It’s never too early to start planning for retirement. Knowing what steps to take at each phase of your retirement planning will help you develop a useful, overall strategy, no matter what your age. With that in mind, BusinessNewsDaily asked three financial experts what steps workers need to take before turning 60 to make sure they retire with enough savings.
Shift away from risky options
While there may be a time and place for risky investments when saving for retirement, most experts agree that tolerance for risk should decrease as workers approach their retirement goals.
"When you are young, you have plenty of time to recover, but when you are in your 50s and getting closer to 60, you don’t have that luxury," said Steve Gaito, director of My Retirement Education Center. "The premise I follow is, how much return do you need to reach your goals? It doesn't make sense for a person to take more risk and possibly go backwards, but a person who hasn’t saved as much should look to be more aggressive."
To help guard investments from risk, Gaito says workers should manage investments more conservatively as they approach retirement. Those who do not follow that advice are unnecessarily exposing themselves to risk, Gaito says.
"I think there is a misconception out there that volatility actually gives you a better return," said Gaito. In reality, "you are trying to manage the volatility of your portfolio.
"I give an example with two portfolios: if one has 50 percent return the first year, loses 20 percent the second year and has no return the third year, it has an average return of 10 percent. Compare that to another portfolio that does a 10 percent return each year for three years, and it’s the same return."
Find out how and when you will use Social Security
Although Social Security eligibility does not begin until age 62, workers would be well served if they approached retirement knowing when they will begin using this important resource.
"Social Security itself is a very critical component of the retirement income," said Damian Rothermel, owner of Rothermel Financial. "The fact that it is guaranteed, the fact that there is an inflation adjustment and [that it is available] as long as people are living, [means] these numbers can be very important in how people make their decisions."
Rothermel says the longer a person can wait to start collecting retirement, the better off they will be. However, people must take a number of factors into account before starting to claim Social Security benefits.
"I think it is important for someone in their 50s to look at how Social Security will be a foundation of their retirement income, because you can then plan the assets of your retirement," Rothermel said.
"Typically, the longer you wait [to begin taking Social Security], the better off you will be … Every year you wait taking Social Security, you are getting a raise in Social Security income until your full retirement age. But don’t wait until after age 70, because that is the max you can get, and if you are going to claim a spousal benefit, [these benefits] stop growing at age 66."
However, Rothermel cautioned, even though people are living longer and longer, "some people cannot afford to wait because they need the money."
Try to decrease spending habits
Upon reaching retirement, most people's spending habits will adjust to reflect their new financial state. To prepare for this, workers in their 50s should start reducing spending. Not only will such cuts help people get used to the new realities of retirement, but it will also help them save additional money to reach their goals.
"One of the things people should try to do in their 50s is to move to a sustainable standard of living," said Steve Sass, associate director of the Boston College Center for Retirement Research. "Spending less is something that is extremely powerful in reaching retirement goals."
Sass says one potential way to decrease spending is to downsize your living space, if you can.
"Downsizing is kind of a special case," said Sass. "Your house is the largest asset and the largest expense for most people in retirement. If you cut that down, you will get some extra money, but moving to a place where you are going to live for a long time is a smart move.
And it makes sense to move before age 60. "It is a lot easier to move when you are younger. As you age, moving becomes more difficult physically and socially. Get yourself into a spot that is well-suited for your interests in retirement, if you can."