Retiring in 5 Years? Money Moves and Considerations for Missourians
You may still have a few years left ahead of you before you reach retirement, but there’s never a better opportunity to start planning for your post-employment future than right now. The last five years of your working life should be the time that you get your financial ducks in a row and make the changes that you need while you’re preparing for retirement.
Your days in the sun are just around the corner, but are you ready? Start by setting a date for your last day in the office and from there, work backwards to put the other pieces into place.
Take inventory of your financial life
Before you make any plans for retiring in Missouri, you need to know where your finances currently stand. Now is the time to go through all of your assets and accounts, from deposit accounts (checking, savings, or money market accounts) to bonds, stocks, or brokerages.
You should also make a note of any mortgages or loans that you have in your portfolio. How long do you have left to pay off certain loans? How much equity have you built up at this point? It’s vital that you factor in these numbers when you’re thinking about your retirement budget, particularly if you anticipate still making payments on these loans once you stop working.
This is also a good time to review your estate planning documentation, or to put some in place if you don’t currently have any. Work with a local Missouri financial planner to see where there might be gaps in your estate planning and that all of the outlined beneficiaries for your assets are set and correct.
Consolidate banking and brokerage relationships
One aspect of retirement planning in Missouri that you may not have considered is consolidating your various banking or investment accounts. Fewer accounts means that you spend less time on account management, and you could even save on annual fees by closing high-cost accounts and transferring those funds to one with a smaller fee.
It’s very likely that you’ve worked for several different employers over the course of your career. If you were paying into a workplace 401(k) plan or IRA, you could have money scattered across numerous retirement accounts. Think about consolidating these into a single account for easier management and access. Contact BTC Bank before making your transfers for extra support and guidance.
Pay down debt before you retire
Holding a large amount of debt when you retire is a quick way to burn through your hard-earned savings and put a stop to more exciting plans. In the years before you reach the Missouri retirement age (usually 67 if you were born after 1960), work diligently to pay down any remaining student loan, credit card, or mortgage debt.
Some debt is easier to take care of than others. If you were a co-signer on your child’s student loans, now might be the time to think about refinancing and passing that responsibility fully onto them.
For empty nesters, you may want to consider downsizing to a smaller property. Not only can this help to pay off large mortgages, but it also means lower expenses during your retirement years. With the Missouri property market seeing a 32% increase in house value for the first quarter of 2022, now is a good time to think about moving.
Take advantage of catch-up contributions
From the calendar year in which you turn 50, you’re eligible to make additional contributions to your 401(k), IRAs, Health Savings Accounts, or other retirement accounts. This is one of the best ways to take advantage of your age and add some additional funds to your accounts.
For traditional and Roth IRAs, you’re able to contribute an additional $1,000 per year after 50, bringing your maximum allowance up to $7,000 per year. For 401(k)s, the catch-up contribution limit is an extra $6,500 on top of the $20,500 limit for 2022.
However, there are some restrictions to be aware of. If you earned more than $130,000 in the previous tax year or owned more than a 5% interest in your company, you may be considered a highly compensated employer (HCE).
Essentially, to keep employer plans fair to everyone, you will only be able to contribute a set amount based on the average contribution of non HCE employees. Any catch-up contributions made are not subject to this rule, though, as other employees may not be eligible to make them if they’re under 50 and so including everyone would potentially alter the contribution percentages for HCEs.
Maximize use of employer-based dental care
When you finish working, you’ll likely lose your employer-sponsored healthcare coverage and move over to Medicare. Unfortunately, many dental procedures aren’t actually covered under these plans.
Services like cleanings, fillings, extractions, dentures, or even routine procedures can become costly very quickly. It’s best to make the most of your dental benefits through your employer’s plan before you are no longer eligible.
Consider your retirement goals
Deciding how you want to adjust your finances before retirement can be a challenge if you don’t know what you want the years ahead to look like. Before making any big changes, sit down to map out some of your goals. How do you want the upcoming years of your life to look?
Perhaps you’d like to further your education and go back to school. Missouri State University offers a fee waiver program for seniors over 62 that can be a great option if you’re interested in taking some classes.
You could also take up working, even part time or in a voluntary capacity, once you retire from your permanent job. Once you reach retirement age, you’re able to earn as much as you can and still receive the full Social Security retirement benefits of $800 per month.
For Missouri state employees enrolled in a MOSERS pension plan, there are other considerations to think about too. You must be completely removed from your former place of employment before you can receive your retirement benefits, and you cannot return to work in a position that is benefits-eligible with MOSERS or MoDOT if you do decide to pick up another job.
If returning to work for someone else isn’t your plan, you could also start your own business or take up volunteering. For retired executives looking for opportunities, the SCORE program is a great way to give back to your local community by mentoring entrepreneurs in your town or city. Consider the 4-H program if you enjoy spending time outdoors and with young people. The Missouri Department of Conservation and state parks are always looking for extra hands if you’re interested in volunteering in the great outdoors.
Think about where you want to live in Missouri when you retire
Knowing where you want to live in your retirement years should be a crucial part of your planning, especially if you’re thinking about relocating. Retirement is an excellent opportunity to downsize and move closer to the people, activities, or even weather, that you love.
If you’re planning to spend your retirement years making the most of your new-found free time, moving closer to amenities like libraries, museums, restaurants, or concert venues might be ideal.
Adjust your investment strategy while still earning
For most people, the final five to 10 years of their careers sees them focusing on a more conservative investment strategy. You don’t have as much time left to bounce back from market downturns, so taking big risks is usually a thing of the past at this point in your life.
Now is the time to move from a wealth accumulation to a wealth preservation mindset. But this is also where having goals and a retirement plan in place are essential. You need to know what you’re aiming for in order to budget and plan your investments accordingly.
If you’re not sure where to start, contact the investment and financial planning team at BTC Bank. We can help you with your pre-retirement investment portfolio management to ensure that, when you check out of the office for the final time, your money is working for you.
Calculate your expected retirement income
You may have money coming from all different angles when you finally reach retirement. Write down all of these revenue streams in the years before you retire to determine exactly how much you’ll likely need to live your golden years in exactly the way you hope to.
The majority of your income will likely be coming from your retirement accounts and pensions, so work out how much you can take in systematic withdrawals to see you through the rest of your life. Think about where you can cut back on expenses now (and put those extra funds into your catch-up contributions!) and what impact this could have on your monthly or annual outgoings once you’re no longer making a stable income.
Understand your retirement options
With over 100 years of customer service history behind us, BTC Bank’s investment advisors offer you all the benefits of a professional wealth management firm with the personalized service that you would expect from a local community bank.
Schedule an appointment with one of our team today by calling 660-425-7285 or stopping in at one of our branches in Missouri or Lamoni, IA. We’ll help you understand your current financial situation and plan for the retirement that you deserve.