Margaret Giles, Morning Star
Many of the best investment moves come from autopilots. Look at your track record of automatic pay deductions and increased savings.
Other investment decisions, such as moving to retirement, require a more practical approach.
Christine Benz, director of personal finance and retirement planning at Morningstar, recommends taking a preemptive approach as you approach retirement. The key is to visualize how you want your retirement to look while you have enough time to make the adjustments you need to get there.
If you plan to retire in the next five years, there are five steps you should take right now.
1. Consider the role of work in retirement
Determine whether certain tasks are realistically part of your retirement plan. That income stream can make your retirement spending simpler, but it should not be a lynching pin for your entire plan. That’s because even if you want to, you may not be able to work.
2. Track the cost
Understand what you are actually spending today and see if your spending will retire in the next few years. Understanding your future spending needs can help you determine if your plans are on track.
3. Check out Social Security
For most people, Social Security is an important source of income for retirement. Create an account on the Social Security website and make sure you have the correct information. This allows you to model different Social Security claim dates using your own information.
4. Evaluate your current retirement savings
Look at your spending, subtract Social Security and understand what you need from your portfolio. If your spending doesn’t suit approximately 4% or less of your portfolio, you may need to make some changes. Consider saving more, different investments, postponing planned retirement dates, or adjusting the amount you plan to spend on your retirement.
5. Derisk your portfolio
Once you arrive within ten years of retirement, you need to make sure that asset allocations help prevent derailment due to market volatility. If you experience stock losses early in your retirement, you can spend on your safer assets and wait until you pull from your stock portfolio until the market recovers.
Thinking ahead of yourself about retirement will give you a better sense of when you want to retire and what it wants to be. Additionally, you can make the course modifications necessary to make this happen.
This article was provided to the Associated Press by Morningstar. For more personal financial content, visit https://www.morningstar.com/personal-finance
Margaret Giles is a senior editor in content development for Morningstar.
