Retirement Checklist

Depending on your birth year, the Social Security Administration sets the full retirement age between 65 and 67. Your employer may have a different opinion. When to retire is one of the most difficult choices you will have to make. If you retire too late, you could lack the energy to appreciate it. But premature retirement might lead to financial difficulties. A financial adviser might assist you in developing a financial plan to meet your retirement requirements and objectives. This checklist of eight items will assist you in determining your retirement preparation.

1. Conduct an Inventory of Your Property

Before you can establish a strategy or evaluate your progress, you must first assess your financial situation. Evaluate your present budget and list all of your debts, liabilities, savings balances, income sources, and insurance policies. Properties, automobiles, and other expensive items that affect your financial line should not be overlooked. Creating an editable worksheet is an effective method for achieving this objective. This procedure will enable you to evaluate your existing financial condition and make appropriate plans.

As you examine, remember that you will no longer get a salary after you retire. According to data from the Bureau of Labor Statistics, the typical American age 55 or older spent $67,192 in 2020 ($48,872 for those age 65 and over). Regardless of the metric you choose, it will provide a basis for measuring your present state.

2. Establish a Reserve Fund

Before taking any significant financial action, you should ensure that you are covered in the event that things do not go as planned. Hopefully, you’re not learning about emergency money for the first time in your retirement years. But if you have reached this point without a financial safety net, now is the time to get one. It will protect you in the case of a personal tragedy, and it may also compensate for delays in your pension or Social Security benefits.

Some experts advocate saving three months’ worth of costs, while others urge saving at least a year’s worth. Six months’ worth of savings should be sufficient in the event of an emergency. This six-month fund’s size should be determined by your spending, not your income. Regardless of your present job status, this fund is concerned with your expenditures. Remember to include expenditures now covered by your employment, such as healthcare, since your emergency fund must follow you into retirement.

Keep your emergency money in a different location from your other savings so that you are not tempted to squander it. A passbook savings account or money market account might be a viable alternative. They are liquid in the event that you require access to your cash while still earning interest. Before making a choice, you should research the finest locations to invest your emergency cash.

3. Eliminate All Debt

In a perfect world, we would all approach retirement debt-free. Due to the likelihood of a decline in your income, any fixed payments will comprise a greater proportion of your costs. If you are approaching retirement, you should review the debt column of your inventory. Add the applicable interest rates and terms to a new column next to your outstanding obligations.

Therefore, how should you approach your debts? Generally, there are two schools of thought on where to begin debt repayment: lowest balances or highest interest rates. If you can tolerate it, we recommend beginning with the loans with the highest interest rates. Following credit card debt are often personal loans and auto loans. And we’re not just talking about meeting the monthly minimum. To make a significant dent, you’ll need to invest as much money as possible toward paying off your priority debt without compromising the minimum payments on other obligations. Mortgages are a wonderful loan to save for last since their interest rates are often modest.

Regardless of whatsoever payment method you pick, the essential thing is to adhere to it. Plan it on a calendar, measure your progress, and enlist the help of a friend or relative to hold you responsible. Give yourself a modest incentive whenever you successfully pay off a debt in order to maintain your motivation.

4. Determine What You Need From Retirement

Before thinking about retiring, you must choose how you will do it. Consider where you’d want to live if you’ll have a job (this may seem weird, but some people like working in retirement), and how much you’ll spend. Also, try to be realistic about the duration of your retirement. This might be challenging to estimate, but you can always revise your estimate in the future.

You should also design a timetable indicating when certain revenue sources will start. This will assist you in managing your cash flow and determining how much you must save for retirement. Social Security, employer-sponsored retirement funds, individual retirement savings, and, for some, salary and a pension should be considered. As many retirees neglect to account for taxes, you must consider each source of income in after-tax dollars. Compare your pre and post-retirement finances. You may be better prepared the more realistic you are. If you need assistance developing or evaluating your plan, you may choose a financial counselor.

5. Discontinue Your Health Insurance

In retirement, one of your largest costs will be healthcare. According to the Consumer Expenditure Survey of the Bureau of Labor Statistics, healthcare for people aged 55 to 64 would cost $5,820 in 2020 ($6,749 for those aged 65 and over). Do not feel guilty if this requires you to make a short modification to Step 4.

In addition, to include these costs in your budget, you need also consider where you will get health insurance. If you retire at or after age 65, you can depend on Medicare for the majority of your retirement requirements. The official website provides an overview of Medicare coverage and prices. Pay particular attention to everything that is not mentioned. Some individuals choose to carry extra insurance.

If you want to retire early, things get more challenging and costly. If you do not get health insurance through your old company or your spouse’s employment and are not yet eligible for Medicare, you will be responsible for obtaining your own health insurance. Regardless of your circumstances, ensure that your insurance does not expire when you need it the most. Learn the terms and limitations of your coverage and how much you may anticipate paying in premiums, deductibles, co-payments, and out-of-pocket expenses.

6. Plan Out Your Estate

No one likes contemplating their own death, but as you approach retirement, you are also inching closer to the conclusion of your life. Being prepared with an estate plan will guarantee that your family is not burdened financially after your death and that your assets are distributed in accordance with your wishes.

In addition to drafting a will, you must appoint a power of attorney and healthcare proxy to make decisions on your behalf in the event of incapacity. You must also choose guardians for your live dependents and beneficiaries for your life insurance, retirement accounts, and pooled assets. Also, consider taxes since you do not want the IRS to inherit your inheritance. You may also include in a letter any unaccounted-for details, such as burial plans or the distribution of sentimentally valued family artifacts.

Ensure that all papers are notarized and maintained securely. Include a list of your personal information, such as your Social Security number, bank account numbers, dates, digital password, and insurance policy numbers, to keep your information structured and easily accessible. Review your strategy at least once every five years or anytime a significant life event occurs.

7. Evaluate Your Investment Needs for Retirement

It is never undesirable to earn more money. Creating an investment portfolio based on their retirement date is one of the greatest blunders made by American employees. This leaves them with minimal earning possibilities after retirement. Investigating how retirement investments might augment your retirement account returns could be advantageous for those seeking to increase the longevity of their entire savings.

Consider that your risk tolerance may change as you age and lose your income. You may wish to deploy a total return portfolio that permits you to remove a specific amount while aiming for a long-term rate of return, but that isn’t your only choice. Government bonds, real estate, retirement income mutual funds, dividend income funds, closed-end funds, and annuities are all attractive possibilities for retirees. The greater your knowledge, the greater your ability to choose the best option.

8. Learn How to Withdraw Funds and Minimize Taxes

If you’ve spent your whole adult life putting money into retirement accounts, it may seem absurd that it’s now time to withdraw the funds. Obviously, you must first comprehend how to achieve this.

If you have an employer-sponsored plan, you must decide whether to keep the funds there or roll them into an IRA. Over the age of 59.5, consolidation is often the best choice. At this point, you may withdraw funds from your retirement accounts without accumulating a penalty. By age 70.5, you are compelled by law to accept minimum distributions (RMDs). You should base your selection on what is both tax-efficient and most comfortable for you and your family. You may engage with the institution managing your assets to determine how withdrawals function.

Next, you must choose when to enroll in Social Security. You may join up at any time between the ages of 62 and 70; however, the majority of experts advise waiting until full retirement age so you can obtain full benefits. The longer you delay, the larger the final bill will be. You may apply for Social Security online, over the phone, or in a local office.

Bottom Line

Retirement may be a fantastic period during which you can finally do some of the activities you have been preparing for years. You may travel, spend more time with family, or devote more time to your interests. However, you can only enjoy these benefits if you are financially prepared for retirement. It is essential to plan ahead and regularly review your retirement plan to make any necessary modifications.