Thomas Jefferson once said, “Give me six hours to chop down a tree, and I will spend the first four sharpening the ax.”

If you are about ten years away from retirement, this provides you with the perfect opportunity to sharpen your ax and fine-tune your retirement planning. There are a number of different focus areas that should be periodically reviewed as you are approaching retirement. Some of those include, but are not limited to:

• a balance sheet review,
• a comparison of your current income vs. your expenses as well as estimates in retirement,
• a review of your estate planning documents and beneficiary designations.

Balance Sheet Review

Now is a great time to get into the habit of an annual review of your balance sheet. Common items to summarize on the asset side of your balance sheet include bank account values, investment and retirement account values, any real estate owned, private business ownership, personal property, collectibles, etc.

Some of the assets mentioned above may have debts associated with them. It is great to summarize these debts on a liability schedule that lists the total remaining balance, the interest rate, the monthly payment, and the remaining years on the loan. The combination of your assets and liabilities will provide you with your net worth. By focusing on this over the coming years, you have the ability to intentionally focus on trying to increase your net worth as you approach retirement, which should have many positive implications in retirement.

Current Income and Expense Comparison

The next focus area that should be reviewed on a periodic basis in the years leading up to retirement is your current income and expense details. While still working, a goal in those years could be to power up your savings. You are likely earning the highest salary of your career. Why not save and invest as much as you can after your living expense are met into your employer-sponsored retirement savings plan and/or IRAs? Aim for maximum allowable contributions. You can take advantage of catch-up contributions if you are over the age of 50. This allows you to contribute an additional $6,500 to your 401(k) plan and an extra $1,000 to your IRA in 2022.

If there is excess cash flow beyond saving in retirement accounts, a great way to further save could be through a Health Savings Account (HSA) or an after-tax investment account. You may often hear about diversification of investments, but it is also important to have diversified account types. This can provide additional flexibility in retirement when cash needs arise, as there will be different tax consequences when taking cash from different account types.

Future Income and Expense Comparison

An additional step to consider in these years approaching retirement is to do a deeper dive into what your income and expenses could look like in retirement. This may not be as simple as reviewing your current situation, but here are some steps you can take to better estimate these figures.

If you are one of the lucky few still offered a pension through your current or a past employer, you can usually reach out to someone in their HR department for more information on your benefit. Providing them a timeframe when you plan to start the pension payment will allow them to calculate your estimated benefit. They may even provide you a schedule that highlights what your benefit might be if you started the benefit at different times. As you get closer to that anticipated start date it is always good to review with a financial planner to determine if there is a year that makes more sense to start vs. another. There may also be options that provide a continued payment to a beneficiary that are good to discuss with a planner.

Next, unless you were a federal employee or railroad worker for most of your career, you should be eligible for Social Security benefits. The amount you receive will depend on your earnings history and other unique factors. You can elect to receive retirement benefits as early as age 62 or as late as 70. Your birthdate will determine if your full retirement age is between 66 and a few months to 67. This detail is important to know because if you start social security before your full retirement age, there is a calculation that reduces your benefit for life. If you defer social security past your full retirement age you increase your annual benefit by 8 percent for each year you defer up until 70. After 70 there is no increase and so no obvious reason to defer past that.

You can get an estimate of your retirement benefit at the Social Security Administration website, ssa.gov. You can also sign up for a My Social Security account to view your online Social Security statement, which contains a detailed record of your earnings and estimates for retirement, survivor, and disability benefits. Your retirement benefit estimates include amounts at age 62, full retirement age, and age 70. Check your statement carefully and address any errors as soon as possible.

The next step would be to estimate any income that could be generated from the assets listed on your balance sheet. This could include dividend and interest payments from taxable investment accounts. You might have an annuity (or more than one) that could provide you with a monthly or annual benefit. If you have real estate generating cash flow, it’s good to estimate this as well. You might even be considering a part-time job to help with expenses in retirement. The rental and part-time income can provide a valuable cushion that could help you postpone pulling from investment accounts or retirement accounts allowing them more time to potentially grow.

Once your income is estimated, assess your monthly expenses and what they may look like leading up to and into retirement. It is a great idea to continue to keep a pulse on your expenses in retirement to make sure they are remaining in line with your expectations. Many times these figures are underestimated, which can throw a wrench into meeting retirement goals.

Another common goal for pre-retirees is debt reduction. If this makes sense in your situation, lowering your base living expenses could have a positive effect on your monthly budget. Having the lower monthly expenses would translate to a lower income requirement, which is often a stressor throughout retirement.

Estate Planning Document Review

A common planning topic that gets put on the back burner is estate planning. It is not particularly enjoyable, talking about death, but it is important to review these documents periodically to make sure they follow your current wishes.

Even if your wishes do not change much over the years, the people that are in charge of carrying out your wishes may change. Whether it is an executor of your will or a power holder on a power of attorney document. Over time relationships change, individuals age, and you may wish to update these periodically.

If your wishes do change over the years as to where you would like your assets to go upon your death, it’s natural to update your will. What sometimes is not obvious is to remember to update any beneficiary designated asset. This would include IRA’s or 401k accounts, life insurance policies, health savings accounts, or transfer on death accounts, annuities, or pensions. Reviewing these periodically is important to make sure your wishes remain accurate.

These are just a few important steps to take when preparing and approaching retirement.

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To help you feel confident in your financial future Domani Wealth is available to start a conversation as you enter the years approaching retirement. We can help you identify a strategy to help you reach your financial goals. You can talk to an advisor by calling 855-855-5455, or emailing [email protected]!