Retirement planning while you're still working

Posted: July 18, 2012 at 5:20 pm


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I plan to leave my job in about seven years. What should I be doing in my remaining working years to prepare for retirement? -- P.W., Hattiesburg, Miss.

It's smart to take a harder look at your plan as you enter the five- to 10-year home stretch into retirement. After all, you don't want to discover on the eve of your departure that you're woefully unprepared or, worse yet, realize after retiring that you left your job too soon and will have to live more frugally as a result.

To assure you're making progress toward your expected retirement date -- and to give yourself a chance to make adjustments if you're not -- I recommend you take the following four steps in the final years of your career.

1. Do annual retirement-readiness checkups. The idea is to see whether your retirement timeline is realistic -- that is, whether the estimated income you'll get from Social Security and any pensions, combined with a sustainable level of withdrawals from your savings, will actually allow you to maintain an acceptable standard of living when you leave your job.

You can perform this sort of analysis by going to an online calculator like Fidelity's Retirement Income Planner. One of the features I like about this tool is its interactive retirement budget worksheet, which allows you to get a much more accurate fix on how much income you'll actually need in retirement than you would by simply assuming you'll require a certain percentage of your pre-retirement salary.

By doing this evaluation yearly, you'll be able to see whether you're making sufficient progress toward your scheduled retirement date or whether you need to engage in some fine tuning, such as saving more or perhaps delaying your exit.

Related: Can you retire early?

2. Assess your retirement investments. Managing the money you've accumulated in 401(k)s and other retirement accounts can be tricky in the years leading up to retirement.

You still need to invest for growth to build your nest egg's value in the remaining years of your career and to maintain purchasing power throughout retirement. But you don't want to invest so aggressively that a market downturn derails your plans.

There's no single mix of stocks and bonds that's right for everyone. But in the final stages of your career you probably want to keep roughly 50% to 60% of your portfolio in stocks and the rest in bonds and cash. That should give you a decent shot at capital growth while also providing some downside protection.

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Retirement planning while you're still working

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July 18th, 2012 at 5:20 pm

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