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How to Plan the First 5 Years of Your Retirement

Jul 27, 2018 3 min read Ilana Polyak

Key Takeaways

  • The first five years of retirement can bring with it some sobering expenses.
  • Dump the mortgage, if you can, and update the home to suit your future needs.
  • Set your boomerang kids straight. Talk to elderly parents about their long-term care resources.


You might think your biggest expense in the first five years of retirement will be your bar tab at the seaside cabana in Belize. But there may be far less-glamorous expenditures to contend with.

Depending on what your situation is when you finally reach your long-awaited retirement, the first five years could include some money drains. Well before retirement, it will help if you craft a detailed budget that takes into account as many scenarios as possible. After all, it rarely hurts to be too prepared.


Here’s how to plan for your first five years of retirement if…


You still have a mortgage

It used to be a given that people would be free and clear of all debts by retirement, including paying off the mortgages. That’s no longer the case. Between 1998 and 2012, the number of people age 65 and over who still had a mortgage jumped Opens in new window from 23.9% to 35%. And the amount of money owed by retirees doubled during that time.

You’ll have more flexibility in your cash flow if your retirement income isn’t tied up in debt payments. Consider downsizing to a smaller home you can buy outright, eliminating your mortgage. Downsizing can also free up cash flow. Selling and moving from a home valued at $250,000 to one that costs $150,000 could save you $3,250 Opens a PDF in new window a year.


Your kids are still living with you

Not since the 1940s have so many young adults Opens in new window been living under their parents’ roofs. The retirement empty nest is being replaced by a buzzing one full of older kids who are not quite ready to take their solo flights.

To deal with the financial pressures of boomerang kids, set expectations about how long your door will remain open before you expect them to get on their own two feet. And if they’re working, there’s no harm in asking for rent or food and utility money to cover the additional expenses you’re incurring with more people living in the house. This can also prepare your children for paying their own bills and being financially responsible when they do finally move out on their own.


You’re caring for an elderly parent

As your parents age and become increasingly frail, they will no doubt lean on you more and more. While it can be easier to provide that care if you’re no longer working, caregiving can also have hidden costs you may not be aware of at the outset.

If your parents (or in-laws) move in with you, you may need to make modifications to your home to accommodate their physical limitations. Or you may need to hire outside help, even if you plan to do the bulk of the caregiving yourself.

Talk openly with your parents when they are still healthy about what kind of care they want if their health declines. Find out about what resources they have available to pay for care — for example, long-term care insurance — so you’re not caught off-guard by a major medical expense.

And if you must provide significant care and support for your parents, look at tax credits and deductions Opens in new window to help offset some of these costs. Caregivers may be able to claim parents as dependents, deduct medical expenses and take the dependent care credit.


Your home needs updating

Over 80% of people who are 65 and older want to “age in place Opens in new window,” continuing to live in a home full of memories in a community they love. But a home that was perfect at 30, when you were still raising a family, may not work well when you’re in your 70s or 80s and are having more difficulty climbing the stairs.

Some home modifications, such as adding a grab bar in the shower or changing door knobs to levers, may cost less than $50. But others, such as widening doorways, creating entryways without thresholds or making bathrooms more accessible, can be substantial.

If you know that remaining in your home is an important goal, start budgeting for these renovations as soon as possible. Seniors with limited resources may be able to get some assistance through the Department of Health and Human Services. The ElderCare.gov Opens in new window website has more information.


What you can do next

Even though your work life may end soon, you can’t escape all of your major expenses, including paying for some big-ticket items, like a mortgage. Planning before you leap will protect you in retirement.


Ilana Polyak is a freelance writer who specializes in personal finance and the financial advisory industry. Her work has appeared in The New York Times, Barron's, Kiplinger's Personal Finance, Bloomberg BusinessWeek and CNBC.com, where she is a frequent contributor.


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