Review this retirement readiness checklist to find out how prepared you are for retirement.
In this article:
- Determine Your Current Financial Standing
- Decide Where You Will Live
- Determine Your Retirement Lifestyle
- Come Up With a Plan
- Build Your Emergency Fund
- Get Rid of Debt
- Take Note of Health Insurance
- Prepare an Estate Plan
- Explore Retirement Investments
- Reduce Your Risk Exposure
- Learn About Withdrawal of Funds
- Decide When to Apply for Social Security
- “Practice” Your Retirement
13 Things That Should Be in Your Retirement Readiness Checklist
1. Determine Your Current Financial Standing
The first item to tick on any retirement readiness checklist is figuring out your current financial standing. Do so by evaluating your current budget.
List all your assets such as properties, vehicles, valuable possessions, savings, and investments. Include your expenses, too, such as debts, daily expenses, your cost of living, etc.
Finally, figure out your projected retirement income. A proper assessment of your current financial standing should allow you to plan effectively.
2. Decide Where You Will Live
Regardless of your goals in retirement, it is important to you decide where you want to live. The cost of living – and even taxes – varies from location to location.
Keeping that huge apartment you are renting right in the middle of Manhattan might not be the most practical decision considering the financial changes that come with retirement.
3. Determine Your Retirement Lifestyle
The next item on your checklist is to decide exactly how you want to retire and what you want to do during those years. What kind of life do you want to live upon retirement?
It is best to have a goal in mind as early as possible. The sooner you think about it, the easier it will be to refine your plans later on.
4. Come Up With a Plan
Once you know the kind of life you want to live, list down your projected expenses. Do not forget to include expenses that your employer currently covers.
Estimate the amount it will take to maintain that lifestyle and multiply it by at least 20. This should be the minimum savings you have for retirement. If you save up 25 or even 30 times that number, it’s even better.
Savings alone should not be your only goal. You should have a continuous stream of income, even during retirement.
If you can, write down the different sources of income you have and how much each provides. Consider Social Security, individual retirement accounts (IRA), pension, wages, and employer-sponsored retirement accounts. Do not forget to factor in taxes and inflation.
The traditional belief was to save up a million dollars for a comfortable retirement. However, the likelihood of that amount running out is continuously increasing.
In fact, in a study about labor force participation rate that the US Bureau of Labor Statistics (BLS) conducted, they found that about 40% of people over 55 years old are still working or actively looking for work. The BLS projects the rate to increase fastest for the oldest segments of the population, particularly those aged 65 to 74 and 75 and older.
With proper planning, you can easily avoid working through your golden years, though.
5. Build Your Emergency Fund
With the amount of uncertainty in today’s world, you do not want to get caught off guard. That is why building an emergency fund is a must-tick in your list.
Start by estimating your average monthly expenses and saving up at least six months’ worth of it. This should be enough for you to maintain your lifestyle for that period of time in case of sudden uncontrollable circumstances.
Keep your emergency fund separate from your savings to avoid spending it. Consider keeping it in a passbook savings account or a money market account so that it still earns interest along the way.
6. Get Rid of Debt
During retirement, your income is most likely to decrease. Payments on interests from debts can take up a huge portion of your expenses.
Make it a point to pay off debts with the highest interest rates. Credit card debts usually charge the most, followed by personal loans and auto loans. Save mortgages for last as they typically have lower rates.
Get rid of debt as early as possible by paying more than the monthly minimum as it will save you a lot in the future. Try to pay as much as you can on high-interest debts without sacrificing the minimum payments on the low-interest ones.
7. Take Note of Health Insurance
Unsurprisingly, healthcare becomes one of your biggest expenses during retirement.
In fact, a recent article by Time Magazine discussed that the average 65-year old retiring couple will spend an estimated $280,000 on healthcare during their golden years. If a couple has saved up $1 million for retirement, then this already eats up 28% of their fund.
Consider where your health insurance coverage will come from. If you plan on retiring at the age of 65, then you can rely largely on Medicare. Try to make a list of everything you need and see which expenses Medicare will not cover. In these cases, a supplemental health insurance coverage should help a lot.
If you are planning to retire early and neither you nor your spouse has health insurance from your former employers, then you might have to get your own health insurance coverage. Make sure to note how much you need to pay for deductibles, premiums, and out-of-pocket costs.
8. Prepare an Estate Plan
Planning for the end of your life might sound morbid, but it is actually quite practical. Adding this to your checklist frees you from the hassle of dealing with it during retirement.
As much as possible, prepare an estate plan. This saves your family from unnecessary financial burden. It also assures you that the distribution of all your hard-earned assets, and even sentimental family heirlooms, will be carried out according to your plans.
Make sure that all your documents are properly notarized and stored in a safe place.
Prepare an inventory of personal data. Make sure that this contains complete details about Social Security, bank accounts, insurance policies, and even digital passwords. The ones you will leave behind will benefit from the convenience this brings.
Make sure to assign a power of attorney as well as a healthcare proxy. If you ever become incapacitated, they are the ones who will make decisions on your behalf.
Prepare this before you retire and review your plan at least every five years. It should be easier to adjust and revise from there.
9. Explore Retirement Investments
As mentioned, having a steady stream of income during retirement is a better option than simply saving.
Growing your retirement investment accounts can greatly supplement the earnings from your retirement accounts. A good starting point is to invest in an individual retirement account (IRA).
There are numerous types of IRAs to choose from, but the common ones are Roth IRA and Traditional IRA. Both Roth and Traditional IRA accounts have their own advantages, so do not be afraid to explore your options.
Try to contribute as much of your income as you can. This should assure you of a more comfortable retirement when the day comes.
10. Reduce Your Risk Exposure
Speaking of investments, it is also important to re-evaluate your risk profile.
An aggressive attitude aimed at capital growth is more suited for younger investors. As you get older, a conservative attitude driven towards preservation is more strategic.
Learn about alternative investments to reduce your exposure to losses and mitigate complexities. Investing in real estate, mutual funds, dividend income funds, government bonds, and annuities are some of the more advisable investment options for retirees.
11. Learn About Withdrawal of Funds
When it comes to employer-sponsored programs, you have to choose whether you want to leave the money there or to roll it over into an IRA account.
If you are over 59 years old, it might be more advisable to consolidate your assets. At this time, withdrawing money from your retirement accounts would no longer cost you an additional early withdrawal penalty.
Additionally, upon reaching 70 years old, the law requires that you take the required minimum distributions (RMDs) from certain accounts. Failure to do so merits penalties.
Therein comes one of the best advantages of Roth IRAs since they do not have RMDs and therefore, will not cost you any penalties.
12. Decide When to Apply for Social Security
One of the last things on your checklist should be to decide when to sign up for Social Security. You can start at the age of 62, however, this might result in a smaller check.
If you can wait longer, do so as this brings in a larger amount. Maximize your benefits with the help of a Social Security retirement calculator.
You can easily apply for Social Security online, over the phone, and in person. Check with your local Social Security office.
Generally, it is best to apply as early as three months before you want your benefits to begin. However, you may start to apply as early as four months prior. Just make sure that you have all the documents you need.
13. “Practice” Your Retirement
Retirement can be quite difficult for some. You no longer follow a certain routine and you might feel cut off from your friends and colleagues. In many cases, it even leads to depression.
Avoid this by contemplating what you want to do. As you near retirement, gradually adjust your lifestyle to what you foresee.
“Practicing” for retirement allows you to gauge certain lifestyles and make the necessary adjustments until you find one that suits you.
Planning for retirement might be a tedious task. However, doing so will definitely save you a lot of inconveniences in the future. If you are able to tick off every item on this retirement readiness checklist, congratulations! You are now ready to retire.
Did we miss any items that you think should be on this retirement readiness checklist? Share them with us in the comments section below!