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Retirement Checklist: 7 Steps You Need to Take

Deciding when to retire is one of the hardest decisions you will ever make. Retire too late, and you may not have the energy or health to enjoy it. But if you retire too early, you could end up in financial trouble with the worry that you may outlive your finances.

Here is a retirement checklist of things that will help you determine your retirement readiness.

 

1. Take Inventory of Your Assets

Before you can make a retirement plan, your initial task is determining where you stand financially. Evaluate your current budget to ensure you have proper spending levels, and try to determine what spending items will change in retirement.

As my wife and I edged closer to retirement over the last decade of our working life, we concentrated on our net worth statement, which allowed us to review our long-term goals and ensured we were on track for achieving our retirement targets.

Net worth is the total of our assets (things we own, such as a house, car, investments, 401k, etc.) less our total liabilities (things we owe, such as a mortgage, car & student loans, etc.)  The key assets that lead to a higher net worth include such things as home ownership, retirement savings, and investments.

Hopefully, as you get older, your assets grow while your liabilities decline to the state of nirvana with no debt (which we will discuss shortly).

 

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2. Build an Emergency Fund

Per my recent research, it was shocking to see that one-third of Americans cannot pull together $400 to cover an emergency. We need to learn better ways to determine how we use and save our money.

Before taking any major financial step, you must ensure that you are protected should things not go according to plan. Hopefully, you are not learning about emergency funds for the first time when you are within years of retirement. But if you have somehow gotten this far without a financial security blanket, now is the time to create one. It will cover you in the event of a personal catastrophe.

As discussed in a prior article, financial planners commonly recommend an emergency fund of at least 3-6 months of your living expenses. This calculation is much easier if you use some budgeting tool.

The purpose of an emergency fund is to avoid using your credit card for unexpected expenses since they come with high interest rates that currently average around the ridiculously high rate of 21%!

As some of you may recall, emergency funds were tested during the pandemic years of 2020-2021, when many lost their jobs and our economy ground to a halt.

2024 has started off in a rough fashion for us as we have had to replace a dying HVAC system as well as a main sewer line in our 40-year-old condominium rental unit.

Thanks to our 6-month emergency fund that we had established, we were able to replace these significant items without using credit cards. I have never appreciated the importance of having an emergency fund more after these unexpected housing costs.

 

3. Eliminate All Debt

In an ideal world, we would all enter retirement without any debt. Since your income is likely to decrease in retirement, any fixed payments will start to take up a larger share of your expenses. If you are nearing retirement, it is time to look at the debt column of your net worth statement that we completed earlier.

So, how should you tackle your debts? There are generally two schools of thought on where to start: 1) either by paying down debts with the smallest balance (The debt snowball method is a debt-reduction strategy where you pay off the debt in order of smallest balance to largest balance, gaining momentum as you knock out each balance.) 2) debts with the highest interest rates.

I suggest starting with the highest-interest-rate debt, usually credit card debt, followed by personal loans and car loans.

No matter your repayment strategy, the most important thing is sticking with it. Map it on a calendar, track your progress, and ask a friend or family member to keep you accountable. Any time you successfully pay off a debt, give yourself a small reward to stay motivated. After my wife and I paid off our mortgage at our OBX beach house in 2017, we took a train to Chicago and enjoyed a nice weekend at a swanky hotel (check out the Waldorf Astoria in the Gold Coast section) to celebrate our debt-free achievement!

4. Determine Your Retirement Needs

Before you can retire, you should decide how you prefer to retire. Consider where you want to live, whether you will have a job (this may sound crazy, but many people prefer to work in retirement), and your expenses. Try to be realistic in terms of retirement length. While this is difficult to predict, you can always refine your estimate down the line.

This is where having a financial advisor can be extremely helpful. By collaborating closely with our trusted financial advisor from the Royal Bank of Canada (RBC) and following some of the finance tips shared in my POF articles, we were able to leave our major careers and be fully retired at age fifty-five and sixty-one, respectively, for my wife and me.

 

5. Figure Out Healthcare

As most of you already know, healthcare will most likely be the largest expense you will face in retirement. Fidelity estimates that a 65-year-old retired couple will need $300k to spend on health care over the course of their retirement. Don’t feel bad if this means you must make a quick adjustment to our previous step.

In addition to factoring these expenses into your budget, you will also want to consider where you will be getting health insurance coverage. If you retire at or after the age of 65, you can largely rely on Medicare for your retirement needs.

You can get an overview of Medicare’s coverage and costs at the official www.medicare.gov site. Pay special attention to anything you need that is not covered. Some people like to have a supplemental insurance plan.

Things get trickier – and more expensive – if you plan to retire early. Suppose you do not receive health insurance from your former employer (which I was fortunate enough to receive in my retirement package) or through your spouse’s employer and do not yet qualify for Medicare.

In that case, you will have to get health insurance on your own. Whatever your situation, just make sure your insurance does not lapse when you need it most. Know the terms and conditions of your coverage as well as how much you can expect to pay in premiums, deductibles, co-pays, and out-of-pocket costs.

 

6. Plan Your Estate

No one likes to think about their demise, but as you near retirement, it is imperative that you begin preparing for the end of your life. Being prepared with an estate plan will ensure your family is not plagued with financial burdens after you are gone and that your money is dispersed according to your desires.

In addition to creating a will, you will need to assign a power of attorney and healthcare proxy to make decisions on your behalf should you become incapacitated. You will also need to establish guardians for living dependents and appoint beneficiaries on life insurance plans, retirement accounts, and shared assets.

Do NOT forget to update your beneficiaries! I just updated mine last year as my brother, who had died in a car crash three years ago, was still listed as my 401k secondary beneficiary.

Over ten years ago, my wife and I met with both our financial advisor and a local attorney to develop our estate plan. We completed the following planning documents, which have been updated periodically:

  • Will
  • Power of Attorney (POA)
  • Health Care Directives
  • Personal Care Plan

If you want to be further prepared, you can emulate my 80-year-old sister, who has completed her Obituary and provided it to me as her POA.

 

7. Learn How to Withdraw Funds and Minimize Taxes

Hopefully, you have spent your entire adult life investing money into your retirement accounts, so it may seem very scary that it is finally time to take it out to cover your retirement needs. As a nerdy accountant, my biggest challenge in my initial month of retirement during the fall of 2021 was not receiving a monthly paycheck after receiving one for the past 480 months (or 40 years)! Of course, you will also have to understand how to do this withdrawal process properly.

The conventional wisdom goes that you should withdraw from your taxable accounts first, tax-deferred accounts secondarily, followed by tax-free accounts. The reason is the money you take from a taxable account (such as a brokerage account) is likely to be taxed at the rate for capital gains or qualified dividends, which varies depending on your tax bracket. It is generally a lower rate than what you would pay on ordinary income from 401(k) plans, traditional IRAs and other tax-deferred savings.

Next, you will have to decide when to sign up for Social Security. Most experts suggest you wait to sign up until full retirement age (FRA) so you can receive full benefits, but you can sign up anytime between the ages of 62 and 70. The longer you wait, the bigger your check will be. You can apply for Social Security online, by phone, or in-person at a local Social Security office. To increase my benefits overall, I chose to delay my Social Security benefits until at least my full retirement age at age sixty-six years and ten months, which will occur in 2026.

 

Final Thoughts

Retirement can be a wonderful time when you can finally enjoy some of the things you have been planning for a long time.

You can travel (Hawaii and Canada so far for us), enjoy family more often, or spend more time on your hobbies (which include walking, bicycling, pickleball & playing chess for me).

However, these things are only available if you are financially prepared for retirement. It is PARTICULARLY important to plan ahead and make sure you check in on your retirement plan routinely to adjust as necessary.

Keep in mind the lesson: With chess, money, and life, failing to plan is planning to fail!

 

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7 thoughts on “Retirement Checklist: 7 Steps You Need to Take”

  1. I think it wise to be aware that as we age our medical needs increase. Sometimes these needs significantly increase and it may be quite unexpected. For this reason, I think it would be advisable to select a community with a variety of medical services available or at least be close to a major medical center. Appointments can also be difficult to obtain in todays environment.

    Reply
    • Thanks John for the great point on “availability of quality medical care” needs to be a major consideration when you contemplate where to live in retirement. We currently chose Philadelphia as our retirement location due to walkability as well as top-notch medical care provided by the University of Pennsylvania Health System. Wishing you a healthy and prosperous retirement!

      Reply
  2. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  3. After you resolve the above pre-retirement financial challenges, you MUST prepare for the non-financial monumental changes you will suddenly encounter in your daily schedule, your relationship with your significant other, and exactly how you will “rebrand” yourself, (now that you are essentially not a doctor anymore, who are you, esp to yourself?). You’ll find your concept of time, money, even the scenery you drove by each day to work is suddenly different. Neglect preparing for these critical non-financial changes that await you, and you’ll find retirement is living hell!

    Reply
    • Great point Retired! as it sounds like you’re speaking from experience. This topic of non-financial impacts of retirement would make for a great future article. Thanks for your valued input!

      Reply
  4. i’ll add 1: be smart about choices of “physical activity” that increases risk of body trauma/fractures/loss of limbs leading to frustrating expensive debility…

    Reply
    • that’s a good one. we should all be mindful of functional strength as we get close to retiring since costs of healthcare are only rising in this country

      Reply
    • Great point Ann Marie (& Tom with rising healthcare costs)! I plan on playing pickleball on a casual basis while I can & switching over to more bicycling & walking over time. The good news is I highly recommend playing chess as it’s good for our minds and has other health benefits (e.g., reducing risk of dementia & brings people together).

      Reply

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