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Think, plan, dream before 'downsizing' for retirement

Do a 'final approach' before you leave the office behind


The phrase “downsizing for retirement” is popular with Baby Boomers, the youngest of whom turned 50 last year.

It sparks a conversation about transition, which may include buying fewer new things, selling, gifting or donating possessions that are no longer needed and relocating to smaller quarters to create a more comfortable and affordable retirement.

If you’ve diligently saved and planned for retirement, most experts say you should do this “final approach” three to five years before your planned retirement date. If your retirement finances aren’t as stable, it’s smarter to start the transition as early as possible while time is on your side.

Here are some suggestions to help you figure out where you are on the pre-retirement spectrum and some changes you might consider:

n Get a retirement checkup. Spend some time with a financial, tax and/or estate advisor to evaluate your current strategies and set a reasonable retirement savings goal and date. Consult friends and family for reliable experts and check online with your state CPA society, the Association for Financial Counseling Planning and Education or the Certified Financial Planner Board of Standards.

n See if moving makes sense. Great retirement destinations offer more than great weather, inexpensive housing and an affordable tax environment. Consider whether you want to be near family, a thriving arts community or superior health facilities. National agencies like the Council for Community and Economic Research (c2er.org) produces an annual cost of living index for more than 300 U.S. urban areas.

n Get realistic property valuations. Even in a rising economy and recovering housing market, many homeowners need a reality check about real estate prices. The same likely goes for other valuables like antiques, jewelry and art. For real estate, get a broker valuation and do online backup checks with property transfer listings over the last year or two in your area. As for valuables, check appropriate markets (from professional dealers to eBay) to sell, gift or donate those items and get tax and/or estate advice before all transactions.

n Clarify your tax picture. If you make a huge profit on your home, you may owe taxes on the sale. Current IRS rules allow most couples to exclude up to $500,000 in home sale gains from their taxable income and singles to exclude up to $250,000. Check with your tax adviser and consult IRS Publication 523, “Selling Your Home.” Also, keep local property taxes and city and state taxes in mind if you’re considering an out-of-state move.

n Decide what you plan to do post-retirement. Retirees may have at least 20 to 30 years of lifespan to fill post-retirement. If you’re hoping to keep working, start a business or transition permanently into travel or leisure activities, these future goals have to align with your current retirement plan.

Everyone should set a “final approach” for retirement. That means reviewing your investments, lifestyle goals and the possibility of a post-retirement career so you can adjust your money behavior to match.

Jason Alderman directs Visa’s financial education programs. To follow Practical Money Skills on Twitter, visit twitter.com/PracticalMoney.

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