Whether you’re close to retirement or far from your golden years, financial advisors recommend examining all aspects of your retirement plan. However, it’s particularly important to re-evaluate your strategy if you’re within five years of retirement in order to identify any shortfalls.1 It’s not uncommon these days for retirees to live thirty years in retirement1, so it’s important to ensure you’ll have enough funds to last. “Data from the Social Security Administration shows that about one in three 65-year-olds today will live to age 90, and more than one in seven will live to age 95.”1
When evaluating your retirement plan, the first step is to run the numbers to determine whether you’re short on funds, and if so, by how much.1 The next step is to take a look at your retirement goals and come up with a game plan. It’s always a good idea to consult with a financial advisor if possible.
Below are some important considerations to think about when evaluating your retirement plan:
Catch-Up Contributions:
If you’re age 50 or older, you can take advantage of catch-up contributions for retirement accounts such as 401(k) plans and other individual retirement accounts. With a 401(k) for example, in addition to the 2015 contribution limit of $18,000, you can contribute an extra $6,000. For an IRA, the annual limit is $5,500, but if you’re 50 or older, there’s an optional catch-up contribution of $1,000.1
Social Security:
Eligibility for social security starts at 62. The full retirement age, as defined by the government, ranges from age 65-67 depending on when you were born. The longer you can delay collecting your social security benefits, the higher your benefit amount will be.1
Estate Planning:
According to financial professionals, it’s important to have an updated will, regardless of the value of your assets. Make sure your beneficiaries are up to date on all retirement accounts and life insurance policies.1
In addition, don’t forget about other important aspects of estate planning such as assigning a power of attorney and selecting an advance health care directive. A power of attorney becomes important in scenarios where you are no longer capable of managing your financial matters yourself. An advance health care directive, also known as a living will, specifies who will be making decisions about your health should you become ill or incapacitated.
Long-Term Care:
Long-term care insurance can be costly and may not be for everyone. However, it can provide peace of mind in the event that you are faced with unexpected health problems and can no longer care for yourself.
Down-Sizing:
You may want to consider moving to a smaller home with less upkeep. Newer homes often require less maintenance. Downsizing from a two-story to a one-story can be helpful for seniors that aren’t as mobile as they used to be.
Home Equity:
Many seniors have built up significant equity in their homes, thus making their home a substantial part of their estate. If you are running short on retirement funds and are looking for a way to supplement your income, a reverse mortgage loan is an option to consider. A Home Equity Conversion Mortgage (HECM), commonly known as a reverse mortgage, is a Federal Housing Administration insured loan. A HECM enables seniors to access a portion of their home’s equity to obtain tax free2 funds without having to make monthly mortgage payments.3 The loan typically becomes due when the borrower moves out of the home as their primary residence or passes away. At that time, the borrower or their heirs can choose to repay the reverse mortgage loan and keep the home, or sell the home to repay the loan.
If you’d like to learn more about reverse mortgages and see if you’re eligible, call 800-218-1415.
1 Does Your Retirement Plan Need a Reality Check – CNBC.com, by Sarah O’Brien, 9/17/15, http://www.cnbc.com/2015/09/17/does-your-retirement-plan-need-a-reality-check.html.
2 Consult your financial advisor and appropriate government agencies for any effect on taxes or government benefits.
3 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance and maintain the home according to Federal Housing Administration requirements.
Author: Meredith Manz