Retirement is meant to be a reward after decades of hard work. Your ability to enjoy this stage of life may depend in part on how well you prepare.
You may have many years ahead once you leave the workforce. That means you will need enough resources to support your health, housing, and daily needs. The following retirement checklist can help you prepare.
1. Check Your Account Balances
Many Americans don't have a pension they can rely on in retirement, and Social Security might not cover all your living expenses. Because of this, you may choose to build assets in retirement and savings accounts to support your lifestyle.
How much you need depends on several factors:
- Your lifestyle
- Where you live
- Whether your investments will be taxed in retirement
- Your expected health care costs
If you want a rough estimate of how much to save, a retirement calculator may help.
2. Evaluate Your Investment Mix
When you are young, a portfolio with more stocks may offer growth potential if markets perform well. Relying too heavily on conservative investments early on may limit long-term growth. Diversification can help manage risk, but it does not guarantee gains. Investments can lose value over time.
As you get closer to retirement, review your asset mix to help ensure it aligns with:
- Your time horizon
- Your income needs
- Your comfort with market ups and downs
You will likely have less time to recover from market declines than you did when you were younger. Because of this, you may consider gradually shifting some assets toward fixed-income or cash investments as retirement approaches.
Optimize your investment strategy for retirement. Start Your Free Plan
3. Prepare a Budget
Some people continue working in retirement. Others stop working completely. Either way, your checklist for retirement could include creating a budget that helps you stay within your means.
Review your retirement cost of living essentials, including:
- Housing
- Food
- Utilities
- Transportation
- Health care
- Insurance
- Entertainment
This can help you estimate how much you will need to withdraw each month from savings and investment accounts. Today, there are a host of mobile apps to help with budgeting.
4. Pay Off Debt
You may have significantly less income in retirement than you had during your working years. When fewer dollars are coming in, you might not want to have to make loan payments.
Before retiring, consider paying down credit cards, personal loans and high-interest debt. If your mortgage does not include a prepayment penalty, making extra payments could lower your monthly expenses later. Reducing debt can create more flexibility in your retirement budget.
5. Plan for Social Security
If you're eligible for Social Security benefits, you can start to receive payments as early as age 62. However, your monthly payment will be reduced if you claim before your full retirement age, which is between 66 and 67 depending on your birth year.1 You'll want to consider whether it makes more sense for you to collect early or to wait until your full retirement age.
You may want to compare:
| Option | What It Means |
|---|---|
| Claim at 62 | Lower monthly payments for a longer period |
| Claim at full retirement age | Full monthly benefit |
| Delay until 70 | Higher monthly benefit |
Your benefit increases for each month you delay past your full retirement age until age 70.2 If you expect to live a long life, waiting could increase your total lifetime income.
6. Apply for Medicare
For a lot of Americans, leaving your job means leaving your employer's health care coverage behind. If you are 65 or older, enrolling in Medicare can help cover medical costs, which can be less expensive than buying private insurance without employer sponsorship.
One category that Medicare normally doesn't cover is nursing homes and assisted living stays. Long-term care insurance is designed to help cover these costs. Reviewing this option before or during retirement may help you prepare for future health needs.
7. Consider an Annuity
To help prevent outliving your retirement funds, consider converting part of your financial assets into a fixed annuity. This type of annuity is an insurance contract that provides payments for a set number of years, or payments for your lifetime. A deferred annuity delays payments until a later date. Because payments begin later, monthly income is often higher than with an immediate annuity.
Final Thoughts
Retirement planning takes time and careful thought. Reviewing your savings, investments, income sources, and expenses can help you enter retirement with greater confidence. Speaking with a financial professional can also help you create a clear strategy for the years ahead.
Organize your retirement checklist for a structured path to your goals. Start Your Free Plan
Sources
- Starting Your Retirement Benefits Early. https://www.ssa.gov/benefits/retirement/planner/agereduction.html.
- Delayed Retirement Credits. https://www.ssa.gov/benefits/retirement/planner/delayret.html.
