After working hard your entire life, you may finally be at a point where retirement is right around the corner. But retiring in 2021 won’t be like retiring in any other year. That’s because we’re still in the midst of a pandemic, and that could have a serious impact on both your finances and your general plans. With that in mind, here are four important moves to make if you plan to retire in the coming year.
1. Review your asset allocation
Ideally, you’ll be leaving the workforce with a healthy chunk of cash in an IRA or 401(k) plan. But given the potential for a stock market crash in 2021, you’ll need to make sure your assets are invested in a manner that doesn’t expose you to undue risk.
While you certainly shouldn’t dump your stocks completely going into retirement (you’ll need to retain some so your portfolio continues generating decent growth), you should also make sure that at least 30% to 40% of your portfolio is in safer investments, like bonds (there are exceptions here, such as if you have multiple income streams, so this is really just a general guideline). That way, if stocks tank, you’ll still be able to safely take withdrawals from your retirement plan without locking in major losses. Furthermore, if your risk tolerance is lower, you may want to have more like 50% to 60% of your portfolio invested conservatively.
2. Boost your cash reserves
Given the potential for stock market volatility, it’s an especially good idea to go heavy on cash reserves if you’re retiring in the coming year. A year’s worth of expenses in cash is a good goal to aim for, as it will help you leave your investments untouched as needed.
3. Line up a home equity line of credit
If you’re sitting on a paid-off home, or a home you have lots of equity in, then securing a home equity line of credit (HELOC) ahead of retirement is a smart bet. That way, you’re not borrowing money outright, but rather, giving yourself the potential to borrow affordably should the need arise. As is the case with having cash reserves, a HELOC will give you the flexibility to leave your portfolio alone when investment values are down.
4. Figure out how you’ll spend your time
You may have initially planned to spend the early stage of your retirement traveling, seeing family, and enjoying nightlife. But right now, much of that is off the table due to the pandemic.
Before you retire in 2021, make sure it’s worth it to actually do so. While you may be tired of working, you may also find that spending the better part of the year bored at home is hardly a fulfilling experience. You may be better off delaying retirement a bit and boosting your savings so that once the pandemic ends, you can leave your job and really live it up.
The better you plan for retirement, the more enjoyable and less stressful it’s apt to be. Make sure to check these items off your list if you’re aiming to retire in 2021 so you kick off that milestone with no regrets.
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Maurie Backman | Motley Fool