Are you getting ready to retire soon? Even if you’ve been preparing for retirement for decades, there are still financial, emotional, and mental steps you’ll need to take before you’re ready to be done working. Check out our guide to retirement planning below!
Take Stock of Your Current Assets & Liabilities
Do you know your personal net worth? During retirement planning, make a list of all your assets, including cash, real estate, vehicles, personal property, bonds, stocks, and investments. Keeping track of your capital helps you better understand your sources of income for retirement. Create another retirement list with all liabilities, like mortgages, auto loans, student loans, personal loans, credit card debt, and more. Paying off debt is a great way to retire early because your savings and retirement income will last much longer if you don’t have to make monthly payments toward your debt.
Assess Your Retirement Readiness
The closer you are to retirement age, the more important it is for you to thoroughly review your finances. How much do you have in savings? Do you know what your retirement income will be? Are you aware of tax changes post-retirement? Have you configured your future healthcare costs? Taking the time to evaluate your retirement readiness now can save you headaches down the road. Using retirement income calculators and Social Security calculators can help you determine if you have enough money saved, when you can start receiving your benefits, and if you have the means to retire earlier than anticipated.
Understand Your Social Security Benefits
Your average retirement income will need to be about 80% of your current income to maintain your current lifestyle, although you may need more if you live in an expensive area or foresee expensive healthcare. For most people, this income is earned from accrued savings and Social Security payments. Social Security payments are determined by your 35 highest earning years, but you can’t start receiving these benefits until age 62. If you delay receiving Social Security until age 67, however, you can receive 8% more in benefits—and there’s a 32% bonus at 70. To get an idea of where you stand with these benefits, sign up for a free Social Security report.
Set Your Retirement Budget
Determining a retirement budget before you transition out of the workforce is crucial to helping you avoid overspending your limited income. Create a retirement planning spreadsheet with all of your anticipated living costs, including everything from groceries and housing to healthcare and taxes. Define which of these expenses are fixed (i.e., occur every month at the same amount) and which are flexible (i.e., occur every month or randomly with different amounts). Knowing this information allows you to structure your income so that you’re receiving enough money each month to cover your retirement expenses—without taking more than you need.
Do a Retirement Budget Test-Run
Try treating your projected retirement income as your only income for at least a month in a test run. Living solely off your retirement income will show you whether your current plan works in real life, not just on a retirement budget sheet. During this trial period, keep track of every expense—housing, utilities, food, transportation, healthcare, entertainment, etc.—and compare your actual spending to what you budgeted. Pay close attention to whether your income supports the lifestyle you want in retirement, not just the essentials. Can it cover travel, hobbies, or the freedom you’ve envisioned? When the test period is over, evaluate what worked and what didn’t, and make budget adjustments as needed to align with your retirement goals.
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Determine Retirement Withdrawals
Once you have your income and budget for retirement finalized, you’ll need to figure out how to withdraw funds from your retirement accounts. Whether you’re taking money out of a 401(k) or IRA, each have their own withdrawal rules. Traditional IRAs and 401(k)s will have taxes attached to each distribution, and you’ll need to start withdrawing from these accounts by age 73. If you have a Roth IRA, though, try to let it accrue as long as possible, as these accounts don’t have required minimum distributions.
Create an Emergency Fund
While a healthy retirement savings account is important, don’t forget to build up an emergency fund, too! Your retirement emergency fund should have at least six months’ worth of income that can cover housing, insurance, and other costs in case of an emergency or delays in your pension. An emergency fund is also critical for early retirement, as you won’t be able to access funds from a Traditional IRA or a 401(k) without a 10% penalty until you’re age 59 1/2.
Keep Adding to Retirement Savings
Are you approaching retirement within a few years and still trying to maximize your savings? Most retirement financial advice you’ll see recommends around $1 million in savings for retirement, but don’t let that overwhelm you if you’re not quite there yet. Even if you’re planning to retire in the next ten years, you can still make contributions to your retirement account. You can contribute up to $7,000 annually to IRA accounts, and up to $8,000 annually if you’re over the age of 50. With 401(k)s, your contributions are limited to the lesser of 100% of your income or $69,000 per year—or $76,500 if you’re 50 or older and eligible for catch-up contributions.
Talk with a Financial Advisor
Hiring a financial advisor is a great way to help you make smart retirement decisions. Advisors can help you select the right retirement account, invest wisely, and create a solid budget. If you want even more advice, a retirement planner can work with you to organize your assets and income sources into a monthly payment during retirement. When hiring any retirement advisor, be sure to check out their annual fees and make sure they align with your budget.
Review Your Estate Plan
Along with ensuring your finances are in order before retirement, you should also look over your estate plan, which explains how your assets and debts will be handled if you’re unable to manage them or after your death. Included in this plan are three documents: a living will, a trust, and a will. A living will (also known as an advanced healthcare directive) details your medical preferences and your chosen power of attorney. A trust utilizes a third party to hold assets or benefits for beneficiaries, allowing the distribution of your estate to move more quickly than a traditional will. A will details your wishes for how you want your personal assets divided, which goes into effect after your death. You can make changes to your estate plan as often as you like, provided you’re of sound mind. If you haven’t put together an estate plan yet as part of your retirement checklist, do so immediately.
Check Life Insurance Policies
Many employers offer life insurance as part of their benefits package. However, once you retire, you may lose this coverage. Having life insurance in retirement is a good way for your beneficiaries to be able to pay major expenses like a mortgage or funeral costs after your death. While double-checking, renewing, or replacing a life insurance policy doesn’t have to be one of the first things to do before retirement, it will make the following years more relaxed and carefree. Take time to review your retirement life insurance policy to make sure any outstanding expenses will be covered in your post-work years.
Evaluate Your Health
Before you leave your current job, take advantage of your employee healthcare plan. Make sure you’re up-to-date on annual checkups, prescriptions, hearing screenings, dental visits, and eye exams. Once you’re retired, see your doctor annually (or as covered by your retirement health insurance plan). Maintaining your physical health is crucial to a good quality of life and can help keep retirement healthcare costs down, so be sure to ask your physician for recommendations on post-retirement health, fitness, and nutrition.
Switch Health Insurance to Medicare
Most people are eligible for Medicare (i.e., national health insurance coverage) at age 65, but there are a variety of plans and coverage options you’ll need to evaluate based on your medical needs. Keep in mind Medicare may not cover everything. Prescription costs, copays, hospital costs, and nursing home care may need to be paid out of pocket and can be incredibly expensive if you’re not prepared.
Come Up with a Long-Term Care Plan
Even if you’re in good health, thinking about long-term care—like nursing home services or a home health aide—is crucial for your retirement plan. In fact, nearly 70% of people over age 65 will someday need long-term care services. A long-term health plan should go beyond initial retirement plans, providing financial coverage in case of disability, special needs, or spousal death. Funding a long-term care plan can be challenging, but there are options like long-term care insurance or health savings accounts (HSA).
Consider Your Retirement Housing Needs
When planning for retirement, don’t forget to choose a post-work housing option that works for you. To determine if your current home will be suitable for your golden years, there are a few factors to consider. Is your mortgage paid off? Will you be able to get around your home easily as you age, or would home renovations for aging in place help make it more accessible? Do you want to find a retirement community that fits your lifestyle and needs—or even relocate to a new city? Would you prefer to live closer to family and friends? Will you need assisted living in the future? Remember, lenders are more likely to provide loans to borrowers with income, so if you’re thinking about downsizing in retirement or moving to a retiree-friendly city, it might be worth making the change before you leave the workforce. If you need advice regarding your retirement living costs, the Retirement Housing Foundation is an excellent resource.
Schedule Your Retirement with Your Partner
If you’re married or in a domestic partnership, it’s a good idea to sit down together and discuss your collective retirement goals. Can you retire at the same time? Do you both aspire to early retirement? Will one of you continue to work while the other starts retirement? Getting on the same page can help you come up with a plan and strategize how to best spend your retirement together.
Map Out Your Travel Plans Early
One of the best things to do in retirement is to travel the world! Stretch your travel dollars as far as you can by planning ahead. Temporary housing options—like extended stay hotels, Airbnb, or Vrbo—can often help your vacation money go further while offering more flexibility than traditional hotels. Whether you want to take an affordable beach vacation or explore the country by RV, be sure to include vacation planning in your retirement checklist!
Look for Part-Time Work
Some people get a few years out of the workforce and realize they need more retirement income to support their living costs. Others find that they miss the routine and socialization aspects of the workplace. A part-time job in retirement is an excellent way to keep cash flowing and stay socially active. Substitute teaching, seasonal gigs working in retail, assisting with administrative work, and providing child care are some of the best part-time jobs for retirees, pairing engaging work with flexible schedules.
Get a Head Start on New Hobbies
Staying active in retirement not only means exercising and eating well, but also taking care of your mental health. Retirees can be at a higher risk for depression if they lose their sense of purpose and community they got from their careers. Even though you may dream of not having to work every day, you’ll still want to stay busy with retirement hobbies such as sports like pickleball or tennis, games like mahjong or bridge, creative pursuits like painting or writing, and other activities to help fill up your time.
Stay Connected
One of the best ways to take care of your mental health in retirement is to focus on strengthening existing connections and building new ones. Talk with your partner about expectations and create a shared routine that balances time together with time for individual hobbies and friendships. If you have kids and grandkids, touch base with them regularly and plan occasional visits or adventures together. Make a point to spend time with friends and keep up with their lives, or meet new people through social media, volunteering, clubs, and other activities.
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