Financial Moves to Make Before You Retire

5 Financial Moves to Make Before You Retire

Retirement may be the finish line to your working years, but it’s also the starting line to what can become a relaxing and fulfilling period of life. However, living the way you want in retirement depends on having the funds to comfortably and securely do so. After all, everything costs money — from traveling, to making home repairs and buying gifts for the grandkids, to paying for healthcare. While everyone’s goals, priorities and timelines are different, there are a few universal financial moves people can benefit from making before they retire. 

Here are five examples of financial moves to make before you retire.

Evaluate Your Monthly Expenses

The nice thing about budgets is they can evolve with you throughout your life, reflecting your current situation as well as your future goals. Of course, this means you’ll need to evaluate your budget regularly — and likely make some updates — to ensure it’s still relevant.

Many experts actually consider the years leading up to retirement as a stage of retirement. Investopedia calls the span of time between age 50 and age 62 “peri-retirement,” and suggests doing the following during this time:

  • Estimate your income and expenses in early retirement
  • Try to reduce expenses and/or increase income to beef up your savings
  • Get rid of costs that have accidentally snuck up on you over the years
  • Consider traveling to places you may want to live during retirement rather than taking random trips

The longer you go without taking an honest and detailed look at your income vs. expenses, the higher the chance you’re inadvertently spending money that could be better devoted to retirement.

Maximize Your Retirement Savings

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While no two retirements look the same, experts generally advise planning to spend 70 to 80 percent of your pre-retirement income. Many people do find their expenses drop a bit after they stop working but living expenses will still require a chunk of change each year.

The earlier and more you save, the longer timeframe those funds have to capitalize on compound interest — also known as exponential growth fueled by interest accruing on your contributions and their subsequent interest. This is why it’s in your best interest to prioritize saving now rather than waiting at all.

Keep Building Your Emergency Fund

Financial catastrophes can and do affect anyone in any stage of life. Continuing to build an emergency fund means you’ll be prepared when an emergency strikes. As the Consumer Financial Protection Bureau writes, having an ample emergency fund can help people avoid having to take on costly debt or even have to withdraw retirement funds to weather the storm — which is why it’s so important to save for retirement and build an emergency fund over time.

Prioritize Paying Down Debts

Carrying debt is expensive, not to mention stressful. Most people want to enter retirement with a clean slate, or as close to one as it’s possible to achieve. This means making a concerted effort to eliminate debts in the years leading up to retirement — whether that means taking out a consolidation loan, entering a debt relief program, working with a credit counselor on a debt management plan, paying it off systematically at home or another solution out there.

Adjust Your Investment Risk

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Ever heard the advice to avoid putting all of your eggs in one basket? The message is diversification can help avoid sudden tragedy in one fell swoop. The closer you get to retirement, the more you’ll want to consider diversifying your investments with the goal of reducing risks. 

Bonds and exchange traded funds (ETFs) are generally regarded as less risky than individual stocks. Work with a financial advisor, or by doing careful research, to find the best portfolio mix based on factors like your age, life expectancy, desired retirement income and tolerance for risk.

Gearing up for retirement means optimizing your financial moves for the long haul through budgeting, debt elimination, strategic saving and adjusting your investments as it draws closer.

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