(Money magazine) -- I plan to leave my job in about seven years. What should I be doing in my remaining working years to prepare for retirement? -- P.W., Hattiesburg, Miss.
It's smart to take a harder look at your plan as you enter the five- to 10-year home stretch into retirement. After all, you don't want to discover on the eve of your departure that you're woefully unprepared or, worse yet, realize after retiring that you left your job too soon and will have to live more frugally as a result.
To assure you're making progress toward your expected retirement date -- and to give yourself a chance to make adjustments if you're not -- I recommend you take the following four steps in the final years of your career.
1. Do annual retirement-readiness checkups. The idea is to see whether your retirement timeline is realistic -- that is, whether the estimated income you'll get from Social Security and any pensions, combined with a sustainable level of withdrawals from your savings, will actually allow you to maintain an acceptable standard of living when you leave your job.
You can perform this sort of analysis by going to an online calculator like Fidelity's Retirement Income Planner. One of the features I like about this tool is its interactive retirement budget worksheet, which allows you to get a much more accurate fix on how much income you'll actually need in retirement than you would by simply assuming you'll require a certain percentage of your pre-retirement salary.
By doing this evaluation yearly, you'll be able to see whether you're making sufficient progress toward your scheduled retirement date or whether you need to engage in some fine tuning, such as saving more or perhaps delaying your exit.
2. Assess your retirement investments. Managing the money you've accumulated in 401(k)s and other retirement accounts can be tricky in the years leading up to retirement.
You still need to invest for growth to build your nest egg's value in the remaining years of your career and to maintain purchasing power throughout retirement. But you don't want to invest so aggressively that a market downturn derails your plans.
There's no single mix of stocks and bonds that's right for everyone. But in the final stages of your career you probably want to keep roughly 50% to 60% of your portfolio in stocks and the rest in bonds and cash. That should give you a decent shot at capital growth while also providing some downside protection.
To see what sort of returns you might expect from different blends of stocks, bonds and cash -- as well as how different mixes could perform when the market heads south -- check out Morningstar's Asset Allocator tool.
3. Visit your HR department. You don't need to do this every year before retiring. But at some point within a few years of your expected leave-taking (and again just before you're ready to walk), you should meet with an HR rep who can outline the retirement benefits you're due and explain the nuts-and-bolts of the transition from employee to retiree.
Among the questions you'll want answered: What options do you have for taking the balances in your 401(k) plan? What retiree medical benefits, if any, will you be eligible for and what will they cost? And, if your company is among the minority that still offers a traditional pension, how will your planned exodus affect the benefit you can expect from the plan? (In some cases, staying on just an extra year or so can significantly boost your payout for the rest of your life.)
4. Get your nonfinancial life in order. Money is important, but so is developing and maintaining a vibrant social life once you leave work.
Indeed, research shows that as we age we begin to focus less on finances and more on finding meaning in our lives. For most of us, that translates to keeping in touch with a circle of family and friends and staying engaged in life by pursuing activities we're passionate about, volunteering for causes whose values we share or even working part-time.
You can get a head start by simply creating a log of your current activities and then thinking about how you might fill the gaps in your routine that will inevitably surface when work no longer provides the framework for much of your day.
Or you can take a more rigorous approach by signing up for a seminar specifically designed to explore the different possibilities of post-career life or checking out tools that can help you envision how to spend the extra time you'll have on your hands once you retire.
Retiring early? If you're planning to retire early, you'll need to take a few extra precautions. For example, Medicare doesn't kick in until age 65. So if you're leaving work before then and your company doesn't provide retiree health benefits, you'll need to budget for private insurance to bridge the gap.
Similarly, premature withdrawals from 401(k) and IRA accounts can trigger a 10% penalty on top of regular income taxes. If you're planning an early departure, you'll want to look into exceptions to that penalty or see if you can avoid the issue altogether by tapping assets in taxable accounts.
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