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Your retirement checklist: Six steps to take if you're five years away from retiring

Retirees are redefining what it means to be retired. If you’re within five years of retirement, here are steps to take now to help attain the lifestyle you want in the future.

Three retired men are entering the ocean to surf.

Start a new career. Launch a business. Volunteer. Think it’s a young person’s wish list? Think again.

In fact, these are some of the activities baby boomers see themselves pursuing as they head into retirement, according to American Funds’ Wisdom of Experience survey. Investors age 50 and above who participated in the study are generally optimistic and excited about their next chapter and expect to lead an active lifestyle.

As Americans live longer and healthier lives, they’re redefining what it means to be retired. Deena Katz, an associate professor of personal financial planning at Texas Tech University and co-chairman of Evensky & Katz/Foldes Financial Wealth Management, doesn’t even like to use the word “retirement”; she prefers “next phase.”

“Retirement conjures up images of people sitting on a porch,” Katz said. “That’s not true today.”

Before you start this “next phase,” it’s important to make sure you’re emotionally and financially prepared. The steps you take today could have a profound impact on the kind of life you have down the road. If you expect to retire within the next five years, consider the following pre-retirement checklist.

1. Step Back And Daydream

Think about the kind of life you want down the road. Do you see yourself living near your children? Do you want to go back to school? Is travel a priority?

“Think about how you will fill your time,” said John Grable, a professor of financial planning at the University of Georgia. For example, you might be excited about the opportunity to golf, “but is it enough to keep you mentally and physically engaged for the next 30 years?”

“Get a piece of paper and draw what you would like to do in the next 10 years and in the next 20 years,” Katz recommended. “One of my clients, a pharmaceuticals CEO, became a high school science teacher. The ideas are limitless.”

2. Run The Numbers

Once you have your goals in mind, map out your projected retirement budget.

Start by listing your basic living expenses, such as housing costs, insurance and taxes. Factor in any additional costs that could arise over time, like potential long-term care expenses. Finally, add in the costs of discretionary ventures you want to pursue to enrich your retirement years.

Remember, some of your current expenditures, such as the annual amounts you’ve been setting aside for your retirement, or commuting costs, might go down in retirement. Others expenses, like travel and entertainment, could go up.

With your projected budget mapped out, it’s time to see whether your assets and estimated retirement income will be enough to cover your anticipated costs. These calculations should take into account the effect inflation will have on the future purchasing power of your retirement savings.

You might want to speak with a financial planner who can run the numbers and help make sure you’re on track.

A good rule of thumb: Many experts predict that you’ll need about 70% to 85% of your pre-retirement income to maintain your current lifestyle in retirement. Social Security typically replaces about 40% of the average person’s income.

Ask yourself, “Is that nest egg going to be enough to fund the activities you want to do?” Grable said. If not, you might want to adjust your financial plan, whether that means working longer or delaying your Social Security benefits.

3. Save More

Statistics show that many workers simply haven’t saved up enough for retirement.

Not having enough money for retirement was the top concern for Americans in a recent Gallup poll. Only half of pre-retirees in American Funds’ Wisdom of Experience survey expect to have more retirement income than their parents.

It’s never too late to try to boost your retirement savings. Workers over the age of 50 can take advantage of catch-up provisions that allow them to save more in retirement accounts.

Diane Oakley, executive director of the National Institute on Retirement Security, recommends cutting 10% from your household budget and putting those dollars into savings. “Practice living on less by saving more,” Oakley said.

4. Review Your Asset Allocation

The mix of assets you have today may no longer be appropriate as you head towards retirement.

“In the next phase, you’re going to be living off of your resources,” Katz said, rather than a steady paycheck.

That means you’ll likely want to adjust your asset allocation to lower your portfolio risk. To preserve capital, consider moving some money out of stock funds and into bond funds and cash equivalents.

While the opportunities for growth in your portfolio could be lowered, you might sleep better knowing your retirement dollars are in more stable investments.

5. Weigh Your Social Security Options

A key decision everyone has to make as he or she approaches retirement is when to claim Social Security benefits.

You can start drawing your retirement benefits at any point from age 62 up to age 70, but your benefits will be higher the longer you delay starting.

Helpful tools can be found on the Social Security Administration’s website, Visit the site to get a detailed comparison of your retirement benefits at various retirement ages.

6. Make Sure You Are Properly Insured

Even the best-laid plans can veer off track due to unexpected setbacks, so you need to be prepared.

“Prepare for the unexpected,” Grable said.

The bottom line: You want to make the most of your retirement years, which requires a thoughtful process. Planning ahead could help you enter your next phase with optimism, confidence and peace of mind.



“Americans’ Financial Worries Edge Up in 2016.” Gallup. April 28, 2016.

“Changing needs.”

“7 Myths You Probably Believe About Social Security.” Forbes. October 3, 2014.

“The Wisdom of Experience: Lessons Learned from Boomers and Retired Investors.” American Funds. January 2016.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.

SFVPMC is a separate entity from Capital Research and Management Company (CRMC) which is the investment adviser for American Funds. American Funds securities are distributed through American Funds Distributors, Inc. All Capital Group trademarks referenced are registered trademarks owned by The Capital Group Companies, Inc. or an affiliated company.

Neither State Farm® nor its agents provide tax or legal advice.



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