Question: \u201cI just turned 50 and am planning to retire when I\u2019m 60. I need advice on my finances so I can maximize my retirement. What should I be doing 10 years out? Five years out? And two years out to prepare for retirement? At what point does it make sense to hire an adviser?\u201d<\/p>\n
Answer: Retiring in just 10 years at 60 means you need to be laser focused on saving enough to make it happen. And pros say that hiring a financial adviser is a wise idea to ensure you\u2019ll be in a good financial spot at retirement. You can find advisers at CFP Board, NAPFA or use this free tool to get matched with fiduciary advisers <\/a>from our ad partner SmartAsset.<\/p>\n What should you do to retire in 10 years?<\/p>\n You might want to start with an online retirement calculator to get a realistic idea of how much savings you\u2019ll need for your planned retirement, says personal finance expert Austin Kilgore, analyst at the Achieve Center for Consumer Insights. And you\u2019ll need a fully-formed plan on how to achieve the necessary level of savings.<\/p>\n \u201cYou don\u2019t have time for mistakes,\u201d says Randy Jaramillo, president of Reliant Wealth Management. \u201cWith an intentional road map heading toward 60, you should fully understand your annual required spending needed in retirement, adding in the cost of inflation. Consider your annual required spending needed without Social Security to get a portfolio target and adjust for Social Security later.\u201d <\/p>\n Right now, you\u2019re still in income-generating mode. \u201cUse compression to your advantage. Lock in savings rates of 20% or better [by automatically saving raises and bonuses before lifestyle spending increases]. Pump your excess cash flow into the highest-efficient savings vehicles you can find. Think Roth IRAs and after-tax brokerage accounts with tax-managed strategies. Harvest losses and get your stock exposure in order immediately. This is not the time for additional risk, it\u2019s time to hone your compounding skills,\u201d says certified financial planner Eric Croak at Croak Capital.<\/p>\n Furthermore, \u201cmake sure your savings are fully funded and then some. Be sure you maintain an emergency fund, too, that would cover nine to 12 months of base living expenses,\u201d says Kilgore. And Jaramillo adds that you should: \u201cMaximize tax advantaged savings like employer-sponsored plans and contribute at least up to the employer match, ideally 15% to 25% of your income. Utilizing catch-up contributions and investing intelligently for growth is going to be vital. Avoid the idea of chasing returns with high-risk strategies,\u201d says Jaramillo.<\/p>\n You\u2019ll also need to decide if you\u2019re going to stop working or work part-time as this can affect your equations, as well as evaluate the purchase of long-term care insurance coverage. \u201cThis insurance can sometimes cover expenses that Medicare or private health insurance do not,\u201d says Kilgore.<\/p>\n In terms of your long-term budget, Croak says this is the time to ditch the extras. \u201cThat second home you thought you might want one day? Probably not happening. Put pencil to paper on your actual expenses, not your wish list. Understand how the mechanics of your drawdown will work. What\u2019s the timing and source of your expected retirement income? Which account do you plan to tap first? If you\u2019re going to do Roth conversions to pay off debt, this is the time to do it,\u201d says Croak.<\/p>\n You will need to evaluate your progress each year, and when you\u2019ve got just five years remaining until you want to retire, you\u2019ll need to do even deeper diving into your progress. \u201cIf your planning indicates you won\u2019t have enough money to retire when you plan to or the way you want to, take steps to figure out how to bring in additional income. Be proactive,\u201d says Kilgore.<\/p>\n Age 55 is the inflection point where you\u2019ll transition from the accumulation to the drawdown phase, says Croak. And when you get to the pivotal point of five years until target retirement age, Jaramillo says that\u2019s the time for a shift in your planning. \u201cIt should go from how much you can make to how much you need. Lowering expenses and paying off debt needs to be a priority. Reducing sequence of returns risk should be at the forefront of your planning, which is where many retirees fail,\u201d says Jaramillo. <\/p>\n When you hit 58, \u201cyou want to get everything in writing, locked down and tax coordinated,\u201d says Croak. Furthermore, Jaramillo says, \u201cfinalize withdrawal strategies in a tax efficient drawdown order. Make sure you bridge the gap of portfolio withdrawals and when you start taking Social Security. Living within your retirement budget six to 12 months before retirement is highly suggested to experience what it will be like when you actually retire.\u201d<\/p>\n Note too that the exact time a person retires can have an enormous impact on the quality of their retirement if their assets are focused in the equity markets. \u201cIf someone who retired at the end of 2008 were invested in the S&P 500, they would have seen their assets fall by 37% in one year. The five years prior to retirement can be considered the retirement red zone. Just as a football team can\u2019t afford to turn the ball over and fail to score points when inside the opponent\u2019s 20-yard line, the retirement investor can\u2019t afford a big downturn in the retirement red zone. This is what\u2019s referred to as sequence of returns risk. A bad sequence of returns immediately preceding retirement can be devastating,\u201d says Robert Johnson, chartered financial analyst and professor of finance at the Heider College of Business at Creighton University.<\/p>\n When should you get a financial adviser?<\/p>\n The good news is that 10 years out is a great time to bring in outside help. \u201cTwo years out it\u2019s not so great. You\u2019re better off getting help when you can still do something about it instead of crossing your fingers at 59,\u201d says Croak.\u00a0<\/p>\n Hiring an adviser now could help you down the line. \u201cWhile a 30-year-old can often get by with a simple index fund strategy, a 50-year-old facing a hard deadline has complex tax and withdrawal decisions to make. Hire an adviser five to 10 years out, which provides enough runway to course-correct if your savings rate isn\u2019t high enough. An adviser is essential for the de-cumulation strategy. A fiduciary financial adviser can help you catch blind spots in your retirement plan and optimize your retirement income strategy,\u201d says chartered financial analyst Stoyan Panayotov at Babylon Wealth Management. <\/p>\n Many people believe they should be able to navigate the increasingly complex financial world without the help of a financial professional. Some certainly can, but for others, it\u2019s better to get help. \u201cOne needs help in the capital accumulation stage and the decumulation stage on appropriate ways to draw down savings,\u201d says Johnson. You can find advisers at CFP Board, NAPFA or use this free tool to get matched with fiduciary advisers <\/a>from our partner SmartAsset.<\/p>\n