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How to manage the home stretch to retirement
If you have only a few years to go before retirement, you still have to make some important decisions that can impact the quality and security of your retirement. - photo by Jeff Wuorio
Many Americans are woefully unprepared financially to retire.

Recent Federal Reserve statistics show one-third of American households had no retirement savings, and among those that did, the typical nest egg totalled just $14,500 in savings.

For those who have done reasonably well in the savings department and are five or so years away from hanging up your working shoes, there are still a few issues to consider while you have time and flexibility to make any adjustments.

Evaluate and catch up

Whether you have set aside enough savings to retire turns on a number of factors desired lifestyle, time of retirement and life expectancy, among others.

While there are easy-to-use tools that give you an idea of where you stand such as this MSN Money calculator a financial pro can make a more precise forecast through a cash flow analysis.

A cash flow report will evaluate their assets, expenses and expected future income to determine if their assets and income will allow for a certain level of spending, said Rebecca Pavese, a portfolio manager with Palisades Hudson Financial Group. The report will assume a certain amount of inflation for expenses and a projected rate of return for assets.

If the analysis suggest youre not where you should be, the IRS allows for catch up contributions to your savings plan that are higher than conventional levels. People 50 or older can deposit an extra $6,000 per year into a 401(k). IRAs allow an additional $1,000.

But use financial caution against upping the risk level of your investments to possibly boost returns. While you may be worried about the size of your total nest egg, an aggressive shift can mean greater volatility when you can least afford it.

I would advise taking a close look at their asset allocation and ensuring that there is not too much risk in their portfolio, said Mark Hyland of Hyland Capital. Should a stock market correction occur just as you are retiring and all your assets are in stocks, you could be forced to sell for a loss and hurt your chances to retire comfortably.

Next steps

After you have a sense of your available funds, turn your attention to other factors:

  • Health care. Get an idea of how much you can expect to spend on health care a handy resource to gauge this is The Healthcare Bluebook. Then review health coverage options: Find out if your company provides this. A few companies still do, said Dana Twight of Twight Financial Education.
  • Long-term-care insurance. Many financial pros recommend buying this for nursing home expenses and other forms of long-term care in your 50s or 60s (the younger you buy in, the lower the premiums.) Check for inflation coverage.
  • Estate planning. Review life insurance policies, particularly group life coverage offered by many employers, and make sure the beneficiaries have been updated. If you have children, are they aware of your estate plans or who your trusted advisers are? said Twight. If your children are not of age, you may wish to set up a trust or trustees to manage an inheritance.
  • Get major purchases out of the way. If possible, pay off your mortgage before retiring. The same holds true with debt, such as credit card balances.
  • Consider downsizing. A smaller home not only means less upkeep, The proceeds from the sale of the prior home will allow for the purchase (without a mortgage) of a new, smaller home and a deposit into an investment account, said Pavese.
  • Take a test drive. Start transitioning to your retirement lifestyle and spending thresholds now, said Hudson, Wisconsin, Certified Financial Planner Brett Anderson. Nothing like a financial test drive today to see if you can make it work.
Beyond money

Retirement planning shouldnt be limited to financial issues. For some, retirement may mean continued work either out of financial necessity or a desire to remain active in a professional setting. Others may think about going into business for themselves.

Staying relevant in ones retirement years is important," said Anderson. "Its worth figuring and determining now how will you spend your time in your retirement years. It's not all about money.
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