• Run projections using a retirement calculator (available online), which can give you a broad overview. Don’t forget to estimate future healthcare costs, particularly if you are planning to retire before Medicare age.
• Sit down with a financial planner (if you haven’t done so already) and create a financial inventory. Then project when you want to retire, keeping in mind there is nothing magic about ages 62 or 65, and see if you are on target to meet your financial needs. The average family requires 70 to 90 percent of preretirement income, but this amount varies with individual situations.
• Refinance your mortgage to pay it off sooner, if possible.
• Get a handle on spending. The best way to save is to spend less. Create a retirement budget worksheet that includes regular contributions to your retirement savings.
• Maximize your retirement contributions. In recent years, the allowable contribution amounts for both 401(k) accounts and individual retirement accounts (IRAs) were raised. In 2014, an employee age 50 and older can now contribute up to $23,000 annually into a 401(k) account, and an additional $6,500 into an IRA.
• Educate yourself. Understand your investment options, attend seminars, and read books on the subject. Take advantage of free retirement planning seminars offered by financial advisors and community centers.
• Focus on your career. Your earning power is one of your biggest assets, so don’t be too quick to give it up. It may mean switching careers.
• Evaluate your investments. Shift your investment focus to strategies that help maximize lifetime income and reduce risk.
• Evaluate your insurance needs, including life, disability, and long-term care insurance. The best time to purchase this type of insurance is when you are healthy.
“It’s also important to note that at age 50, employees who participate in certain qualified retirement plans are able to begin making annual ‘catch-up’ contributions in addition to their normal contributions,” says Michael Johnson, Certified Financial Planner® (CFP®), CPWA®. “Those who participate in 401(k), 403(b), and 457 plans can add an additional $5,500 per year, while those in simple IRA or simple 401(k) plans can make a catch-up contribution of up to $2,500. And, finally, those who participate in traditional IRAs can set aside an additional $1,000 a year. It’s a good way to jump start your retirement savings.”
When it comes to financial planning, another milestone to consider is age 59½; that’s when you are able to start making withdrawals from some qualified retirement plans without incurring a 10 percent tax penalty. To find out if this applies to your particular plan, as well as whether it makes good economic sense to begin making these withdrawals, you should consult with your financial planner.
It seemed like only yesterday when Kate was sitting in front of her adolescent daughter, who was squirming uncomfortably in her seat, having “the talk.” Now, here she was years later, having an equally difficult conversation with her adult daughter, who was once again squirming in her seat. This time, the topic was end-of-life wishes.
Despite her daughter’s discomfort, Kate forged ahead because she understood the importance of broaching this sensitive subject. Kate, who was also caring for her elderly father, knew from experience that the time to have this discussion was when she was healthy. After her dad had suddenly suffered a debilitating stroke, Kate and her sister were left with some very difficult decisions and no direction.
“My dad didn’t believe in talking about things,” lamented Kate. “He had no plans or instructions, which made the situation very hard for us. I vowed that I wouldn’t put my own kids through that kind of stress.”
Kate understood that being proactive is the best way to reduce stress and avoid future problems for all parties. Next on her agenda was a meeting with their financial planner to assess their retirement savings.
Legal Issues
As Kate’s story illustrates, now is the time to put advance directives in place, including a living will and a durable power of attorney (also known as a healthcare proxy or patient advocate designation). Too often, we wait until there is a health crisis before creating these important documents. In fact, it’s estimated that nearly 44 percent of those 45 to 64 years old do not have a will, even though we acknowledge the importance of having one. In 2013, The Conversation Project, a national campaign aimed at helping people initiate discussions about end-of-life wishes, conducted a survey that revealed that 94 percent of Americans felt these conversations were important, but less than one-third actually had such dialogues with loved ones. When asked why they hadn’t broached the subject, respondents listed a variety of reasons, including: “I’m not sick yet,” “I might upset my loved ones,” “It never seems like the right time,” and “I don’t know how to start the conversation.”
What to Ask Your Financial Advisor
When deciding on a potential financial advisor, Johnson recommends starting with an interview and asking some basic questions:
• Are you independent and objective? (The best advice usually comes from unbiased sources. Be aware of how your advisor gets paid. Financial incentives to suggest certain financial products may lead to advice that is not in your best interests.)
• Will you create a comprehensive financial plan for me?
• Will the investment plan be coordinated with the financial plan?
• Will the investment plan be coordinated with my tax returns?
• Will the investment plan be coordinated with my estate plan?
Overall, your financial advisor should be able to help you bring many facets of your financial life together in a coordinated, optimized way.
While death and dying are still taboo subjects to many, they become increasingly important as we reach midlife—not only to us, but to our children and, in some cases, our aging parents. Experts agree that the best time to discuss end-of-life care and wishes is before a life-threatening illness or health crisis, when you are not under duress. By preparing in advance, you can reduce stress for yourself and your loved ones and make educated decisions that may include input from those closest to you. And, because unexpected end-of-life situations can happen at any age, all adults should have advance directives in place.
In the simplest terms, advance directives describe your preferences regarding treatment if you’re faced with a serious accident or illness. These legal documents speak for you if you are unable to speak for yourself. Your family and physicians will consult your advance directives if you are unable to make your own healthcare decisions, thereby reducing confusion and disagreement. Advance directives typically include:
• A living will—This written document specifically outlines the types of medical treatments and life-sustaining measures you want and don’t want, such as artificial breathing (respiration and ventilation), feeding tubes, or resuscitation. In some states, living wills may be called healthcare declarations or healthcare directives. It’s also important to note that laws differ by state. For instance, some states do not have living will statutes, in which a clear and convincing declaration of end-of-life wishes must be documented,