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The Pre-Retirement Checklist

Posted on September 7th, 2023
Pre-Retirement Checklist

Planning for retirement can feel a bit like carefully threading a needle. You want to stop working young enough to enjoy your retirement while also stopping late enough that you don’t end up in a precarious financial situation. 

As many people get closer to retirement age, their spending habits naturally become more frugal. But that doesn’t mean you don’t need to plan for future expenses. It’s entirely possible to run out of money during retirement, a situation you’ll hopefully avoid by taking these steps. 

In this article, we’ll explain the different steps you can take to make sure you have your income and debts sorted out by 67 (or 66 if you were born before 1960). You’ll want to have a thorough understanding of where your money will come from and where it will go once you’ve stopped working

Key Takeaways

  • Remember to account for taxes when adding up your sources of income. Many retirees forget to account for taxes when planning their finances. 
  • It’s essential to have an emergency fund, even in retirement. Try to keep six months’ worth of expenses on hand to prepare for any emergencies. 
  • Two popular ways of approaching debt elimination are the avalanche method and the snowball method. The former involves paying off high-interest debt first, while the latter means paying off your smallest debts first. 

Assessing Your Financial Situation

The first step to preparing for your retirement countdown is taking stock of your income, debt, and expenses. We suggest having a physical document, whether handwritten or digital, listing all expected sources of income, debts, liabilities, savings balances, and insurance policies. The same principle behind budgeting applies here – you want to know exactly where your money will come from and where it will go. 

Be sure to factor in any properties or vehicles you own. Having a better understanding of your spending habits and income sources will reduce the chances of a surprise. You want to be prepared for anything, so take the time to really acquaint yourself with your financial plan. 

Build an Income Timeline

Part of taking inventory of your finances is also tracking when you’ll start enjoying different streams of income. If you retire at 62, for example, you can legally start taking your Social Security monthly benefit. But delaying when you start taking Social Security can actually increase your monthly benefit.

Maybe you’re planning to get your income from individual retirement accounts or an employer-sponsored retirement plan before taking Social Security benefits. Some people choose to take on part-time work after retirement. 

Get Rid of Debt 

Though it may not be feasible for you to get rid of all your debt before retirement, successfully doing so can be a great mental relief. As your income shrinks post-retirement, debt will take up a larger slice of your income. 

When it comes to paying off debt, there are two very popular methods: the snowball method and the avalanche method. 

Let’s say you have three debts. Debt A has a balance of $5,000 and an interest rate of 6%. Debt B has a balance of $2,000 and an interest rate of 10%. And debt C has the highest balance at $9,000 and an interest rate of 3%. 

The snowball method involves paying off your debts with the smallest balances first, then directing money you were putting toward one debt toward the next smallest debt. In our example, using the snowball method would entail paying off debt B first, then debt A, followed by debt C. 

The avalanche method means paying off debts with the highest interest rate first. In our example, you’d pay off debt B first, then debt A, and debt C last. This method is typically the faster of the two when it comes to paying down debt, but that doesn’t necessarily make it the right choice for you. Like choosing what age you want to retire, deciding how to pay down debt is ultimately a personal choice. 

Of course, entering retirement before you pay off some debts (like a mortgage or a credit card) is alright. Just be aware of the demands debt will have on your finances once you’ve retired. 

Continue Responsible Spending Habits 

When you enter retirement, it’s usually not a good idea to start spending significantly more. Try to maintain responsible spending habits, including having an emergency fund and tracking your spending carefully. 

If you’ve never heard of an emergency fund, everyone should try to have one, with six months worth of money set aside for emergencies. Even in retirement, you can face unexpected crises, and having an emergency fund is a great way of relieving additional stress. According to recent data, less than half of Americans have said they could cover a $1,000 emergency expense. You don’t want to be one of those people, especially once you’ve retired.

Make a Plan Regarding Social Security 

As we’ve already briefly mentioned in this article, you don’t have to stop working and start taking Social Security at the same time. 

Deciding when to start taking Social Security can impact your monthly benefit. You can start taking Social Security at age 62, but your full retirement age (FRA) technically isn’t reached until you’re 66 or 67 (depending on what year you were born).  However, not everyone knows you can further delay taking Social Security up to age 70 and earn retirement credits in the process. 

Waiting to start taking Social Security until you’ve 70 can mean higher monthly benefits for you and higher survivor benefits for your partner if you pass away and were the higher earner in your relationship.  

Remember that your monthly benefit is determined by your highest 35 years of earnings. If you don’t have 35 years of earnings, your monthly earnings average will decrease, with the SSA treating every year under 35 you didn’t earn as $0. 

It’s also worth noting that if you keep working after starting to take Social Security benefits, your benefit may be reduced before you reach your FRA. If you earn a certain amount of money and haven’t reached your FRA, the SSA may withhold certain benefits from you. Once you’ve reached FRA, your monthly benefit will increase to account for months where it was partially withheld.

Digging deeper into Social Security policies is worthwhile before retiring so you know if you have to pay income taxes on your monthly payments and can prepare for anything else that might affect what you receive. 

Plan for Healthcare Needs 

Healthcare is one of the hardest things to plan for in retirement, and it can quickly become a major expense unexpectedly. If you work until you’re at least 65, you can mostly rely on Medicare to cover your health insurance needs. Still, Medicare doesn’t cover everything, so having a backup insurance plan may be important to you. 

Planning for healthcare becomes more difficult if you’re planning to retire early. Without access to Medicare until they’re older, early retirees may need to rely on a significant other or an alternative form of employment to get health insurance. Take the necessary steps now to make sure you’re covered when you need help. 

Estate Planning

This is a somewhat morbid step on the checklist, but absolutely necessary. The older we get, the more important it becomes to plan for what happens after we pass away. Make sure you’ve assigned power of attorney in the event you can’t represent yourself, and assign beneficiaries on any life insurance plans or retirement accounts. 

Writing a will that outlines what you want to happen to your body once you’ve died or to family heirlooms is also important. Death can be very unexpected, so planning early is usually a better idea, even if you’re in good health now. 

Consider Your Investments and Speaking to an Expert 

Your asset mix will often become more defensive the older you get. While younger investors may put more of their money in the stock market, older investors will often try to play it safe, investing in things like bonds and treasury notes. 

You can also consider an option like an annuity, an insurance contract that pays you periodic amounts in exchange for an initial investment. If you annuitize part of your retirement savings, it may earn you money the further you go into retirement. 

Speaking with a financial advisor, though obviously not required, is helpful for many people. It may be useful to have someone look over your income plan and debts with you to offer advice on spending and investments. 

The Bottom Line 

There are certain steps you’ll want to take to prepare for retirement. Taking inventory of your future sources of income, debts, and liabilities is a great starting point. It’s important to have a plan for when you’re going to start taking Social Security and to make sure you’ll have health insurance covered if you retire before age 65. Remember that delaying when you start taking Social Security can increase your monthly benefit, but those credits max out at 70, so don’t delay it beyond then. 

Eric Rosenberg

Eric Rosenberg

Eric Rosenberg is a personal finance expert. He received an MBA in Finance from the University of Denver in 2010. Since graduating he has been blogging about financial tips and tricks to help people understand money better. He is a debt master, insurance expert and currently writes for most of the top financial publications on the planet.

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