As you near retirement take the time to think about your most important priorities. This exercise can help you target your spending and saving in accordance with what you want to achieve—now and in the future.
Staying on track is more important than ever when you near the end of your working career and have less time to set aside savings.
“Setting specific goals provides a road map that shows you what you need to do to keep your financial plan on track,” says John Lopez, who teaches personal finance at the University of Houston’s Bauer College of Business.
But how do you start? The following steps can help:
Identify specific goals
Your goals have two components: what you want to achieve, and the amount of money you need to achieve them.
“Be specific,” Lopez says. “Saying you want to retire at 60 is too broad. It’s more effective to specify the amount of money you need in the bank to reach that goal.”
That specificity makes it easier to determine what steps you need to take to reach your financial goals—and for how long. Say you’re behind in your retirement savings. With 10 years until you hope to retire, you want to add $100,000 to your retirement savings. That means you have to set aside $1,000 a month for 10 years.
Set your priorities
When you have defined your financial goals, including how much money you need to reach each one and the time in which you’d like to achieve them, you can determine which goals get top priority.
“Your goals are competing for limited resources—your money—so you have to think about which to save for first,” Lopez says.
At the top of your list should be basic financial preparedness, including establishing an emergency fund, paying down high-interest debt and saving for retirement or healthcare-related expenses. You also might want to make a plan to handle post-retirement healthcare expenses. For instance, you may want to draw up an estimated budget for retirement healthcare costs, or consider purchasing long-term care insurance coverage before you retire. Contributing to a child’s or grandchild’s college savings fund can go farther down the list.
Make it automatic
“Pay yourself first” by automating your savings. For example, if you’re eligible, you’re probably already contributing to your workplace retirement plan, which automatically deducts your retirement savings from your paycheck. (It’s a good idea to contribute at least enough to qualify for any employer matching funds.)
And people who are 50 and older can add to their retirement savings with catch-up contributions. These allow you to contribute an additional $5,500 to 401(k) plans, and $1,000 to traditional and Roth IRAs.
Schedule an annual review
Evaluate your goals each year to adjust for any changes such as a remarriage, or a decision to stay in the workforce longer. It’s smart to review your portfolio’s asset allocation its mixture of stocks, bonds and cash investments with your SunTrust advisor at least once a year. Doing so can help determine whether you need to re-allocate your portfolio to better fit your retirement age and financial goals.
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As you become eligible for Medicare, you will probably find yourself also considering buying additional insurance to cover the costs of prescription drugs. In fact, you will discover that Medicare strongly urges you to buy supplemental coverage, because prescriptions are not included in basic Medicare coverage.