In Part 1 we discussed some of the financial challenges many people face as they prepare to retire. In this post we’ll discuss some actionable items that can help you prepare for your retirement

One of the biggest shocks in your life will be the 1^st day you retire and realize that you will no longer get a pay check next week. There will be no more “pay checks”. If you have a good plan in place you’ll be celebrating instead of fretting.

Here are some things you can do when you are within a few years or so of retiring.

1. Accelerate your investments. We assume that as you are getting closer to retirement you’ll be in your peak earning years, and hopefully not peak spending years. Now is the time to max out all possible avenues of investments. Take full advantage of both employer 401K contributions and the maximum contributions you can make including all “catch-up” amounts. If you qualify contribute a maximum to your IRA or even better a Roth IRA. If you have the option of a healthcare HSA account, take it and fund it to the max. Unless you are a great stock-picker put this money into low fee S&P Index Funds or ETF for now.
2. Substantially reduce then eliminate debt. Many people can’t afford to retire not because of their core daily survival expenses but their payment on debt. Parents might still owe on college education for their children. Some carry massive credit card debt, car loans, home equity loans, etc. You just can’t afford to retire with this debt overhang. Why, because the interest expense say 8 – 20% far exceeds any investment growth one can count on. What to do: develop a plan to completely eliminate all debt ASAP. Stop spending on all non-critical items until all debt is paid off.
3. House mortgage payments need some discussion. The best situation is to retire with no house payments. Typically mortgage payments are your largest monthly expense. If you are carrying a large mortgage seriously consider downsizing to reduce or eliminate your mortgage. Consider moving to a much lesser cost of living location that will allow you to get much more value and maybe a meet your retirement dreams. For example, we moved from Philadelphia area to Tampa which eliminated our local and state income tax, substantially reduced our property tax and meet our retirement dreams.
4. Build substantial cash reserves. Once debt is gone you’ll need to build cash, completely separate from your accelerated investments. You should have one full year of expenses in cash at the time you retire. You need an emergency fund and really don’t want to start withdrawals from your investments immediately upon retirement.
5. Start building a retirement budget that considers you no longer have a “pay check”. The old adage is that you’ll need 80% of your former annual income to live on in retirement. However you may not have this money available to you for the next 30 years.

In summary, in the years leading up to retirement it is time to eliminate debt, accelerate investments and build cash.

In our next post we’ll discuss how much you’ll need in investments, pensions and Social Security to retire.

you’ll need in investments, pensions and Social Security to retire.