5 Things to Do Today If You Want to Retire in 2030

Key Takeaways

• Consider segueing gradually into your retirement rather than a sudden jump. Moving away from work in stages can reduce portfolio withdrawals and help you maintain your sense of purpose and quality of life.
• For an accurate view of your anticipated retirement spending, track your current expenses and assess any guaranteed nonportfolio income that you will be expecting (such as Social Security).
• Design your asset allocation with an eye toward time horizons. Look to amass five to 10 years’ worth of spending in nonequity assets such as cash or bonds.

Margaret Giles: Hi, I’m Margaret Giles from Morningstar. What should be on your punch list if you’d like to retire in the next four or five years? Joining me to share some key to-dos is Christine Benz. She’s director of personal finance and retirement planning for Morningstar. Christine, thanks for being here.

Christine Benz: Margaret, great to see you.

Benefits of a Gradual Retirement

Giles: Before we get into the specific jobs that people should tackle, you’re a big fan of people gradually segueing into retirement if they can. What do you like so much about that approach?

Benz: I think it’s a better model. Certainly, the financial piece, if you can continue to earn an income, forestall portfolio withdrawals, that’s a win. But also just in terms of quality of life considerations, if you can identify those parts of working that you enjoy and perhaps do them a little bit longer, I think that’s a healthy model as we age to have things that give us a sense of purpose and identity and mattering. If you can stretch out those types, those aspects of your job a little longer, I think that’s all for the better.

Why Preretirees Should Track Their Spending

Giles: Right. Your first to-do is one that most people probably dread, and that is tracking spending. Why is that so valuable leading up to retirement? And do you have any tips to make it easier?

Benz: This is the starting point for any sort of retirement plan that you might do. You really do need to have your arms around what your spending will look like. And there might be some changes in your spending relative to your working years, especially if you’re thinking about making big lifestyle changes like relocating or something like that. But you want to have your arms around your spending. Here, I think you can use some kind of a budgeting app to help make it easy, to help reduce the kind of paper and pencil accounting that we used to do. My husband and I, when we were first married, we would try to keep track of our expenses. So Monarch Money is one that I hear great things about. You Need a Budget is one that’s been around for a long time. The specific tool that will click with you, I think depends on the user.

So, experiment with a few of them. If you really aren’t into this, but do want to get your arms around your spending, looking through your credit card statement, which should do some year-end sort of groupings to show you what you’ve been spending in the major categories, combined with kind of your household spending that might not be reflected on that credit card bill. That’s another way to go about it. But I would use some kind of a budgeting app because that truly is kind of the raw main ingredient that you need to do any sort of accurate retirement projection.

Working in Retirement Can Ease Financial Pressures

Giles: Absolutely. You also recommend that would-be retirees give some thought to the role that work might play in retirement. Why do you think that’s so important?

Benz: Well, because that can be a game changer in terms of making retirement feasible and viable. If you are willing to continue to work a little bit longer, earn some type of an income, it alleviates the portfolio pressures. Even if you’re not all in on that job, even if you’re not earning as much as you were in your peak earnings years, and maybe you’re no longer making contributions to the retirement plan, it still makes everything easier financially from the standpoint of making the numbers add up.

Assessing Your Nonportfolio Income

Giles: Right. You recommend putting a finer point on guaranteed income. What do you mean by guaranteed income, and what should people be looking for?

Benz: Right. You want to take stock of all of the nonportfolio income sources that you have coming to you. For most of us, the main category will be Social Security. For a smaller share of us, that might be some type of a pension. Working income, while not guaranteed, can also come into play here. But if you have that starting spend number, you can then subtract out those nonportfolio income sources and use that to arrive at how much you will be spending from your portfolio. I think that’s a good next step in the process. And then you want to also make sure that you’re making smart decisions about those nonportfolio income sources. For a lot of households, delaying Social Security can make good sense, even if it means that it’s not there at the front end of your retirement, that you’re having to use some other income source to help tide you through.

Often, that can be the greater good if you think that you have average or longer-than-average life expectancy.

Do You Have Enough Saved for Retirement?

Giles: Once people have run through the steps above, it’s reasonable to then go and look at the portfolio and try to make an informed assessment of whether it’s sufficient. How should people be doing that step?

Benz: You could use guidelines like our retirement spending research, where you are starting with your annual spending all in, subtracting out any of those nonportfolio income sources, then looking at what’s left over and taking that as a percentage of your total portfolio. Does that pass the sniff test of sustainability? We have published a lot of research on what is safe given various retirement spending schemes. You can also, and I would advise this, if you’re getting very close to retirement, sit down and get some financial advice. Just get another set of eyes on the plan. You may also get some guidance about how to proceed taxwise, which silos of assets to pull from when. Here’s a spot where even if you’ve been a dedicated DIYer your whole investing career, this is a really good juncture to get some professional help.

Asset Allocation Close to Retirement

Giles: All right, that’s helpful. To wrap up here, how about the portfolio itself? How should people think about asset allocation if they’d like to retire within the next five or so years?

Benz: It’s helpful to think about your anticipated spending from the portfolio and just make sure that you have assets set aside to support spending over those various time horizons. So, even though stocks have been quite reliable in the recent past, over long periods of time, they have had periods, sometimes a couple of years, sometimes longer, where they’ve been down relative to other assets. The idea is that you have a bulwark of assets that you could spend from early on in your retirement if equities weren’t cooperating when you needed your money. I would say anywhere from five to 10 years’ worth of portfolio expenditures in that combination of cash and high-quality, short- and intermediate-term bonds, I think that’s a good ballpark for most people.

Giles: All right. Helpful to lay out these key steps as people head into retirement. Christine, thanks for taking the time.

Benz: Thanks so much, Margaret.

Giles: I’m Margaret Giles with Morningstar. Thanks for watching.

Watch What You Need to Consider Before Retiring Early for more from Christine Benz and Margaret Giles.