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Retirement Readiness Checklist

Gauging your financial affairs in advance of retirement is a job in and of itself. Of course, financial management before and in retirement is so complex that I’d recommend that you also obtain professional help, or at least a second opinion on your plan, before you embark on it. But even if you ultimately end up employing a financial advisor to be your guide as you prepare to retire, using a checklist can help you comprehend the key variables that will make your retirement plan succeed or fail. It can help you course-correct before it’s too late.

If you’re starting to think about retirement and what your retirement plan should look like, here’s a checklist to help you think through the key variables.

Consider Your Retirement Date

One of the key steps as you develop your retirement plan is considering when you plan to retire. Of course, the financial payoff of working longer has been well documented: delayed portfolio withdrawals, additional retirement plan contributions and tax-deferred compounding, and a larger Social Security benefit can all contribute to a plan’s sustainability.

But it’s worthwhile to consider your expected retirement date from a number of additional angles, not just the financial dimension. You’ll also want to consider quality-of-life issues, health, and whether you can actually continue to do your job later in life.

It’s also important to bring a healthy dose of humility to retirement date planning. People who thought they would hang it up early often ended up working longer than they estimated, whereas many who had anticipated delaying retirement didn’t do so. Health issues or layoffs often force people out of the workforce earlier than they might consider ideal, while others continue to work longer than they anticipated because they need or enjoy their jobs or value the social dimension. In other words, as valuable as it is to set a goal date for retirement, you may end up deviating from it for one reason or another.

Assess Your In-Retirement Income Needs

The next step in the process is to take stock of your planned in-retirement spending. One common rule of thumb is the 80% rule – that is, in retirement, you’ll need to replace about 80% of your working income. Taxes may go down and you don’t have to save as you did when you were working, which represents the bulk of that 20% reduction.

But affluent retirees tend to spend much less than 80% of their working incomes, on average, whereas retirees with lower working incomes tend to consume a higher percentage of their working incomes in retirement. That’s only logical, in that affluent households likely have heavier savings rates, whereas lower-income households consume a bigger share of what they make.

Moreover, many retirees plan lifestyle changes in retirement that will affect their spending. Some retirees may be planning to downsize or move to a lower-cost part of the country to make retirement more affordable, for example, while other retirees may expect spending to increase because of heavy travel plans. Making lifestyle adjustments like these can be incredibly impactful from a financial standpoint, but they may not be agreeable to many.

Because forecasting your anticipated income needs is such an important component of crafting your retirement plan, make sure you right-size your income needs by looking at your expected outlays line item by line item. Also remember that your spending won’t necessarily be static from year to year; you may have higher-spending years, especially in the early and later parts of retirement, and lower-spending ones, too.

Build an emergency fund.

Before you take any major financial step, you want to be sure you’re protected should things not go according to plan. Hopefully, you aren’t learning about emergency funds for the first time when you’re within years of retirement. But if you have somehow gotten this far without a financial security blanket, now’s the time to create one. It will cover you in the event of personal catastrophe, and it can also make up for delays in the start date of your pension or Social Security.

Some experts recommend that you sock away three months of living expenses, while others suggest you save enough for at least a year. Six months’ worth of funds should be enough to cover you in case of emergency. Base the amount of this six-month fund on your expenses, not your income. No matter your current state of employment, this fund is about how much you’re spending. Remember to include expenses currently covered by your employer (like healthcare) because your emergency fund will need to transition into retirement with you.

Keep your fund somewhere safe and separate from your other savings so you aren’t tempted to spend it. A passbook savings or money market account could be a good option. They’re liquid in case you need to access your funds, but still earn interest.

Pay Off All Debt

In an ideal world, we’d all enter retirement without any debt. Since your income is likely to decrease, any fixed payments will start to take up a larger share of your expenses. If you’re nearing retirement, it’s time to take a look at the debt column of your inventory. Add interest rates and terms in a new column beside your outstanding debts.

So, how should you tackle your debts? There are generally two thoughts on where to start: either by paying down debts with the smallest balance or debts with the highest interest rates. If you can stomach it, we suggest starting with highest-interest-rate debts. This is usually credit card debt, followed by personal loans and car loans. And we don’t just mean hitting the monthly minimum. To really make a dent, you’ll have to put as much money as you can to paying down your priority debt without sacrificing making the minimum payments on other debts. Mortgages are a good debt to save for last as these tend to have low interest rates.

No matter what repayment strategy you choose, the most important thing is sticking with it. Map it on a calendar, track your progress and ask a friend or family member to keep you accountable. Any time you successfully pay off a debt, give yourself a small reward to stay motivated.

Investigate Retirement Investments It’s never a bad thing to have more income. One of the worst mistakes American workers make is designing their investment portfolio around their retirement date. This leaves little earnings potential for their post-retirement life.

Investigate how retirement investments could supplement your retirement account earnings. Keep in mind that your risk tolerance may change as you age and stop earning a paycheck. You may want to employ a total return portfolio that allows you to withdraw a certain percentage while working toward a long-term rate of return, but that isn’t your only option. Retirement income mutual funds, government bonds, real estate, closed-end funds, dividend income funds and annuities are all good options for retirees. The more you know, the better you can decide which option is right for you.

Pay Attention to Tax Management It would be so simple if we could each bring just a single portfolio into retirement, but the reality is much messier. Most retirees hold their assets in a variety of tax silos: tax-deferred, taxable, and non-taxable. Each of these accounts carries its own tax treatment, which has implications for the types of securities you hold within them. In addition to “asset location” considerations, it’s also worthwhile to harmonize how you’ll withdraw from these accounts for your cash flow needs, as doing so can reduce the drag of taxes on your withdrawals. Basic withdrawal-sequencing guidelines are a starting point, but the best withdrawal strategies factor in required minimum distributions and Social Security taxation, among other issues. Early retirement, before required minimum distributions commence, may also be a good time to consider making changes, such as converting traditional IRAs to Roth. If all of this sounds complicated, it is – which is why it’s wise to get some tax guidance as you plan your withdrawal strategy.

Assess Insurance Coverage

Nearly all of the insurance coverage that made sense while you were working – auto and homeowners’ insurance, for example – will still be necessary while you’re retired. But Medicare adds a new wrinkle to healthcare coverage for retirees, along with purchasing supplemental coverage to pick up what Medicare doesn’t. It’s also worthwhile to consider other types of coverage, notably long-term care insurance, well before you’re retired. The decision about how to cover long-term care outlays if they arise is a complicated one, made even murkier by the pandemic and a changing marketplace for long-term care.

Attend to Your Estate, Portfolio Succession Plan

Documenting your wishes in case you should die or become incapacitated is valuable at every life stage, but it takes on increasing importance when we age. What do you want to happen to your financial assets? Who do you want to be able to make important financial and healthcare decisions on your behalf? What instructions do you want to give your spouse or other loved ones about your portfolio? Retirees and pre-retirees should ask – and answer – all of these questions when they’re of sound mind and body and update their estate plans and beneficiary designations periodically to reflect their current situations. This is a spot to get some competent legal help – ideally from an attorney who’s well versed in planning for situations like yours.

Learn how to withdraw funds

You’ve (hopefully) spent your entire adult life investing money into your retirement accounts, so it may seem crazy that it’s finally time to take it out. Of course, you’ll have to understand how to do this first.

If you have an employer-sponsored plan, figure out if you want to leave money there or roll it into an IRA account. Consolidating is probably the better option if you’re over 59 ½. At this time, you can take money out of your retirement accounts without incurring an early withdrawal penalty. By 70½, the law requires you to take required minimum distributions (RMDs). You should make your decision based on what’s both tax-efficient and what you and your family feel most comfortable with. You can work with the institution that manages your funds to figure out how withdrawals work.

Next, you’ll have to decide when to sign up for Social Security. Most experts suggest you wait to sign up until full retirement age so you can receive full benefits, but you can sign up anytime between the ages of 62 and 70. The longer you wait, the bigger your check will be.

The responsibility will be on you for other aspects of estate and succession planning – for example, that your loved ones know how to manage your portfolio, your digital estate, and other matters. The good news is that you can prepare much of this documentation on your own, without paid legal help. Don’t hesitate to consult an expert. If you’re not sure where to begin or you’re worried you’re behind, a financial advisor is a good person to turn to.


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