Retiring is a decision you usually can’t undo.
Your employer has most certainly made plans to replace you with a successor who’s been waiting in the wings. So this isn’t one of those choices where you can come back and say, “I’ve changed my mind.”
Retirement planning is complex; there are so many moving parts that it can be a challenge to know if you’ve done enough. You run retirement calculators, rebalance your investment portfolio, and get a second opinion from an unbiased financial planner. All these steps are positive! But there are a few more to consider.
Whether you have a clear-cut retirement date (and have purchased a special clock that counts down the years, months, days and minutes until that day), or you just have a general idea of when you want to leave the workforce, here are five financial moves to make in the last five years of your career:
1) Seek out the best places to retire. You might want to stay put to be near family, friends and community, or you might want to take that rare opportunity to make a big change. When looking for places to retire, take into account state income tax rates, cost of living, culture, beauty and, of course, climate. Consider a university town where you can take advantage of the intellectual stimulation of auditing lectures or taking classes, as well as the multitude of restaurants and a vibrant music scene that often accompany colleges.
Don’t necessarily rule out a cold climate, though. Some of Forbes' Best Places to Retire in 2014 include snowy winters! My husband and I love the outdoors, so we moved to Park City, Utah, and with our new wardrobe of SmartWool clothing and Patagonia jackets, we are toasty warm even when out in the cold. Since we live in a condo, snow removal is done before we head out the door, and we get to enjoy the beauty of the Wasatch Mountain Range every single day of the year.
2) Re-kindle and re-tool your hobbies. You might be excited to finally have time to enjoy your hobbies, but once you start up again, you may realize that technology has passed you by. You might desperately want to upgrade all of your equipment, which can get expensive quickly. If you are a skier, have you hit the slopes in the last ten years? If not, your skis are about a foot longer and a whole lot skinnier than everyone else's. The Rocker technology has taken over, because it makes skiing much easier and more enjoyable. Your first day out, you just might be in the market for new skis.
Do you love photography and have a camera circa 1995 (or even 2005)? Don’t look now, but 3rd Gen cameras look like they could replace the digital SLR camera, and you may end up dying to try one out.
Do you want to enjoy a hobby in retirement? Rekindle your interests in the last five years of your career, while you have a high income. If you retool and plan to purchase equipment to indulge your hobbies then, you can reduce surprises in retirement. (The Forbes list of the great places to pursue your passions in retirement is here.)
3) Purchase or plan for your big-ticket items. Will you need to replace a vehicle or make home repairs in the next few years? Tackle big projects, like updating your home with a new kitchen or carpeting, fixing the roof, or a room addition in the years leading up to retirement. You may not have as much time to do these big jobs now, but you will likely have more resources.
Just make sure you don’t “over-improve.” Save your money for projects that will increase the value of your home enough to offset the cost. For example, replacing a steel entryway door can increase the value of your home such that you can recoup 97% of the cost, according to Remodeling Magazine’s 2014 Cost vs. Value Report.
Make these purchases now, start the projects while you are still working, or set aside the funds in a “sinking fund” to spend on projects to tackle after you retire.
4) Tap into every employer benefit possible. Research what benefits your employer has for retirees — you may be able to keep your 401(k) with your employer rather than rolling it into an IRA. If fees are low and you like your options, this could be a benefit. Some companies offer retiree medical, but what else? Can you still tap into employee discounts? Is there a retiree network?
What about former employers? There may be money out there that you don’t know about. According to the Pension Benefit Guaranty Corporation, in January 2013, there were 38,000 workers who had unclaimed pension benefits. To search their site to see if you have an unclaimed pension, click here. Additionally, reach out to the HR department of each of your former employers to find out if you have any pension benefits. There may be money on the table.
While you are at it, look for lost funds. Did you forget to roll over an old 401(k) and the money is sitting there unclaimed? Check with the National Registry to see if your employer has listed you as a missing participant. For more information on finding lost 401(k) assets, check out this informative article from 401(k) Help Center.
5) Take a trial run at retirement. Estimate your retirement income and try to live on it now to see how you do. This is also a good exercise in tracking your spending — a skill that will be very useful in retirement. Get a handle on how much you actually spend on a daily basis to give you a baseline in retirement. You may be surprised by how easy it is to underestimate your spending in retirement — once you reach your golden years, every day is Saturday.
Track your daily spending to see how much you spend on the weekends or days off. Find an app that tracks your daily spending such as Level Money — geared toward Millennials, this app can also benefit pre-retirees by keeping cash management super simple. Alternatively, you can always use the ever-popular Mint.com for tracking your monthly budget.
Helen Keller is quoted as saying, “Life is either a daring adventure or nothing.” When talking about life being a daring adventure, she hypothesizes that security is a superstition. “Security does not exist in nature, nor do the children of men as a whole experience it.”
Retirement can be a great time to have that daring adventure. As in any adventure or journey, preparation and planning can reduce the risk of failure and increase the probability of success. As Helen Keller mentions, you can never have total security. You can do your best by saving for and planning your retirement as early as the first day of your career, but the last five years can make a difference as to whether retirement is that daring adventure, or nothing. Plan well and enjoy.
Nancy L. Anderson, CFP ™ is a Certified Financial Planner ™ professional in Park City, Utah and a blogger for Deer Valley Ski Resort. Follow Nancy on Facebook and Twitter.
