From grocery shopping to packing, lists are helpful for many aspects of life. Retirement is no different. In fact, a checklist for retirement planning can help you prepare for this important phase of life with more confidence.
You may think if you have a 401(k) and an IRA, you have no need to come up with a retirement checklist. Unfortunately, that will only lead to struggles come retirement age. Planning for retirement takes work. It requires looking at things like where you want to live and things you want to do with your newfound freedom.
If you’re part of the 10,000 baby boomers who reach retirement age each day or are a few years away from it, here’s what to include on your checklist to smooth the transition.
1. Get your investments aligned.
Planning is a significant part of investing. Flying blind with investing leaves you prone to making decisions that can sabotage your long-term goals. This is rarely more important than when approaching retirement, especially in light of market turbulence.
The best way to manage this is with a well thought out plan. “Long-term investors should establish an investment policy statement and follow it,” says Robert Johnson, Ph.D., CFA®, CAIA®, CLF®, professor of finance at Creighton University. “It’s a written document that clearly sets out a client’s return objectives and risk tolerance over that client’s relevant time horizon, along with applicable constraints such as liquidity needs and tax circumstances.”
Think of this investment plan as a document to guide your investment decisions as you approach retirement. It should also include all of your investments, such as:
- 401(k) plans
It’s often best to meet with a licensed financial advisor to come up with such a plan, typically 5-10 years before retirement. An advisor can provide objective advice that’s not led by emotion — well worth the cost.
2.Kill your debt.
Debt is restrictive, especially high-interest consumer debt. It not only keeps you from reaching goals, but consumes much of your income. Ridding yourself of debt becomes of utmost importance as you approach retirement. If you have no plans to work during retirement years, debt will be a drag on your cash flow.
As you look at your retirement picture, list all of your debts. Write out each amount and the interest rate of each debt. Then, plan out how you’ll pay off each debt. This will help determine if you need to stay in the workforce longer or make your goals a little more realistic.
3. Make a plan for health care costs.
There’s no debating how expensive health care is. You don’t want to overlook this expense as you approach retirement. Fidelity reported the average 65-year-old couple needed $280,000 to cover medical and health care costs in 2018.
You’ll likely need more to cover these expenses in future years. Making this number more problematic is it can be highly unpredictable. Assess what your needs will be and how best to mitigate your costs.
Consider some of the following to help lower costs:
- Buying long-term care insurance
- Maxing out your HSA
- Taking preventive steps now
Don’t forget to look at your life insurance coverage if you have family members who may need financial assistance upon your passing.
4. Know your spending needs.
Like the rest of life, retirement is about the lifestyle you want to keep. Having a budget for your spending is vital as you plan for retirement. You may think you don’t overspend and have no need for a budget as you approach retirement.
Not true. “Retirees often change their spending patterns dramatically and actually spend more in retirement than they did pre-retirement. The changes most often take place in travel and leisure spending,” says Johnson.
Key in this is knowing your goals for retirement. You may want to travel more. You may want to enjoy things you didn’t have a chance to experience during your working years.
A budget helps you honestly plan for those things.
Johnson recommends asking retired friends how they spend. “Near-retirees need to be honest about their budget, and one of the best ways is to talk to people who are retired about their spending patterns,” he says. Think of it as arming yourself with wisdom. The more you know about how you’ll spend, the better you can plan for it and enjoy what you want.
5. Don’t wait on Social Security.
Many people approaching retirement want to know the best age to start taking Social Security benefits. The answer depends on several variables and varies for each person. You may want to speak with your advisor to determine how benefits will fit in with your overall plan and assets.
Keep in mind it’s best to apply up to four months before you want to start taking benefits. Here’s what you’ll need to apply for benefits. Applying that far out ensures you have everything in order and you can start receiving benefits in a timely manner.
Planning for retirement takes a lot of work. Don’t let it overwhelm you to the point of inaction. With a little planning and help from a licensed advisor, you can set yourself up for success and an enjoyable retirement.