Retirement Readiness:
One-to-Five Years from Retirement

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With five or fewer years to go, retirement looks like a more serious proposition than it used to. Facing one of life’s most important transitions is no longer something you will do someday, but something that will be happening almost before you know it.

There will be ramifications for how you live your life, your relationships with other people, perhaps for where you live, how you view yourself and your future, your physical and mental health, and, of course, your finances. In this last category alone, you will have to make some of the most complex decisions you have ever faced, most of them with significant consequences for your long-term prosperity and even solvency.

Fortunately, you still have time to evaluate and prepare. There is plenty of help for you, and these pages will enable you to find it.

There are three large questions you should consider:
• What do you want your life to be like when you’re retired?
• Can you afford to retire when you want to, and still maintain your preferred lifestyle - and what decisions will help improve your financial position?
• What steps should you be taking as you begin to move closer to your target retirement age?

1. What do you want your life to be like when you’re retired?

When most people look ahead to their retirement, they usually ponder how they can have a good, happy, “successful” retirement, and whether they will be able to afford it.

These issues are more closely related than may appear at first. So are a variety of other questions that you might or might not think of right away, or that might appear not to be connected. Your life is going to be changing, but it is still your life, which means that many kinds of things will affect you, and just as importantly, they will affect one another.

For example: will you move when you retire? Whether you do or not, that decision has direct effects on your finances and your quality of life. It will also affect your relationships with other people, especially if you move any distance, or if your closest friends and family either really like or really dislike where you live. Your location also affects what activities you pursue in retirement. Distance from recreational facilities and from doctors may affect your health. Pleasant surroundings may benefit your mental and spiritual well-being, and cramped, noisy, or high-traffic surroundings may create stress and unhappiness. And those are just the more obvious, direct effects.

The same could be said about most other choices you make in the next several years. Each area of your life affects each other area. So instead of thinking of these decisions as isolated choices, it is best to think of them as part of the whole person that is you, or for that matter, of your whole household.

That sounds big, and it is. A successful retirement is not any easier than a successful career. But as we break it down into pieces, it becomes simpler to grasp. And it is not too early to start doing that, if you haven't already.

One way to look at your retirement life is with what we call the SPLASH model. This model divides all the key issues and concerns in your life into six categories, with the most fundamental ones at the bottom, and the less concrete (but arguably the most important ones) at the top. Here is what the model looks like, and a few of the key issues that relate to each area.

Click any of the six main topic areas Spirit, Purpose, Love, Avocation, Security, or Health – or better yet, try them each in turn, to explore in more detail the specifics of what each is, and why they all matter. As you may already realize, some of the items listed above could fit into more than one category. This is unavoidable: Life does not fit into neat boxes. The intention here is to cover all the key areas in one place or another, and as you visit each section, we will explain the main connections to the other sections.

2. Can you afford to retire when you want to, and still maintain your preferred lifestyle - and what decisions will help improve your financial position?

All of the issues in the previous section are important, but as we start getting closer to retirement, we usually want to be confident that, first and foremost, our financial security is reasonably assured. Once we have that settled, most of us tend to feel that we can figure out everything else.

This is a valid and even necessary approach for most people. Although you can’t make all of your financial decisions until you know, for example, where you’re going to live and what you’re going to do and how much money you’ll make (or spend) as you shift into retirement, you also can’t make those decisions until you have a sense of your overall financial situation. So we have the makings of a vicious circle.

The best way to break out of this is to use a detailed model to see what your current financial situation is, how it might play out into the future, and then how all this would change depending on what other decisions you make.

This sounds tricky – and it could be tricky indeed. But fortunately, there is an excellent planning tool available that does just this job, and it has been specifically built for people in your situation. It may take you two or three hours to work through it, possibly even more, but that's because it's thorough, not because it's difficult (or, if you are still four or five years from retirement, you could probably get by for now with the software's faster input mode, which generally cuts the time in about half). If you are the person in your family who handles the finances, this is something you can do yourself, yet it is better than what all but the most expensive personal financial planners can do for you.

• This software is called RetirementWorks II, and with the $80 discount we have arranged for you it costs just $109 for one year of use (you can then renew it each year for $44.50). To learn more, visit the RetirementWorks website: http://www.RetirementWorks2.com. If you purchase the software, use the Discount Code: RRR109

3. What steps should you be taking as you begin to move closer to your target retirement age?

Five Years before retirement

• ___ Discuss your retirement plans with your spouse or significant other, if you have one. You might find you are not yet in sync about when is the right time to retire, whether you should be moving, what your standard of living should be in retirement, and how your time will be filled.
• ___ Evaluate your financial situation: is retirement in five years (or whatever your goal is) actually feasible? If not, what changes do you need to make now?
• ___ Evaluate your career: do you want or need to keep pushing ahead, and trying to earn as much as possible – or is it time to start slowing down a bit?
• ___ Evaluate your life: retirement could come as an emotional shock if you have not developed outside interests and relationships ahead of time. Is it time now to start making some adjustments?
• ___ If things will (or even might) be financially tight for you in retirement, start reining in your expenses a bit. This helps in two ways: first, by reducing your future need for funds, because you are tempering your lifestyle; and second, by enabling you to do some extra saving before you retire.
• ___ If you have credit card balances or other debts with high interest rates, start paying these down, if you can.
• ___ Increase your monthly savings, if you can. In particular, take advantage of any employer matching in 401(k) or other benefit plans.
• ___ Start looking for a time when the financial markets are high compared to the recent past, then consider starting to move some funds to more conservative investments – unless you have enough money so that you are not worried about ever running out. Risky investments are not suitable for non-affluent retirees, but you can’t count on the markets being favorable for you to change just when you retire.
• ___ If you plan to reside full- or part-time in a far-away place, try to start spending more time there now, to learn more about it and about how well it really wears on you.

Three Years before retirement

• ___ Revisit all the elements listed above in the “Five Years before retirement” section. Has anything important changed? Is it time to focus even more on career, relocation, expense management, and savings decisions?.
• ___ Start doing a detailed financial analysis / plan of your retirement situation. Shortcut methods are no longer sufficient.

Two Years before retirement

• ___ Revisit all the elements listed in the “Five Years before retirement” section. Has anything important changed? Is it time to focus even more on career, relocation, expense management, and savings decisions?.
• ___ Consult with your employee benefits office and the Social Security office in your area about what specific month or day would be best for retirement, in terms of benefits you are entitled to. Sometimes there can be a noticeable change, in your favor or against you, before or after certain dates. Also ask them how far in advance they need to have any decisions or required paperwork from you.
• ___ Update your detailed financial plan.

One Year before retirement

• ___ See: "Retirement Readiness: Within One Year of Retirement."

©2012 Still River Retirement Planning Software, Inc. / RetirementWORKS, Inc.