You may be mentally ready for retirement, but are you financially prepared? Many important factors must be considered before you can answer this question.
We have created a simple checklist to help you analyze your financial situation and determine if you are ready to retire. It will guide you through the steps you should take at each stage of life to adequately prepare for a successful retirement.
Use the form below to download the checklist and continue reading for details of the important tasks you need to complete.
Retirement Preparedness Tasks in Your Saving Years
Your saving years extend from your first job through your last and are a crucial part of your retirement planning journey. During this period, you should begin planning and saving for retirement using tax-advantaged accounts.
Establish Tax-Advantaged Accounts
Throughout your saving years, you should establish tax-advantaged retirement plans such as an employer sponsored 401(k) or individually owned IRA. These accounts can typically be designated as either Traditional or Roth, with each offering different tax benefits.
Craft A Preliminary Retirement Plan and Start Saving
Once you have established retirement accounts, you should contribute to them on a regular basis. The amount you need to save each month depends on several factors including your intended retirement date, estimated retirement expenses, and investing decisions. That’s why it’s important to have a preliminary retirement plan and adjust it each year to account for life changes.
Your preliminary retirement plan should include:
- anticipated retirement date.
- estimated retirement expenses.
- estimated retirement healthcare costs.
- estimated retirement income from Social Security.
Plan For Other Goals So They Don’t Derail Your Retirement Plan
In addition to saving for retirement, you should create a wholistic financial plan that considers your other financial goals – such as buying a home or sending your child to college. These goals are an important part of your financial plan and failing to adequately plan for them can leave you with no other option but to withdraw from your retirement accounts. Premature withdrawals from retirement plans can leave you unprepared for retirement when the time comes.
As you plan for other financial goals, be sure to keep your debt manageable. A plan to manage your debt is extremely valuable for retirement planning as it can help to minimize your monthly expenses in retirement.
Create An Estate Plan
While not technically a part of retirement planning, you should also take the time during your saving years to establish an estate plan including a will and beneficiary designations for your retirement accounts. These activities ensure that your assets pass to your intended heirs upon your death.
Tasks To Complete as You Near Retirement
As your saving years come to a close, your retirement plan needs to adjust from a focus on growing your assets to preparing to spend them. This involves reviewing your financial picture, finalizing your retirement plan, and shifting your assets from growth to income.
Reevaluate Your Financial Picture and Retirement Budget
The first thing you should do during this time is catalog your assets and debts to understand your financial picture. Once you have a clear understanding of what you own and what you owe, you should take a critical look at your current expenses. The amount you pay each month for living expenses could change in retirement, especially if you plan to travel or change your lifestyle.
Along with your expenses, update your anticipated income from guaranteed sources like Social Security, annuities, and pension plans. Your income and expenses are crucial to calculating your Required Rate of Return™ [RRoR™]. This figure is the key to your retirement plan as it determines the amount your investments must earn to bridge the gap between your guaranteed income and your expenses.
Adjust Your Investments
With your RRoR™ in mind, you should begin adjusting your investments from a growth focus to an income focus. This shift is designed to protect your assets from market swings while allowing them to generate the income you need to cover your expenses.
Plan For Government Benefits
Your retirement plan likely includes government benefits from Social Security and Medicare. You’ll need to make important decisions regarding when to begin these benefits and which Medicare supplement package to purchase.
Social Security income is based on your highest 35 years of earnings. You’ll have a better idea of your income history, and therefore your retirement benefit, as you near the end of your career. Use this number to update your retirement budget.
Once you have a good idea of your anticipated Social Security income, you can begin to plan when you should claim benefits. The earliest that you can begin receiving benefits is age 62, but your monthly benefit will be permanently reduced if you choose to start benefits early. You can also delay benefits up until age 70, and you will receive a higher benefit amount based on the number of months you delay.
For Medicare, you should determine the optimal time to begin benefits. Most people are eligible for Medicare starting at age 65, but you may be able to delay if you or your spouse are still working at this time.
You will also need to choose a Medigap or Medicare Advantage plan to supplement your Medicare coverage. These plans provide additional coverage to help cover your healthcare needs in retirement.
Finalize Your Retirement Withdrawal Strategy
You will also need to determine how and when to withdraw from your retirement accounts to supplement your Social Security income. This withdrawal plan should take taxes into account and be designed to ensure your income lasts a lifetime.
Your withdrawal strategy should account for Required Minimum Distributions [RMDs] These annual minimum withdrawals apply to Traditional IRAs and 401(k) plans and require you to make certain taxable distributions at least once per year.
Review Insurance Coverage
If you plan to retire before reaching age 65, you will need to plan for health insurance during the period between your retirement and Medicare start date. Coverage options include joining your spouse’s health plan, COBRA, insurance through your employer, and private health insurance.
Make A Retirement Tax Plan
Unexpected taxes are one threat to the success of your retirement plan. That’s why you need to understand all the taxes that you could be responsible for paying during your retirement. Two of the most commonly overlooked taxes are tax on Social Security benefits and income tax on withdrawals from Traditional retirement plans.
Ongoing Tasks That Support Retirement Success
As you enter retirement, your carefully made plans may need to be adjusted. On at least an annual basis, review your retirement plan – including your budget – and determine how it matches your pre-retirement estimates.
You should also review your investments at least annually to determine if they still match your income needs and tolerance for risk. If your investments are no longer in line with your needs, be sure to adjust your allocation with the help of an experienced financial advisor.
Prepare for A Successful Retirement with Meld Financial
At Meld Financial, we help you invest, plan, and prepare for retirement. No matter where you are in your retirement saving journey, our team can help set you on the path to retirement success.
Our comprehensive wealth management plan, Financial Fingerprint®, considers the most important aspects of your financial life and brings them together into one easy-to-understand plan. Best of all, this plan grows and changes with your circumstances so that you always understand the path forward.
To learn more about Financial Fingerprint® and get started, contact us today.
