Charting the Final Lap: Steps to Take in the Last Years Before Retirement

Charting the Final Lap: Steps to Take in the Last Years Before Retirement

Paul Anka must have been channeling his inner financial analyst when he wrote the lyric to the iconic song My Way.

For people entering the last decade before retirement, his words offer pretty sound inspiration and guidance.

And now, the end is near; and so I face the final curtain. Mr. Sinatra resented the implication of finality, they say, as retirement, which he faced at the moment he recorded the tune, is full of promise. Properly taken, the Chairman’s view is a fine way to look at it, because retirement means trading an arduous if satisfying lifestyle for one of well-earned ease.

Hopefully, you’ve lived a life that’s full, but if you were too busy building a family and career to travel distant highways, happy days are coming. If you plan carefully, that is. I did what I had to do and saw it through without exemption; I planned each charted course, each careful step along life’s by way…

Let’s leave the top-40 and consider ten sensible steps you should take in that last ten years before you retire.

The first duty is assessing your assets to determine net worth. Bank accounts, investment holdings, real estate – the usual suspects should be summed up, with any debts, like home mortgages and credit card bills, subtracted from the total. How far you can travel depends on what you’ve got to fund the journey.

Next up, expenses. Boilerplate wisdom says your retirement income will average around 75% of what you spent in the working years. This simple calculation is only a starting point. You may want to establish an emergency fund. Perhaps you want to travel extensively, purchase a fishing boat, or buy yourself a horse or two. If you want it in retirement, you’ll need to fund it now.

Taxes are an uncomfortable fact of retirement – many wish they would fade away with the downing of tools. Alas, it doesn’t work that way, so you need to develop a tax-minimization strategy. Roth conversions, charitable giving via a donor-advised fund and other maneuvers can help keep the taxman at bay. Those who own businesses can find ways to legally manipulate income streams and expenses to limit their tax liability.
IRA account holders will find the final working decade a good time to launch partial Roth conversions. The conversion process involves withdrawing funds from a traditional IRA, paying the appropriate tax, and then enjoying a tax-free income in retirement via the Roth IRA account.

Some believe this is an all-or-nothing proposition that can jump you into a higher tax bracket in the year you convert. In fact, it’s possible to withdraw small amounts from your IRA accounts, stay in a comfortable bracket, and build your Roth IRA holding slowly over that last decade. As a bonus, this approach helps limit the eventual RMDs of any remaining traditional IRAs, providing further support to your tax-optimization plan.

If you can, the over-50 years are prime time for topping up any tax-deferred accounts, like IRAs and 401(k) plans. The IRA deposit limit for 2020 has been raised to $26,000 for plus-50 contributors, and $7,000 for IRA and Roth IRA accounts. If you can afford topping-up to these limits, it’s wise to do so.

We talked earlier about debt: now is the time to shrink it. Seniors today are entering retirement with unprecedented amounts of debt. To put it delicately, this is very poor planning. Credit cards, any mortgages, outstanding personal loans: pay off everything you can. Credit cards are part of your emergency preparedness plan for retirement – they shouldn’t be millstones.

For more information, please read:
10 Things To Do Now If You’re A Decade Away From Retirement | Forbes

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