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Preparing for retirement in your 40s and 50s: questions to ask yourself

At this stage, retirement is getting a lot closer. Which means you’ll have more freedom – and time to do what you love.

No matter how you picture the next phase after your working years, it’s time to maximize what you’ve worked so hard to save, and not jeopardize your plans for retirement.

Your 40s and 50s are a good time to get serious about deciding how you want to live once you retire and take inventory of your financial situation. As you gear up to retire, you want to consider:

  • The current mix of investments in your portfolio
  • Your current assets
  • Your anticipated future assets vs. income
  • When you want to start receiving Social Security
  • How you’ll pay for health care costs
  • The tax impact of drawing down your assets over time

Are you on track to retire when and how you want? If not, you have time to catch up where you need to. Let’s explore how you can form a solid financial strategy for your life in retirement — and other important considerations before you transition into your retirement years.

How will you spend your time in retirement?

How you plan to spend your time can have a big impact on your retirement finances. You’ve probably already been throwing around some ideas, but now is the time to start nailing down your picture for retirement.

What kind of lifestyle do you want? Whether you want to spend your summers fishing or take an annual trip to Jamaica, it’s time to brainstorm. You may not know all the answers, but you can revisit them over time to fill in the blanks.

Below are four key questions you should be asking yourself — to help you be retirement ready:

1. What do you plan to do with your time in retirement?

Retirement can be a fulfilling time devoted to your passions and other pursuits, like volunteering. What will an average day look like for you? Travel and hobbies can be expensive. You’ll need to make sure you have enough income to support the lifestyle you want. And with inflation, basic living costs will likely cost more.

2. Will you work in retirement?

For many, retirement may not be a distinct point between working and not working. Maybe you like the sense of purpose and social interaction that comes with working. You could be thinking about working part-time and transitioning into retirement. How long will this income last?

3. Who will depend on you for personal and financial support?

If you have adult children or grandchildren, you need to consider how they may rely on you financially. Are you caring for an aging parent right now — or could in the future? This can affect your financial situation. Explore the costs of that support in time and dollars and factor that into your retirement plan.

4. Where will you live once retired?

Where you live in retirement affects your income — and your emotional, social and physical well-being. Will you stay put? Move closer to family? Downsize? Be sure to research how income taxes where you plan to live could affect you. Consider how your location and living situation needs to adapt to your needs as you age. For example, should you opt for a single-level home?

How much income will you have in retirement?

Social Security should account for less than half of your future income, so your retirement and/or pension plan and savings will need to make up the rest.

  • Have you checked your 401(k) account balance lately?
  • What is your latest Social Security estimate?
  • Don’t forget about inflation in your retirement income strategy. The average inflation rate has been about three percent. 

Now is the perfect time to gauge whether you’re on track to have enough income to support your retirement lifestyle.

You’ll want to calculate your potential retirement income needs, with your retirement goals in mind, to determine how much to save annually.

What if you started for retirement saving late?

Maybe you just haven’t been able to save much up to this point. The good news is it’s never too late to start! Consider investing the maximum amount in your 401(k) — either pre-tax or after tax. Also:

  • Think about opening a Traditional or Roth IRA.
  • Pay attention to the amount of debt you take on and pay off before retirement if possible.
  • Consider whether you need the help of a financial professional.
  • Consider diversifying your assets.
  • And don’t take on additional risk to make up for lost time. The key is to start, and you can step up your savings over time — it can really pay off. If you’re not where you need to be financially right now, don’t worry. You still have time to make adjustments.

What else can you do to prepare for retirement?

Here are three steps you can take to gauge where you are financially right now, and plan for where you want to be in retirement:

  • Meet with a financial professional to:
    • Assess your investment portfolio based on your age, risk tolerance and objectives
    • Review where you’re at financially and make appropriate decisions based on that
  • Think about your long-term health
    • Stay healthy by eating right and getting regular exercise
    • Look into potential long-term care insurance options
  • Be smart with your money
    • If you have any extra income, direct that money to your savings if you can
    • Before you buy that cabin, consider any implications a major purchase may make on your retirement plans

Studies estimate couples in retirement need approximately $300,000 saved (after tax) to cover health care expenses in retirement.1

Pay off debt before retirement

Getting your debt under control is critical to being retirement ready. Debt can prevent you from affording things later on, eats up extra income — and leads to bad credit. This could make it difficult to qualify for a mortgage, whether you’re planning to buy a second home or downsize to a condo.

  • Use credit wisely — Be sure to pay more than the required monthly minimum payment and pay off higher interest cards first.
  • Live within your means — Cut out unnecessary expenses and learn all about your health insurance coverage to avoid unexpected bills.
  • Set up an emergency fund — Have enough money in the bank to cover three to six months of your expenses and avoid dipping into your 401(k) for an emergency.

More ways to fuel your retirement income

If you’re 50 or older, you can make annual catch-up contributions to certain types of defined contribution plans before the end of each plan year, up to certain Internal Revenue Service (IRS) limits. Take advantage of these catch-up contributions if you can.

Annuities can also provide the benefits of tax-deferred savings and growth — and a guaranteed stream of income, including the option that guarantees you’ll never outlive your income.

Review your insurance needs for retirement

Insurance needs can take on more importance now since you likely have more to protect.

Think about making sure you have adequate protection to avoid any setbacks. Especially if you have an expensive mortgage and a family that depends on your income. Review your current life insurance coverage — do you need more?

Consult a financial expert

By working with a financial professional, they can help ensure your retirement investments are the right mix, map out a strategy to meet your retirement income needs, and determine what insurance options are right for you.

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1. How to plan for rising health care costs,” Fidelity, August 31, 2021.

This information is a general discussion of the relevant federal tax laws provided to promote ideas that may benefit a taxpayer. It is not intended for, nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. Taxpayers should seek the advice of their own advisors regarding any tax and legal issues specific to their situation.

An annuity is intended to be a long-term, tax-deferred retirement vehicle. Earnings are taxable as ordinary income when distributed, and if withdrawn before age 59½, may be subject to a 10% federal tax penalty. If the annuity will fund an IRA or other tax qualified plan, the tax deferral feature offers no additional value. Qualified distributions from a Roth IRA are generally excluded from gross income, but taxes and penalties may apply to non-qualified distributions. There are charges and expenses associated with annuities, such as deferred sales charges (surrender charges) for early withdrawal.

Please keep in mind that the primary reason to purchase a life insurance product is the death benefit. 

Life insurance products contain fees, such as mortality and expense charges (which may increase over time), and may contain restrictions, such as surrender periods. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.

Due to uncertainty in the tax law, long-term care benefits paid from a life insurance contract may be taxable. Please consult a tax advisor regarding long-term care benefit payments from a life insurance contract.

Guarantees are subject to the financial strength and claims-paying ability of the issuing insurance company. 

DOFU 2-2022