Pre-retirement Checklist for a Worry Free Retirement

 

Jane Young, CFP, EA

Retirement represents a huge change in your lifestyle and finances.  Plan and prepare ahead of time to enjoy a comfortable and rewarding retirement.  Think about what your retirement looks like – will you retire completely or will you gradually transition into retirement?  Consider transitioning from your current career to a part time job doing something you really enjoy.  Think about what you will do in retirement, where will you live and what kind of lifestyle you want.

Consider the emotional impact of retirement.  Generally, your career provides a major sense of accomplishment, meaning and significance.  Most of your social life may also come from work relationships. Seriously consider the impact retirement may have on your self-esteem and personal identity.  Explore ways to spend your time in retirement on meaningful and rewarding pursuits, in addition to the fun activities you previously had no time for.

Evaluate your current spending habits and develop a realistic retirement budget.  Remove expenses you will no longer incur such as contributions into a retirement plan and add expenses that may increase in retirement such as additional travel and insurance expenses.  Build in some flexibility, plan for unexpected expenses and maintain an emergency fund.

Discontinuation of employee benefits, upon retirement, will probably result in the need for additional health and dental insurance.  Research Medicare costs and coverage along with the cost of supplemental health insurance that may be needed.  Think about how you may cover the possibility of long term care expenses and evaluate buying long term care insurance.  As you approach retirement you may be able to reduce or discontinue life and disability insurance coverage.

Manage your debt and take care of major maintenance or remodeling projects prior to retirement.  To the extent possible, pay off credit cards, vehicle loans, student loans and your mortgage.  If you can’t pay off your mortgage but plan to refinance, do so prior to retirement.  It may be difficult to refinance after retirement when you have no earned income.

Review your Social Security and Pension benefits and make some preliminary decisions on the best time to begin taking benefits.  Consider the possibility of losing a spouse when making these and other major retirement decisions.

Run some retirement planning scenarios with a financial planner to determine when you can afford to retire and how much you can afford to spend in retirement.  Based on these scenarios develop a plan to create a tax efficient income stream to pay expenses that aren’t covered by Social Security or Pensions.

Develop and implement an investment plan to support your short term income needs while providing reasonable growth to carry you through retirement.   Your short term money should be held in safe fixed income investments.  But your long term money should be invested in a diversified portfolio to provide long term growth for the 30 to 40 years you may spend in retirement.