Personal Finance,Retirement,Superannuation

5 Steps You Must Take Within 5 Years of Retirement

28 Jan , 2016  

Nikhil (Nik) Sreedhar
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Nikhil (Nik) Sreedhar

Founder at ProAdviser
Nikhil's dream job is to be an exotic car salesman. His favourite colour is orange and it shows as he is the 23 year old entrepreneur behind ProAdviser. You should follow him, he gets lonely.
Nikhil (Nik) Sreedhar
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If you are closing in on retirement, first of all, don’t panic.  Second, congratulations – you’ve worked hard to get here. When you are five years away from retiring, there are a few things you need to do to shore up your retirement planning.  Let’s look at five of those things and what you need to do so you can reduce your stress in retirement.


Step 1 – Estimate the Amount You Will Need To Retire

This is the most important part of any retirement plan, because it is your end goal. The rest of your plan will be created around how you will reach that goal.  To come up with this number, you should examine how much you will need each month to cover your expenses.  Please remember to factor in things like auto repairs and maintenance, home repairs, and potential medical expenses.  Plus, you should also include some money for fun things – after all, isn’t that what retirement is for?

Next list how much you will have in terms of income from sources like pensions or government benefits. If you have a significant gap between your current income and your estimated retirement income, this is what you will need to save.  This can be done by saving more, putting your money into an investment with a higher interest rate, or both.


Step 2 – Boost Your Liquid Assets

It’s great to have your money invested in high rate of return investments, but you may need to have some funds set aside into accounts that are easier to access.  It can take time to turn your investments or your pension into accessible money, and you may have an emergency come up that must be addressed right away.  You might also face a penalty if you try to withdraw from your investments too early.

Keeping some money in assets like savings accounts, certificates of deposit, and money market accounts means you have better access to your money.


Step 3 – Consider Your Tax Position

There are a lot of things to consider when it comes to taxes. You may end up changing income tax brackets after you retire if your income changes enough.  Also, if you sell your house there are potential capital gains taxes to factor in.

You may not be able to take certain deductions if you are in another bracket, so consider doing what you can now.  You may also need to do something different with your employee stock option plan.


Step 4 – Be Ready To Adapt Your Portfolio To The Market

As the world saw during the worldwide recession a few years ago, retirement investments can really take a hit when the economy softens and interest rates plummet.  When you are still in the process of trying to build your portfolio, you often have time to wait out the market fluctuations. When are you close to retiring, however, it takes on a different weight.  It’s time to adjust your portfolio to reduce market volatility.  You’ll find that this really has an impact on your ability to budget more effectively, too.

It will definitely pay off for you to be able to evaluate your personal risk factors and adjust your investment portfolio accordingly.


Step 5 – Read Up On Your Investments

Your advisor will give you sage counsel, but you also need to do your own research.  If you aren’t familiar with all of the terms involved in investments, there are some great online university courses or community college classes you can take that will help you.  The more you know about retirement investments, the more in control of your retirement you will become.

Education and prudent planning will make a difference in your retirement years.  Partner with your advisor along the way, but do so particularly in the last five years before you retire – you’ll be glad you did.

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