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What should you do when you’re five years from retiring?


A useful exercise to conduct every few years before you retire is to take inventory of what you have and what you’re likely to have when the big day comes. Start by calculating what you have accumulated in your 401(k) or other employer defined-contribution pension plan and any individual retirement account or other personal plans that you have. Whatever figure you come up with, if you plan to retire in five years, add 25 to 30 percent to reflect a reasonable amount of growth in your assets between now and then. Now add in the contributions that you and your employer are likely to make to those accounts in the next five years and add 10 to 15 percent to that figure to reflect anticipated investment returns. One more step: Add in the balances on any conventional savings accounts and other marketable assets that you may have.

Once you’ve got a grand total, divide it by 20 and spend a few minutes staring at the number you get to let it sink in. That’s a ballpark estimate of the amount that you’re likely to have to spend each year in retirement in addition to payments that you’ll be receiving from Social Security and any defined-benefit pension plan, perhaps through a union, that you have. If the number looks small, you’ll have to start thinking of ways to save more over the next five years, perhaps by being frugal and contributing more to your workplace plan or even taking a second job. If you factor in additional savings and the final figure you get still doesn’t look big enough, then you’re going to have to consider spending less than you had expected in retirement or even staying on the job longer and retiring later.

When you take inventory, you should also gather information on any life insurance or other policies that you have, for instance long-term care coverage. You also should make sure you have a will that’s up to date because, let’s face it, you never know what’s going to happen. If the prospect of sorting through so much paperwork is too daunting or if you do it and the gap between what you’re likely to have and what you think you’ll need is cavernous enough to throw you into a panic, consult a financial adviser that you trust – or that a trusted person in your life trusts if you don’t know an adviser – then go over the facts and figures and come up with a plan for squaring the circle. Things may seem bleak, but a lot can happen in five years.

-Conrad de Aenlle