The transition from career to retirement can be one of life's most exciting journeys, but it can also be one of the most daunting. To help ease your passage through these new waters, there's no substitute for a detailed plan -- even if you've waited a little longer than you should have to design it.
Emily Guy Birken, author of "The Five Years Before You Retire: Retirement Planning When You Need it the Most," says that the first step for those within five years of retirement is to take stock of the situation.
"Assess where you are now," Birken says. "Things change and you might not have what you need. You might want to tweak something, save more, change your idea of what retirement will look like. For some people, this assessment stage is the hardest part."
If your household already uses a monthly budget, you're one step ahead of the game. If not, now is the time to put one in place. A monthly expense worksheet can help you figure out how much you're spending now, where you can reduce expenditures and how much you're likely to need during retirement.
To maintain your current lifestyle, many financial planners recommend being able to replace at least 80 percent of the value of your paycheck during retirement. Ideally, you've been building your retirement nest egg for decades, but even if you have, it's not uncommon to realize a gap between projected retirement expenses and income when you do the numbers.
When your guaranteed income streams -- such as Social Security and pensions -- are insufficient to fund the lifestyle you want during retirement, you can fill the gap with additional income from your tax-advantaged retirement accounts, such as a 401(k) or IRA, or from your regular taxable savings accounts.
If you don't already have enough saved to cover your income gap over the course of your retirement, you can take advantage of your remaining years before retirement to boost your savings balances. An online retirement calculator can help with planning, but discipline and creativity may also prove necessary.
"For those who find themselves with a substantial income gap to fill, there are only two things you can control: how much you save and how much you spend," says Birken.
To boost savings, Birken recommends a thorough budget review to find places to cut unnecessary spending. For some, savings can come from eating out less often; for others, it might mean cutting their cable bill.
"If there is absolutely no other place where you can cut down on your spending, then it's time to look into the possibility of earning more money," says Birken. If you have a career that lends itself to consulting, a side gig is an excellent way to increase savings. If you don't, Birken says that new options may offer additional opportunities to boost your savings.
"There are a lot of non-traditional part time jobs that people can do from home, things that were not even possible 10 years ago," Birken says. She suggests blogging, selling handmade items on online shopping sites such as Etsy, conducting online surveys or being a secret shopper. There are also more traditional ways to earn extra income, such as taking in a boarder or babysitting.
"A lot of this is the sort of thing that you don't really want to hear as you're approaching retirement," says Birken. "(But) would you rather work another three or four years past when you planned or would you rather find a way to make more money now? What's most palatable? What are you most willing to do?"
Once additional capital has been uncovered, it's important to know how best to allocate those funds. According to Birken, the following strategy can offer optimal savings results:
- Contribute to your 401(k) (or other tax advantaged retirement plan) up to your employers match
- Eliminate any outstanding consumer debt, such as from credit cards
- Max out a Roth IRA, if you qualify
- Max out your 401(k) or other tax-advantaged retirement plan
After all tax-advantaged options have been extinguished, excess capital can be used to boost your taxable investment and savings account balances.
If you've waited till your 50s (or later) to assess your retirement readiness, you're likely to find you have some catching up to do. But a serious effort during your final years in the workforce can help you move significantly closer to your goal of a financially secure retirement.