Reflections

Getting Ready to Retire? A 12-Step Checklist to Keep You on Track

By Sean Condon, CFP®

The last year of a career is filled with excitement and anxiety as you approach the end of years of dedicated hard work.  It is also a time when you are most likely to speak with a financial advisor to be reassured that your financial freedom has finally arrived.  During these conversations, we review critical steps you still may need to take to ensure your retirement plan sails smoothly.

We have taken the time to prepare the following checklist to enable you to think through those steps while keeping your plan on track.

1. Review or Create Your Retirement Plan

If you have not done so already, now is the perfect time to review or create a retirement plan. This should include everything from exactly when you will retire to how you will spend your time. Take the time to think about what you want retirement to look like for you. Will you be retiring with a spouse? Do you want to work part-time, volunteer, or travel the world? Do you want to spend any time managing your own portfolio, or perhaps you would prefer to consolidate old 401(k) accounts? The answer to these questions will inform the rest of the tasks on this list, so it is important to be both intentional and realistic about your plans.

2. Decide When to Claim Your Social Security Benefits

Deciding when to take Social Security benefits is one of the biggest questions you will have to answer in the year leading up to retirement. Depending on your age when you retire, you could be looking at reduced benefits (age 62), full benefits (age 67), or maximum benefits (age 70). If you decide to retire, but delay benefits until a later date, you will have to plan for an alternate income stream during that time.  If you do plan to include social security benefits as part of your initial retirement income, make sure you understand how social security benefits get taxed.

Keep in mind that once you turn age 62, your benefit amount will be increased annually based on the cost-of-living adjustment. This adjustment occurs even if you do not claim your benefits until a later age.

If both you and your spouse worked and contributed to the Social Security system, then you have two benefit amounts to consider. There are strategies that married couples can use to make the most of their benefits by taking one benefit early and delaying another until age 70.

3. Create a Realistic Retirement Budget

Once retired, you will need to turn your portfolio into a paycheck.  This is one of the areas many near-retirees feel most uneasy about.  As a starting point, we will want to review the 4% rule and determine is there any way you can get more out of your portfolio.

Once you have assessed your Social Security benefits and a safe withdrawal amount from your portfolio, now it is time to create a realistic budget. With your newfound free time, it can be easy to overspend without realizing it. But since your income is fixed, a realistic budget that you can hold yourself accountable to is one of the best things you can do in the months leading up to the big day. Overspending, even for a short period, can shave years off the longevity of your assets.

The budget does not need to be perfect, but it should be something you can honestly stick to. Try tracking your expenses for a couple of months to get an idea of what you spend currently. Once you have all your costs outlined, consider if there are areas where you can cut back or items that will increase in retirement.

4. Consider Saving More in Tax-Advantaged Accounts

If you are earning more income in the year leading up to retirement and you do not necessarily need it for daily expenses, consider contributing more to a tax-advantaged retirement account like a traditional or Roth IRA, or a 401(k) or 403(b). These accounts have increased contribution limits for taxpayers over the age of 50 and contributing more can be an effective way to boost your nest egg while reducing your taxable income just before retirement.  It may be one of the last times you can take advantage of tax-deferrals.

5. Determine Your Withdrawal Strategy

Many retirees mistakenly assume that how and when they withdraw from their retirement accounts doesn’t matter as long as they have a sizable amount saved. They also falsely believe that they will always be in a lower tax bracket in retirement. This can result in inefficient withdrawals that increase your tax liability unnecessarily and greatly reduce the longevity of your portfolio. The timing of withdrawals makes all the difference and it’s a key component in safeguarding your retirement nest egg.

For example, a $50,000 withdrawal from a Roth IRA will have a wildly different tax impact than that same distribution from a traditional IRA. If you blindly take your money and run, you could trigger an avalanche of higher Social Security taxes, investment surtax, capital gains taxes, and even higher Medicare premiums, which will eat away at the funds that were supposed to carry you through retirement. Creating a tax-efficient withdrawal plan before retirement can help you strategically withdraw from your various retirement accounts and minimize your tax liability.

6. Review Your Life Insurance Needs

Many employers offer group and supplemental life insurance policies as part of a benefit package for employees. These are great during your working years, but they often expire at retirement, and retirees who only have group insurance may be left unprotected. Whether you have a mortgage and want to make sure your family is covered, or you want to provide an inheritance, be sure to review your life insurance needs, as well as any existing policies you have in place. If it makes sense, consider extending your employer’s coverage or look for a private insurance policy.

7. Take Advantage of Employer Healthcare Benefits

Another important step to take before retiring is to utilize any healthcare benefits offered by your employer. Maintaining good physical and mental health is a key component to a happy and fulfilling retirement. Make sure you are up to date on your physicals, check-ups, and prescriptions before retiring, especially if you have already met your deductible for the year.

If you have an FSA, consider spending down the account, and if you have an HSA, consider paying for expenses out of pocket to keep the funds growing tax-deferred.

8. Review Your Medicare Options

Once you turn 65, you will be able to enroll in Medicare. Depending on your age at retirement, be sure to mark your calendar for this important milestone. If there is a gap between when you’re retiring and your Medicare eligibility, you will have to find alternative coverage through the Health Insurance Marketplace, COBRA, private insurers, employer retiree insurance, or your spouse’s employer coverage. These options can vary dramatically in cost and level of coverage, so be sure to plan ahead.

9. Evaluate Your Long-Term Care Needs

It is estimated that 70% of today’s 65-year-olds will need long-term care services at some point in the future. Without proper planning, these costs can quickly spiral out of control. The year before retirement is the perfect time to assess your needs and consider long-term care insurance to supplement what you can afford to spend out of pocket.

Consider family health history as well as your own lifestyle, health needs, and projected life expectancy when thinking about long-term care. As difficult as it can be to think about, planning ahead is the best way to safeguard your savings as you head into retirement.

10. Evaluate Your Housing Needs

If you have not already, take stock of your current housing and if it will still make sense in retirement. Are you an empty-nester in a five-bedroom house? Have you always wanted to relocate? Do you have a mortgage? Would you easily be able to age-in-place or would significant accessibility modifications be required? These are all questions to ask yourself in the year leading up to retirement. Since housing is one of the largest ongoing expenses you will have during your golden years, it is important to thoroughly consider your options.

11. Review Your Estate Plan

Now that you are gearing up to retire, take the time to review your estate plan and make sure everything is in order. You should have basic estate planning documents like a will, durable power of attorney, and healthcare power of attorney to ensure that your wishes are clearly communicated, and a trusted individual can act on your behalf if something were to happen. If your estate is more complex and you will have significant assets to leave behind, consider utilizing trusts in your estate plan.

12. Team Up with a Trusted Professional

It is an exciting time of life as you wrap up your plans and enter the season of retirement. During the excitement, it is also possible that you may experience emotions of stress and overwhelm as you prepare to make the shift.

At Windgate Wealth Management, we want to support you through that process, making it as smooth as possible as we help you plan for unexpected events. If you find yourself ready to take the next step toward retiring with confidence, reach out to us by calling (844) 377-4963 or emailing windgate@windgatewealth.com. You can also book an appointment online here.

Perritt Capital Management, Inc. is the Registered Investment Advisor for Windgate Wealth Management accounts and does not provide tax advice. Consult your professional tax advisor for questions concerning your personal tax or financial situation and your insurance agent for insurance advice.

Data here is obtained from what are considered reliable sources. We consider the data used to be relevant and reliable.

First published February 2023.

Past Performance does not guarantee future results.

Email Sign Up