Retirement -- you've worked your whole life for this moment, and now that you're in your 60s you can practically taste the freedom. Before you hand in your timecard and get ready to spend your days puttering around the house, babysitting your grandkids, or traveling the world, though, it's important to finish your career strong and make sure that you're 100% ready for what retirement will mean for your finances.
Continue Reading Below
If you're in your 60s and retirement is looming, here are four key things that you should do to make sure that you're really ready to say goodbye to the working world forever.
1. Make catch-up contributions
Once you've retired and are no longer earning income, you can no longer contribute to a 401(k) or an individual retirement account (IRA). This means the end of your working years are the last chance you have to make tax-deductible contributions to your retirement accounts. You want to accumulate as big a nest egg as possible before your official retirement, so you should take advantage of the chance to make catch-up contributions.
You're permitted to make $6,000 per year in catch-up contributions to a 401(k), 403(b), SARSEP plan, or governmental 457(b) account once you have reached the age of 50. You're also permitted to make an additional $1,000 catch-up contribution to an IRA as of 2017.
Catch-up contributions are additional amounts you can contribute after you've already maxed out your tax-advantaged investing. Because of catch-up contributions, the maximum you can contribute to a 401(k) in 2017 is $24,000 if you're over 50, and the maximum that you can contribute to an IRA is $6,500. If you max out both an IRA and 401(k) and you make catch-up contributions to both, you'll be adding an extra $7,000 in tax-free retirement savings to your retirement account each year. This extra $7,000 cash could turn into more than $46,000 if you start making catch-up contributions at 60, earn an 8% return, and retire at 65.
Continue Reading Below
2. Calculate your Social Security benefits
You won't be relying on your retirement accounts alone to support you as a senior. Social Security benefits should also be available to you, provided you've worked and paid into the system. You need to know how much you'll receive in Social Security benefits so you can determine if this income -- combined with the money your retirement savings can generate -- will be enough to support you.
The amount of money you will receive from Social Security will be determined both by your earnings over your career and the age at which you retire. Delaying retirement can allow you to maximize your monthly Social Security income, but of course it will take you years to make up for the time when you weren't claiming your monthly benefits. You should calculate how much you'll receive if you take your Social Security benefits at varying ages so you'll know when to claim your benefits and how much you can count on receiving.
The Social Security Administration has calculators that allow you to determine how much you'll receive in benefits at any given age based on your earnings record. You can also visit my Social Security to create or sign into your account and view your estimated benefits. You should see three numbers when you sign in: the amount you'll receive at full retirement (age 67); the amount you'd receive if you retired early at 62; and the amount you'd receive if you delayed until age 70. You can use this information to decide if you should wait to take your benefits or claim them right away, and can also use the info to determine what your budget will likely be during your retirement years.
3. Make sure your portfolio is appropriately allocated
As you get near to retirement age, it's time to reallocate your portfolio. When you're in your 60s, you no longer have decades to allow the market to recover from a downturn. You'll want to reconsider your tolerance for risk because of the shorter time table you have for investments. While you don't want to become so conservative that your retirement funds don't earn you enough to keep pace with inflation, now is not the time to be investing in stocks with big potential rewards but substantial risks.
There are a number of different formulas you can use to determine how best to allocate your investments during retirement. One option, if you're still trying to grow your savings is to subtract your age from 110 and put that percentage of your portfolio in stocks. This would mean if you're 65, you'd invest 45% of your portfolio in stocks and then split the rest of your investments between bonds and cash. However, this is just one of many possible ways to allocate assets, and you should carefully consider how much risk you're willing to take on when you're counting on retirement coming soon.
4. Make a financial plan for retirement
Retirement is going to mean big lifestyle changes, and you want to be financially prepared. Once you know what you'll receive in Social Security benefits and you have a pretty good idea of how much your investment portfolio will be worth, you can calculate what your expected retirement income will be.
Then, think about what this will mean for your standard of living. Does the income you're expecting provide enough to pay for your house, to cover the costs of medication, and to pay any outstanding debt payments that you will have going into retirement? How much "fun" money will you have to travel the world with, and will you be struggling to cover the bills? Create a sample budget so you can see how far your money will go, what portion of your cash will be allocated to fixed expenses and how much you'll have to enjoy your life.
One of your best options to make sure you can comfortably live on your retirement income is to start living on your retirement budget before you actually retire. Restrict yourself to spending only the amount of disposable income you'll have after retirement. If you were spending more before, save the rest and use it to make your catch-up contributions.
If you find your budget is too fight, you may need to change your plans and work a little longer or explore moving to an area with a lower cost of living. If you find you'll be flush with cash, then enjoy the rest of your working years and look forward to the day when your retirement nest egg will have you living in the lap of luxury.
The $16,122 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,122 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.