As a 2023 Gallup study shows, the average retirement age in the US now stands at 61 years. Approaching this age can be the highlight of years of dedicated work and signifies the start of a fresh chapter in life.
The prospect of retiring from work might be exciting, yet, it carries a bit of intimidation. There’s a wealth of things to think about and get ready for. To aid your transition into your golden years, we’ve assembled a “prepare for retirement checklist”.
This guide covers important steps for retiring well, from financial preparation to figuring out how you’ll spend your newfound freedom. Regardless if you’re retiring in a few months or a few years, make sure to peruse this checklist for retirement planning, setting you on the path to a retirement that lives up to your dreams!
Why is Retirement Planning Important?
Are you retirement ready? Or are you among the 24% of Americans that lack a strategic retirement plan? Crafting a financial plan for your post-working years is a pivotal step in your retirement checklist. It covers aspects such as determining the necessary income and assets you’ll need, and how long it will take to reach your goals. This also includes wealth management transitions like estate planning, tax planning, and risk management.
Chris Winn, a financial advisor at IWA, a fiduciary in Portland, Oregon, emphasizes the importance of retirement planning. He states, “Retirement planning is among the most significant financial decisions you will ever make. Crafting a plan that aligns with your goals, income, and health is essential. By dedicating time to plan, you can secure a future that’s financially stable and exactly as you envision.”
Retirement planning is important because it can help you answer questions like:
- How much money will you need to live comfortably?
- When should you start saving?
- What kind of lifestyle do you want in your post-work years?
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12 Key Steps to Take 6 Months Before Retirement: The Checklist
The six months before retirement can be a period of financial security and peace. However, without proper planning, it can also breed frustration and confusion. Here’s a rundown of what to do 6 months before retirement:
Understand Your Current Financial Situation
To retire comfortably and confidently, you need to understand your current financial situation. This means having a grasp on the following:
- Your income and expenses.
- The amount of money that you currently have coming in each month (income).
- The amount of money that you currently have going out each month (expenses).
- How much money you are willing to save each month (savings rate).
- Do you have a company pension? If so, what’s its value?
- Do you have any savings in a 401(k) or IRA? How much is it worth?
- What other assets do you have that might be worth more than their current value in the future?
By taking this step now, you’ll be able to make adjustments as needed over time.
Continue to Save for Retirement
You might be thinking that you’ve already set aside enough money for your post-work years, but the truth is that many people have saved too little. If you are close to retirement and want to make sure that you can afford to do so comfortably, it’s important that you keep adding new savings into your portfolio as soon as possible.
You may already have some savings set aside — perhaps through an employer match or matching contributions from your company — but if not, consider contributing more.
Take Steps to Reduce Your Debt
Debt is the biggest challenge for many retirees, but it can be reduced by making smart choices about how you spend your money.
If you have high-interest debt, like credit card balances or loans from your home equity line of credit (HELOC), consider consolidating that debt and using a low-interest balance transfer offer from a credit card company as part of the process.
The longer you’re in debt, the harder it is to get out of it. The average American household has $16,458 in personal loans. That’s not including auto loans or mortgages.
Maintain a Diversified Portfolio
Diversification is a key element of a successful investment strategy and should be part of any retirement to-do list.
Diversifying means spreading out your investments across many different types of investments, including stocks, bonds, cash, and sometimes even real estate (if you’re willing to take it on). A stock option advisor can help you here.
This ensures that even if a single type of investment tanks (like stocks do during recessions), your overall portfolio won’t suffer as much because it includes other investments that are less likely to crash (like bonds).
Retirement Budget Preparation
One of the best things to do in retirement is budget.
A budget can help you stay on track when it comes to saving for your golden years and making sure that you’re not overspending on expenses right now while trying to save for tomorrow’s payments.
You should also make sure that your budget includes any other bills that have to be paid each month, such as utility bills or car payments so that you know how much you have left at the end of the day.
Prepare for Healthcare Costs
If you’re retiring soon, it’s important that you start planning for healthcare costs now. You should have a health insurance plan in place before your post-work years because Medicare may not cover all of your medical expenses when you turn 65 and stop working.
If you are just getting started with health plans, there are ways to minimize out-of-pocket expenses by paying higher premiums on health insurance or choosing more expensive plans with higher deductibles.
The key is to make sure that if something happens while you’re retired — even if it’s just something minor like a broken finger — that there are resources available to get the best care.
Set up an Emergency Fund
Setting up an emergency fund account is one of the best things to do before you retire.
An emergency fund is a savings account that is designated for unexpected expenses and emergencies. You can use it to pay for things like car repairs, medical bills, home repairs, and other unexpected expenses. It is important to have enough money in your emergency fund so that you don’t have to go into debt or use credit cards if an emergency arises.
Determine Retirement Withdrawals
Retirement withdrawals are payments made from your 401(k) account or other plans at work. The amount of the withdrawal may be based on how much money you have contributed to the plan over the years or how long you have worked at the company that sponsors the plan (or both). However, it is important that you aim to only take out 4% or less of your savings each year, adjusted for inflation.
You can take out any amount of money from your retirement account when you turn 59 ½ (though a 10% early withdrawal tax penalty may be assessed if you withdraw it before then).
Know Your Social Security Benefits
Social Security benefits are one of the most valuable resources that retirees can rely on. However, it’s important to know how much you will receive from Social Security after you stop work. This is one of the most important considerations for retirement.
The amount of your benefit depends on the year you were born and the number of credits you earned through your employment history. The more credits you have earned, the higher percentage of your benefit will be paid out each month.
If you are looking to retire ahead of your 65th birthday, you may not earn as much as you expect from social security.
Consider Tax-Smart Strategies
Not every retirement plan will work for every person. Some people want to stop working early and others want to retire later. And there are many different ways to structure your end-of-work year’s strategy, from simple 401(k)s to complex plans with multiple investment options.
But no matter what type of plan you choose, it’s crucial that you consider tax-smart strategies that will help ensure that you earn the most income possible.
For example, if you own restricted stock units, you should understand how RSU stock tax withholding works so that you can retire with shares of the stock and no tax obligations.
Start Thinking About Post-Retirement Income
If you’re nearing retirement and are worried about how you’ll make ends meet after collecting your savings, one of the things to consider is post-retirement income.
Finding a new career path that will give you more financial freedom is a great way to keep your mind occupied while enjoying a few more free hours in the day.
Some common choices apart from social security for people looking at retiring and working include:
- Investing in real estate development projects.
- Selling stocks and bonds or other investments.
- Work as a freelancer in your industry.
- Look for possibilities to work remotely.
- Draw on the equity in your house.
Talk With a Financial Advisor
Retirement planning can be a complex and daunting task. For most people, the entire process can be somewhat like rocket science, especially if you have 6 months of work time left and you are rushing to dot your Is and cross your Ts. This is where retirement plan consulting comes in handy.
A financial advisor can work with you to figure out the things to consider for retirement, including how much money you’ll need, how much of your current savings should go into an emergency fund, and what sort of investments would work best for your situation.
This professional can help you get ready to retire, and come up with a plan that will allow you to maintain your lifestyle while saving as much money as possible.
They can also help provide advice for retirement, particularly on how best to invest your money so that it grows over time instead of losing value during downturns in the market or during an inflationary period.
A good financial advisor will be able to help you navigate the options available to you so that when the time comes, there’s no need to worry about making the right choices or making them on your own.
So whether you are just about to retire from work or still have some time left, always be sure to seek the advice of experts when planning for retirement.
Now, What is Next?
Are you ready to retire? Or maybe you are thinking about retiring in a few months’ time.
Whatever your timeline is, hopefully, this getting-ready-for-retirement checklist has taught you some of the important things to do before retirement.
Remember, it is not enough to know what to do after you retire, but what to do before you retire so that you can live the life you have always dreamed for yourself.
If you’re not sure how to get started, talk with the financial experts at Interactive Wealth Advisor.
Our people are experts in the financial services industry and can help you figure out what to do before retirement (the important ones), how much money is right for you right now, and how much money will be needed later on down the road.
Our tax planning services in Portland, OR can help you understand your options, set up a custom plan that meets your needs, and provide support and guidance along the way.
Don’t be caught off-guard!
Contact us today to get started.