There is still time to improve your retirement finances in the years leading up to retirement. By reviewing how much you have saved and thinking about how much longer you want to work, you may be able to update and improve your retirement plan. Use the following guidelines to get ready for retirement after age 60.
Conduct a Financial Inventory
Sum up how much you have in your retirement accounts and other investments. Then consider how much income you will need each year during retirement to support your lifestyle. “As you approach retirement, it’s important to understand how to turn retirement savings into retirement income,” says Anthony Pellegrino, a fiduciary advisor and founder of Goldstone Financial Group in Oakbrook Terrace, Illinois. “By creating a plan that adjusts from growth and accumulation to income generation and distribution, you can focus your assets on generating consistent money to create a retirement paycheck.” This might include adjusting your portfolio to reduce your risk and meet your goals.
If you find that your current accounts won’t provide the desired income you would like in retirement, you can make some additional changes. You might look for ways to bring in higher levels of income before retirement and increase your overall savings. You could also consider ways to reduce future expenses, such as moving to a smaller home, selling a vehicle or reducing the amount of planned travel in retirement.
[Read: How Much Should You Contribute to a 401(k)?]
Take Advantage of Catch-Up Options
If you have a 401(k) plan through your employer, look to see if you’re deferring as much of your salary as possible into the account. While the standard 401(k) contribution limit is $19,500 in 2021, those who are 50 and older are allowed to make catch-up contributions of up to an additional $6,500. Putting aside $26,000 for several years could help build savings for your retirement years.
There are also catch-up options available in other retirement accounts, including IRAs. If you’re 50 or older, you can put an additional $1,000 in an IRA, on top of the standard $6,000 limit. If you have more than one IRA, such as a traditional IRA and a Roth IRA, you can contribute $7,000 total. You might choose to save in both types of IRAs and place $3,000 in one account and $4,000 in another, but the combined amount cannot go over $7,000.
Prepare Your Living Space and Transportation
If you plan to remain in the home where you currently reside, it may be beneficial to use some of your current income to prepare your house for retirement. “Expensive maintenance, such as a roof replacement, a remodeling or more is not what you want to incur after you retire,” says Phil Lubinski, a retirement income specialist and co-founder of IncomeConductor, a retirement planning software company for financial advisors located in Hartford, Connecticut. If your car needs major repairs, it may be a good time to fix it or replace it while you still have full income.
[Read: Are Your Retirement Savings Ahead of the Curve?]
Factor in Health Care Costs
At age 65, you will be eligible for Medicare. If you currently have health care coverage through your employer and retire before age 65, you’ll want to research health insurance options you can use until you turn 65. “One of the biggest costs in retirement is health care,” Pellegrino says. “You will need to have a game plan for generating income from your investments to solve any potential health insurance gaps.”
Decide When to Take Social Security
You can typically start receiving Social Security checks as early as age 62 or as late as age 70. To receive your full benefit amount, you will need to wait until your full retirement age, which is an age determined by your birth year. If you were born in 1960 or later, your full retirement age is 67, according to the Social Security Administration. Waiting beyond your full retirement age to start Social Security will lead to a higher monthly payment, which is capped at age 70. “Delaying to the age of 70 may give you the highest benefit, but it may not be the best choice,” Lubinski says. Look at what you have in savings or other income sources to serve as a bridge until you start receiving benefits, and also consider your health. “If you have any chronic medical condition, such as diabetes, heart issues or something else, it is usually not in your best interest to delay Social Security,” Lubinski says.
[READ: 10 Important Ages for Retirement Planning.]
Don’t Overlook Taxes
If you withdraw from certain retirement accounts, such as a traditional IRA or 401(k), the amounts you take out will be subject to income tax. When you receive Social Security, up to 85% of your benefit may be taxed, depending on your income level. It can be helpful to estimate the amount of taxes you will face in retirement. It may be helpful to work with an accountant or financial advisor to prepare for taxes in the coming years.
Evaluate a Phased Retirement
You might be ready to step away from working 40 hours or more each week, but not to completely give up work. “Phasing into retirement, by gradually giving up some roles and responsibilities, helps provide a sense of what life without that everyday mission looks like,” says Chet Schwartz, a financial representative with Strategies for Wealth in New York City. A gradual retirement could bring emotional benefits like social engagement with co-workers and a sense of purpose. A phased retirement also brings in some income, and may be a chance to let your current retirement accounts grow for several more years before making withdrawals. “Even a few years of this approach can add up to a meaningful swing in the longevity of someone’s nest egg,” Schwartz says.