually, resulting in a $2,640 monthly benefit (a 32% increase without compounding). 

Retirement Planning Tactic #8: Utilize Tax-Efficient Withdrawal Strategies

A tax-efficient withdrawal strategy can extend the life of your retirement savings. Generally, it’s wise to withdraw from taxable accounts first, followed by tax-deferred accounts, and finally, tax exempts like a Roth IRA.

Example: Suppose you have $1,000,000 in a traditional IRA and $200,000 in a Roth IRA. By withdrawing from the traditional IRA in lower-income years, you may minimize your tax rate, leaving the Roth IRA untouched and growing tax-free for later use.

Retirement Planning Tactic #9: Reevaluate Your Insurance and Estate Plan

Your insurance needs may change when you retire. Review your insurance coverages for life, disability, and long-term care while updating your estate plan to align with your current goals.

Example: If your children are financially independent, you may need less life insurance than you did earlier. Or, updating your estate plan may include trusts, which can also ensure your assets are managed and transferred according to your wishes, thereby providing for your loved ones and any charitable causes you want to support.

Retirement Planning Tactic #10: Work with a Financial Planner in Danvers, MA

Retirement planning is complex, particularly if you have accumulated substantial assets and income. A Danvers, MA financial advisor can help create a strategy that considers all aspects of your financial well-being, from retirement planning to investment management and taxation.

Example: At Sherr Financial Associates (SFA), we work with clients to craft customized retirement plans, leveraging our expertise for managing portfolios and taxes. Our Annual Review Process and Follow-Up Protocol help keep your plan aligned with your goals, supporting a comfortable and financially secure retirement.

Why Sherr Financial Associates (SFA)?

Our Service Model provides structure, proactive planning, and personalized guidance to help you navigate the complexities of retirement, which may last 30 years or more. With sophisticated financial solutions that include client touchpoints and flexible meeting options, we ensure you are supported at every step of your financial journey. 

Our service model prioritizes client input and open communication, ensuring that your retirement plan stays aligned with your current and future needs.

Connect today to learn more about our retirement planning services.

This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Asset allocation programs do not assure a profit or protect against loss in declining markets. No program can guarantee that any objective or goal will be achieved. Please contact your financial professional for more information specific to your situation.