If you are over 50, your retirement date is fast approaching. Hopefully, he’s in good financial shape to quit his job for the next decade, but sadly not all early retirees are on their way to a life of leisure. And even if it were, the coronavirus and the resulting 2020 recession may have disrupted their plans.
But there are things you can do right now to make sure you are ready for retirement. And while some of them require you to have a stable income, others are steps you can take even if you don’t currently have a job but plan to return once the economy recovers.
Here are four tasks for your to-do list so you can make sure you are as prepared as possible to leave work whenever you want.
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1. Take advantage of contributions to catch up
Tax-advantaged retirement plans, such as 401 (k) s and IRAs, are some of the best vehicles to accumulate money for retirement because you can contribute pre-tax dollars. And once you’re 50, you can contribute more to these accounts each year with catch-up contributions.
In fact, the 401 (k) contribution limit goes from $ 19,500 to $ 26,000 in 2020 thanks to that $ 6,500 recovery contribution. And the combined contribution limit for a traditional and Roth IRA increases from $ 6,000 to $ 7,000 in 2020 with a recovery contribution of $ 1,000.
If you are still working and have access to a 401 (k) plan or are eligible to make contributions to the IRA based on your income, try to take advantage of these additional contributions and maximize your accounts if you can. Doing so probably requires a careful budget and financial sacrifice, but you’re running out of time to build the savings you need, so it’s worth the effort.
2. Make sure you have a proper asset allocation
Investing in the stock market is essential if you want to generate wealth, but you may not have too much in the market when you are approaching retirement, as you will not have time to wait for recessions. As you get older, you need to reduce your exposure to stocks to limit risk, so now is a good time to examine your asset allocation.
Most experts recommend taking your age and subtracting 110 to determine the correct percentage of money you have on the market. If you just turned 50, you would have 60% of your money on the market, while if you are 59 and closer to leaving the workforce, you would only have 51% invested in stocks.
If you’re not investing enough in stocks and you’re not sure what to buy, consider following Warren Buffett’s advice and choosing a publicly traded fund (ETF) unless you’re ready to work to choose individual stocks that’s right for you. And if you’re overinvested, it’s time to seriously think about diversifying as you get older.
3. Start accumulating money outside the market
Speaking of not having time to wait for recessions, it is absolutely essential that you have some liquid cash as a retiree so that you are not forced to sell losing investments during a bad time.
In fact, ideally, you should have at least two to five years of money saved in a high-yield savings account before retirement so you can take money out of it and leave your other investments alone in times of trouble.
The recent market volatility caused by the coronavirus has underlined the importance of having liquid assets as a retiree, but it can take time to accumulate such a large savings account. Get started on it now so you’re ready when retirement comes.
4. Start exploring your health care options to cover the costs of care.
Health care is extremely expensive, and retirees are not immune to costs, since Medicare has far more coverage gaps than many people realize. In fact, recent studies have suggested that an elderly couple may need about $ 325,000 to cover Medicare premiums, prescription drugs, and other out-of-pocket expenses during retirement.
Now is the time to start discovering how you will pay for that, ideally by investing in a health savings account or a health care retirement account.
Don’t be prepared when your retirement date arrives
Retirement will come before you know it, so following these steps now can make sure you’re ready. You don’t want to face financial problems in your later years, and you can’t live on Social Security alone, so increase your savings, make sure you take on an adequate level of risk, and prepare for expensive medical care. keys to being a comfortable retiree.
