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Dave Ramsey's Smartvestor

7 Essential Steps for a Comfortable Retirement

July 12th, 2018 | 3 min. read

By Jacob Schroeder

7 Steps To A Comfortable Retirement

7 Steps To A Comfortable RetirementDave Ramsey’s 7 Baby Steps show you how to get out of debt, save money and build wealth. But, what should you do when retirement is just around the corner?

In retirement, your financial situation flips. You go from building wealth to spending down wealth as you fulfill your retirement goals. To make the transition as comfortable as possible, here are 7 essential steps you need to take as you near retirement.

Step 1: Get a retirement plan

A retirement plan won’t provide just peace of mind. It can help you retire with more. People with a plan in place have more than three times in savings than those without one, according to a report by HSBC Group.

With a retirement plan, you’ll know where you stand financially and what additional steps you need to take. Most important, it will show you how to turn your assets (401(k)s, IRAs, pensions, Social Security, etc.) into a stream of income that will support you throughout retirement.

Step 2: Evaluate & adjust your investments

At this point, your savings have less time to recover from a steep decline in the market. Therefore, it’s a good time to look at your asset allocation – that is, how your savings are divided among investments, such as stocks, bonds and cash, in your retirement accounts. You may need to reduce risk by lowering your stock holdings and adding more conservative investments like bonds.

While it may be time to stop looking for large investment gains, it’s not time to stop saving. Instead, take advantage of catch-up contributions, which allow those age 50 or older to contribute more each year to their employer retirement plans (up to $6,000 in 2018) and IRAs (up to $1,000 in 2018).

Step 3: Choose when to file for Social Security

The earliest you can file for Social Security is age 62, though you’ll receive a reduced benefit. Alternatively, you can maximize your benefit (approximately 75% greater than the early benefit at age 62) by waiting until age 70 to file.

Some financial articles encourage everyone to delay and maximize their benefits, but the truth is that there is not one right answer. The right age for you to file depends on several factors, ranging from your health, the size of your retirement savings, what other income sources you have, and your marital status. The goal should be to maximize your total income, not just one income source.

Step 4: Consider your life insurance needs

As you age and your financial obligations decrease, you may want to reduce your life insurance coverage or get rid of it entirely. Generally, if you are unmarried and don’t have any dependents, then you don’t need life insurance. On the other hand, if you do have dependents – whether you’re married or not – you probably should have some kind of coverage.

If you need life insurance, the appropriate policy for you will depend on your personal situation. It makes sense though to first look at term life insurance, as it is the cheapest and least complex option. That way, you can avoid wasting valuable retirement dollars on coverage you don’t need.

Step 5: Assess your health insurance needs

Health care is one of the biggest expenses in retirement. A study by HealthView found that a 65-year-old couple today can expect to spend more than $400,000 on health care, assuming they live into their late 80s.

At age 65, you are required to enroll in Medicare, the national health insurance program that covers hospital services and emergency care (Part A) and doctor’s office visits (Part B). It’s important to know that these two parts don’t cover all health care benefits for individuals, such as prescription drugs. So, you should explore supplemental coverage options.

Step 6: Investigate long-term care options

You may never need long-term care, but you’ll be better off if you prepare for it. That’s because long-term care is very expensive, and Medicare doesn’t cover it. Consider that the national median annual cost of a semi-private room in a nursing home is $85,775, according to the Genworth Cost of Care Survey.

Essentially, you can rely on friends and family for care, use your personal savings, buy a long-term care insurance or hybrid life insurance policy, or access the Medicaid program. What makes sense for you is determined by several personal factors, such as your family health history, current health, age, and level of wealth.

Step 7: Work with a financial adviser

What exactly can a financial adviser do for you? For starters, a financial adviser can help you develop a personalized retirement plan, manage your investments and act as a trusted resource for any money concerns or unexpected problems.

Further, a financial adviser can help boost your wealth. HSBC’s retirement study also found that savers who have a financial plan and work with a financial adviser have an average savings more than four times greater than those without a plan.

Learn more about taking these 7 essential steps for a comfortable retirement by watching the replay of our educational webinar: “Advanced Retirement Planning: Key Steps for When You’re Almost There.” We think you’ll find it to be time well spent!


Advanced Retirement Planning - Key Steps for When You_re Almost There