Retirement is one of the biggest long-term financial goals people have and one of the most significant transitions they face in life. That’s why planning and preparing during your last five years of work is essential to make the transition as smooth as possible.
As a financial advisor specializing in retirement, I’ve developed a comprehensive retirement checklist covering the key steps to take during these critical years.
This checklist covers debt reduction, ‘catch-up’ contributions, and pre-Medicare healthcare options. It also covers the importance of estimating your retirement expenses, preparing your portfolio, determining the optimal time to start drawing Social Security benefits and designing your ideal retirement lifestyle.
But most importantly, it explains that a successful retirement transition isn’t just about the money and the math.
Instead, it’s about the emotional and psychological changes that retirement brings and includes tips on mentally preparing for retirement. Lastly, by the end of this checklist, you can set your retirement date confidently, knowing you are well-prepared for the journey ahead.
✅ 1. Prioritize Debt Reduction
Carrying excessive debt into retirement can be a financial burden and could limit your ability to live well in retirement. Consider paying off high-interest debts like credit cards and personal loans before retirement, followed by long-term student loans or high-rate mortgages. If you have a mortgage rate below 4%, you’re probably better served financially by making your regularly scheduled payments and not paying anything extra.
Action Steps
- List your debts in descending order of interest rate.
- Focus on paying off high-interest debts first, especially credit cards.
- Consider accelerating payments on long-term debts.
✅ 2. Maximize Your Contributions with Catch-up Contributions
Individuals aged 50 or older can take advantage of catch-up contributions in their retirement plans, boosting savings limits during their final working years. This is a great option for anyone who needs to make up for lost time as they approach retirement. Amounts vary by account type and are adjusted for inflation over time, so be sure to do your research when utilizing catch-up contributions.
Action Steps
- Understand the catch-up limits of your retirement accounts.
- Identify whether you are in need of catch-up contributions.
- Make catch-up contributions as needed to get on track.
✅ 3. Prepare for Healthcare Before Medicare
If you retire before age 65, you’ll need a plan to ‘bridge the gap’ until you’re eligible for Medicare. Consider options like COBRA, health sharing plans, spousal coverage, or the Health Insurance Marketplace for coverage.
Action Steps
- Review your existing health insurance policy.
- Investigate healthcare coverage options available pre-Medicare.
- Include potential healthcare costs in your retirement budget.
✅ 4. Estimate Retirement Expenses
Estimating your retirement expenses creates a smoother transition into retirement. Consider the go-go, slow-go, and no-go model to predict your expenses during various retirement phases. The “go-go,” “slow-go,” and “no-go” phases of retirement refer to the varying levels of activity and associated expenses in retirement, starting with an active and potentially more expensive early retirement (“go-go”), moving to a more relaxed pace with moderate expenses (“slow-go”), and finally reaching a stage of minimal activity and potentially lower expenses due to decreased mobility (“no-go”).
Action Steps
- Create a retirement budget based on your current and expected future spending.
- Apply the go-go, slow-go, no-go model to adjust for common retirement spending patterns.
- Regularly update your expense estimates.
✅ 5. Get Your Investment Portfolio “Retirement-Ready”
Consider transitioning toward a balanced asset allocation in your portfolio, aiming to provide steady income during retirement while minimizing risks. Often, this involves evaluating and adjusting your asset allocation—the mix of stocks, bonds, and other assets in your portfolio.
Action Steps
- Review your current risk tolerance.
- Update your asset allocation as needed.
- Rebalance your investments accordingly and review regularly.
✅ 6. Decide When to Take Social Security
Choosing when to start receiving Social Security benefits is a major retirement decision that should be based on factors such as your health status and financial needs. The earliest you can start collecting Social Security is at age 62, but your monthly benefits will be reduced if you start before your full retirement age (FRA), which varies depending on your birth year. If you delay taking Social Security past your FRA, your benefits will increase each year until you reach age 70. Remember that there is no one-size-fits-all, and the goal should be to maximize your lifetime Social Security benefit while adjusting to your unique situation.
Action Steps
- Assess your health and financial needs.
- Utilize Social Security calculators for estimating different benefits amounts.
- Reevaluate your decision considering changing circumstances.
✅ 7. Map Out Your Portfolio Withdrawal Strategy
Crafting a tax-optimized withdrawal strategy can help you minimize your tax liability in retirement, allowing you to keep more money in your pocket. This can be complex, but it involves understanding the different tax treatment of your various accounts and developing a strategy to provide the income you need in the most tax-efficient way.
Action Steps
- Understand the tax implications of withdrawals from different retirement accounts.
- Plan your withdrawals in line with your retirement spending needs.
- Regularly modify your strategy to adapt to changes.
✅ 8. Design Your Retirement Lifestyle
A successful retirement goes beyond math and money and includes maintaining an active and engaged life. Research shows that retirees who stay engaged with social activity, exercise, and hobbies have improved brain health and more years of independent living versus those who live a sedentary or isolated lifestyle.
Action Steps
- Identify enjoyable physical activities and create a routine that works for you.
- Foster social connections through regular meetups and hobby groups.
- Pursue lifelong learning through classes or online platforms.
✅ 9. Embrace the Psychological Transition
Retirement is a psychological shift from working for your portfolio to letting your portfolio work for you. It can feel uncomfortable and even daunting, but the key to overcoming these barriers is remembering that you’ve worked hard to build your retirement fund, and now it’s time to reap the rewards.
Action Steps
- Recognize and address fears associated with the transition.
- Give yourself permission to enjoy retirement.
- Create a spending plan to give you confidence and permission.
✅ 10. Plan Ahead for Long-Term Care (LTC)
Planning ahead for long-term care is critical, especially considering that around 70% of adults above 65 will need long-term care at some point. So, familiarize yourself with the different levels of care and financing options, and keep in mind that tapping into your home equity can be a powerful way to cover future care expenses.
Action Steps
- Educate yourself about various LTC levels and their respective costs.
- Consider home equity as a potential funding source.
- Discuss your preferences and plans with your family and advisors.
✅ 11. Set Your Retirement Date
Lastly, setting a retirement date gives you a target to aim for and allows you to craft a plan to meet your goals. Of course, you can always adjust your target, but it’s important to identify a target you can plan around. Remember, this date isn’t just about the end of work; it’s about starting a new phase of life and will influence your saving strategies, Social Security plans, healthcare plans, and more.
Action Steps
- Reflect on your retirement vision and goals.
- Identify a date that works with what you want from retirement and your current financial situation.
- Be flexible and update your target retirement date as needed.
The Bottom Line
As you begin the countdown to retirement, it’s important to remember that each step you take is preparing you for a healthy, successful, and sustainable retirement.
You’re building a strong base by focusing on debt reduction, leveraging ‘catch-up’ contributions, and exploring pre-Medicare healthcare options. Then, you continue to build upon that foundation by estimating future retirement expenses, preparing your portfolio, and optimizing your Social Security benefit.
Lastly, by creating a portfolio withdrawal strategy, designing your retirement lifestyle, mentally preparing for the shift, planning for long-term care, and setting a retirement date, you ensure that the next phase of life will be as great as the last.
So don’t delay. Get started with your retirement plan today.
