Whether you think of it as retirement, financial independence, or something else, preparing for an eventual change in your employment status is inevitable. Taking control of your financial situation using a tool such as a checklist for retirement will reduce anxiety and help you retire comfortably.
According to a study released by the Employee Benefit Research Institute (EBRI), as many as 40% of Americans may run out of money during retirement. Knowing this, it is exceedingly important that you take every action in your power to strengthen your future financial position to address your retirement needs.
This article is a summary of our downloadable checklist for retirement that can assist you in your retirement planning efforts. The earlier you get started, the longer your results will have to compound and increase the likelihood that you meet your financial goals…
All you need to do is click here to watch a free masterclass training I've recorded.
This free training will discuss the single best change you can make to your financial strategy.
In fact, it's so effective that it may increase retirement income by as much as 30% without needing to invest significantly more time or money.
This is the same strategy that has worked for many of our retirees and pre-retirees.
Because retirement will most likely mean something different to everyone, your retirement goals will likely be unique to you.
There are, however, two primary goals that our retirement planning efforts should be helping us achieve.
Short of a health catastrophe, one of the worst situations that could occur during retirement is outliving your retirement savings.
Not surprisingly, many retirees and pre-retirees share this concern.
Unanticipated large expenses (think long term care), imbalances between retirement income and retirement spending, or simply living longer than expected are all risk factors that should be addressed in your retirement plan.
Long term care specifically will be one of the biggest expenses of your lifetime. If you do not have the luxury of long-term care insurance, it's most likely the case that family will be burdened with your long-term care needs.
Plan for these contingencies by creating variations of your retirement plan that account for these scenarios. Create detailed "if-than" scenarios so that you have proactive strategies to address these risks should they occur.
This will be the most effective method of preventing your future self from outliving your retirement savings.
A close second to peoples fear of running out of money in retirement is not having a predictable income stream to meet their income needs in retirement due to savings or funding shortfalls.
A sudden increase in cost of living, an unanticipated change to your social security retirement benefits, or a sudden decrease in the value of your investment portfolio can have dramatic effects on your ability to reliably meet your income needs in retirement.
You cannot control any of those outcomes...
What you can do, however, is plan ahead and do your best to reliably estimate your income needs in retirement.
A retirement readiness checklist like this article (as well as this downloadable PDF) will help you thoroughly address the things that ARE in your control as you work on your retirement plan.
Avoiding running out of money AND maintaining a predictable standard of living in retirement hinge on one thing.
Balancing your retirement income with your retirement expenses
It is best to prepare well in advance of retirement age by paying attention to:
Without KNOWING how much you spend now, any estimate of your future spending in retirement will be unreliable.
How long your retirement assets will last are a function of how accurately you are able to estimate your retirement spending.
The basics are the things you cannot live without: housing, energy, insurance, food, etc.
Discretionary expenses are the extras: things like travel or extra spending money.
A sudden decrease in retirement income without a corresponding adjustment to retirement spending can throw your whole plan off track.
Being prepared in advance by knowing what you can and cannot live without, you will be able to proactively address a change to your retirement income.
Use tools such as Everydollar or YouNeedABudget to simplify your cash flow tracking process.
These apps connect directly to your debit and credit cards and import your transactions.
They will save you time and increase the likelihood that you actually follow through on tracking your spending.
You can watch our guide to cashflow tracking on YouTube to help you get started.
Until you actually retire, its hard to know exactly how much income you'll truly need.
Things change - by the time you retire your home may be paid off (or close to it), kids may be out of the house, car loans might be paid off...
Despite these changes, we still need a way to estimate our retirement needs.
While not exact, this estimation will give you a rough idea of the income you will need to replace in order to maintain your standard of living.
Guaranteed sources of retirement income will provide the foundation of your income in retirement.
These are things like Social Security Retirement Benefits, Pensions, or Annuities.
They are “guaranteed” in that the income you will receive from these sources will be predictable and reliable once you begin to draw from them.
This is unlike taking distributions from your investment portfolio which will fluctuate due to market performance.
Fluctuations in the value of things like 401(k)s and IRA's may necessitate withdrawing less in some years due to poor market performance.
Once you have an estimate of your expected guaranteed income in retirement, you can plan how to fill the gaps via saving into other investment vehicles such as employer sponsored retirement plans, Traditional IRAs, ROTH IRAs, or taxable brokerage accounts.
Accurately estimating your guaranteed income sources is a puzzle.
I recommend seeking out a qualified fee-only fiduciary financial advisor to assist in interpreting pension, annuity, or social security documents. An error in understanding these documents could lead to faulty assumptions that derail your retirement planning efforts.
Watch this video to learn what to look for in a qualified financial advisor.
Start this process by calculating your net worth:
From there, think through how much of your wealth is accessible vs inaccessible.
Is a certain percentage of your wealth tied up in the equity of your home? Or do you have substantial wealth in investment accounts that are more easily accessible?
Think about accessibility as how quickly you can get access to the funds.
Yes, you may own a home, and yes, it may contribute to your overall wealth - but if the only way to gain access to those funds is to sell the house or obtain a reverse mortgage, can you really count on those funds for short term financial needs?
Next you'll want to learn how to estimate and track the potential returns on your investments.
If you are unable to or not sure how, this may be an opportunity to educate yourself or seek professional help from a financial advisor who can assist you in monitoring this.
You can watch this video to learn more,
Finally, you'll want to learn how to estimate the INCOME that your investments would be able to produce once you actually need to take DISTRIBUTIONS from those investments.
A financial plan is not ONLY about figuring out how to maximize the return of your investments against all odds.
It's about strategically planning so that distributions from your savings and investments can meet your income needs reliably once you hit retirement age.
The 4% rule is a good place to begin your research into how much you can withdraw from investment accounts. Take note however, that individuals will have unique withdrawal needs based on their individual circumstances and will want to plan accordingly.
Too many accounts can make it difficult to track expenses, manage distributions, or to maintain your total wealth asset allocation.
Know the landscape of when you and your spouse will need to take required minimum distributions, how those will effect your income taxes, and prepare for them.
Plan carefully for the optimal time and way to claim social security benefits and understand what happens to your family's total social security benefit should one spouse pass.
The average retirement age in the states is 62, but Medicare does not begin until age 65. Some planning must be done in order to bridge that gap in healthcare coverage.
Medicare is a very complicated system. Medicare premiums are a determined by your AGI over the prior 2 years... If you made too much money over that two year period, you get penalized in the form of higher Medicare premiums. Not only that, Medicare does not have a max out-of-pocket, it does not cover long term care, nor does it cover dental.
Your retirement can be a wonderful new phase where you get to enjoy things you've planned your whole life for. Things like travel, grandkids, hobbies, or simply taking it easy.
These things come to those who prepare accordingly. Plan ahead, regularly check and monitor your plan, and make adjustments as needed.
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