Dear MarketWatch,

I read your articles on retirement each week, and am looking for advice not on whether I can retire now, but what I should be thinking about and doing differently over the next decade before retirement.

Background:I am 53 years old, married (wife is 54) and we have a combined income of $220,000.  We have two children, one that is going into their final semester of college and the youngest who is entering their junior year in college. Both will finish college with zero debt and already have Roth IRAs set up in their names. Our home is worth $450,000 with just under four years to pay off the mortgage, and we have one $20,000 car loan and zero credit card debt. We have $1.3 million in an IRA, and $125,000 in 401(k) plans. I have a pension that will start paying out in 14 months of $800/month. We save a combined $3,000 per month with 60% of that going into traditional tax deferred (401(k), IRA) and 40% going into a Roth. Currently our taxable accounts are $1.3 million and our Roth accounts total $125,000.  We are invested 100% into equities and crypto, with around $1.1 million in FAANG stocks, $125,000 in mutual funds, and $200,000 in Bitcoin (cost basis on crypto is $50,000). The Social Security estimator puts us at roughly $3,000 a month in benefits if we each take it at 62.

We are trying to be aggressive with our investing and debt reduction and while we make $220,000, we live on roughly $145,000 (backing out monthly savings, mortgage payment and college costs) or roughly $12,000 per month. 

Up until about two years ago we were invested completely into broad market mutual funds with a very low cost basis (the Warren Buffet recommended approach) but I feel a more hands-on investing focus is both satisfying and necessary for one’s largest asset. We have had an investment adviser in the past, and never felt like they earned their 0.75-1.25% fee to manage our investments. We would like to retire by 62 at the latest, and leaving the workforce at 59-1/2 sounds even better.

As we enter the final years of our careers, what should we be doing differently? What should we keep the same? And when do you think we should retire?

See: I’m retiring on my 78th birthday, have more than $200,000 in savings and share expenses with my 80-year-old boyfriend. Will I be OK?

Dear reader, 

Thanks so much for reaching out. It sounds like you have definitely kept retirement at the forefront of your financial planning and it will absolutely pay off in the future! 

The first thing I noticed about your letter was your asset allocation. I always say people near and even in retirement should have a healthy mix of equities in their retirement portfolios because retirement could last decades and that money needs to last. At the same time, however, you do need to have some sort of protection in your asset allocation. With one unfortunate shift down in the markets, your account balance could quickly and suddenly drop — and nobody wants that. It could take more time to recover, which is not ideal if your goal is to retire in less than 10 years. 

“Given your age, equity may be important for growth, but the desire to retire early may offset this,” said Kristian Finfrock, a financial adviser and founder of Retirement Income Strategies. 

Check out MarketWatch’s column “Retirement Hacks” for actionable pieces of advice for your own retirement savings journey 

Take for example the FAANG stocks. “Everything FAANG has been working well, but we can move into a period where their growth becomes muted,” said Thom Rindahl, a certified financial planner at TruWest Wealth Management Services. A diversified portfolio may not ramp up your portfolio balance as quickly, but it also won’t put it in as much of harm’s way. “I definitely believe in a diversified portfolio of asset types and management styles,” Rindahl said. “You get the best risk-adjusted returns this way. It’s not what you make, but rather what you keep.” 

Another priority: healthcare. If you both intend to retire at 65, where will you get health insurance? Medicare doesn’t become available to you until age 65, and private insurance can be expensive. If you have access to a Health Savings Account, which are available to people with high deductible health plans, take advantage of it — they offer triple the tax benefits (contributions, growth and distributions are tax-free if used for qualifying health expenses) and you can wait until retirement to start withdrawing the money. 

As for Social Security — you may want to delay it. When to claim Social Security relies on numerous factors: need for that income, life expectancy and how much more you can get if you were to delay, for example. Your benefits are reduced for every month before your Full Retirement Age, and they’re also increased for every month after FRA until age 70. “I would probably wait unless there is some extenuating circumstance,” Rindahl said. 

There are plenty of claiming strategies as well, especially for married couples. For example, you might want to consider delaying just the benefit of the highest wage earner to at least Full Retirement Age or beyond, that way if in the event that person dies, the surviving spouse will have a higher benefit to depend on (as opposed to a reduced one later in life), Finfrock said. 

You may also want to pay off the house between now and retirement. Mortgages aren’t inherently bad debt, and plenty of people go into retirement still paying off a mortgage, but if you have the assets and you can make that a top goal before leaving the workforce, why not? If you decide not to pay off the mortgage quicker, that’s okay — bringing debt into retirement is completely acceptable so long as those repayments fit into your overall larger financial picture. 

Also see: I’m retired, my wife isn’t — how should we pay off our $60,000 mortgage before she retires?

Try to keep your savings rate the same as well. If you do pay off the house, increase that savings rate, Rindahl said. Also, as your retirement date gets closer, think long and hard about what you plan to do during this next chapter. Sometimes people are in such a rush to get to retirement that they don’t plan for it properly, and they end up bored or lonely. During this time, you should also be thinking about what you’ll likely spend in retirement — Will you relocate? Take on expensive new hobbies or extravagant trips? All of this will affect how much you need to save for or spend in your older age. 

Finally: distribution strategies. Think carefully about how you want to withdraw your hard-earned dollars. Typically, the sequence is taxable sources first, followed by tax-deferred sources and then Roth and other tax-free options, Finfrock said. But there are also benefits to reversing that order — if you’re retiring before age 65, Rindahl suggests using Roth money first to keep your income lower, which will also help in terms of paying for health insurance under the Affordable Care Act. 

Readers: Do you have suggestions for D? Add them in the comments below.

Have a question about your own retirement savings? Email us at [email protected]

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