Everyone has a different idea of what their retirement fairy tale looks like. For you, it may mean spending more time with your loved ones, taking up a new hobby, or finally checking off items on your bucket list. Perhaps it means transitioning from your career into launching a new business. Whatever it means to you, here are 10 steps to take before retirement.
Step 1. Define your ultimate retirement
By now, you may have a good idea of how you would like to spend your golden years. Spend some time writing down a few retirement goals. For example, if you want to start checking items off your bucket list, prioritize your top retirement goals. You may also want to include hobbies you want to take up or volunteer opportunities you want to participate in.
Start by limiting your list to your top five goals. This will give you a great starting point for how you envision your years in retirement. Try to be as descriptive as possible. The more detailed you are about your retirement goals, the more attainable they will become.
If you find your goals are a little vague, it’s okay. Your retirement goals can be an outline to get you heading in the right direction.
Step 2. Review your assets
You should have an idea of your total asset amount. This amount should include your retirement accounts, bank accounts, and cash flow. But, what about your other nontraditional assets that you could use to fund your retirement lifestyle? Nontraditional assets may include your antiques or a hobby that allows you to earn extra cash.
Start brainstorming and determine other ways you could make money in retirement, such as using your special skills and talents to find a way to boost your cash flow in your later years. You may discover a hidden passion you never knew you had.
Step 3. Determine if your asset allocation matches your current goals
As you get closer to retirement, it’s important to reassess your asset allocation to ensure it’s aligned with your risk tolerance, time horizon, and retirement goals. In retirement you may not be able to stomach volatility as the markets change. That’s why it’s essential to review your asset mix.
Reviewing your asset allocation annually may help you remain financially confident through market turbulence during retirement.
Step 4. Evaluate your health
To achieve a fulfilling retirement, you must be as healthy as possible. Making your health a priority will help you get the most out of your golden years. While many of us dread visiting the doctor, it’s important to be proactive. Make sure you schedule your dentist and doctor visits for your annual checkups.
You will want to work with your health care provider to develop a personalized health plan to either improve or maintain your health. It may also be wise to commit to a healthy lifestyle. This should include everything from what you eat to your level of activity. Be sure to focus on your mental health, as well, by keeping your brain sharp with puzzles and books.
Since depression is common among retirees, stay in contact with your friends and family members. Scheduling time to see them regularly can help you fight the retirement blues.
Step 5. Decide when you should begin taking Social Security
Financial experts have varying perspectives when it comes to applying for your Social Security benefits. Some suggest it may be wise to start taking it as soon as possible, while others recommend waiting until after you reach 70 years old. While there are benefits to both recommendations, your unique situation may require other guidance.
It’s important to note that you won’t receive your full benefit until you reach full retirement age. If you choose to wait until after you reach full retirement age, your benefits will increase up until age 70. When you take your Social Security depends on factors including when you retire and if you need the supplemental income to support your lifestyle.
Step 6. Estimate your cash flow in retirement
Where will your money come from in retirement? Whether you have a pension, 401(k), brokerage, or other retirement accounts, you should begin to figure out your retirement cash flow. Understanding where your money is coming from will help you develop a well-structured distribution plan and assist you with your wealth management needs.
Remember every pre-retiree has a unique financial situation that requires a unique financial retirement plan.
Step 7. Create a retirement budget
Your retirement budget will need to include the money you have coming in, your expenses, and your revolving debt balance. It’s a good idea to start tracking your expenses and spending habits for a few months. This will give you a good starting point for creating your retirement budget.
This is also a great time to check up on your existing budget. You should determine if you’re contributing enough to your retirement accounts, if you need to focus on paying off debt, and if you should cut back on your spending habits. Organizing your budget before you head into retirement will help eliminate some of your financial stress.
Step 8. Review your health insurance options
Obtaining affordable health care coverage in retirement is one of many retirees’ top priorities. Health care costs in retirement can eat up a large portion of your budget. If you have retiree medical coverage, review your options and costs. Alternative options include COBRA and the Healthcare Marketplace, if you plan on retiring before age 65 when Medicare kicks in.
If you have a high-deductible health insurance plan, consider opening and contributing to a Health Savings Account (HSA). These tax-advantaged accounts allow you to save for your future health care costs.
Step 9. Make a plan for the unexpected
While you may have spent your entire life planning and preparing for retirement, things may not always go as planned. That’s why it’s importable to have a plan of action in the event something goes wrong. Take the time to decide how you will pay for unexpected expenses such as a roof leak or a car repair.
You should also make a plan of action for your health care needs with your loved ones. This is a tough topic to talk about, but many wait until it’s too late. For example, if you need in-home care, how will you pay for this expense? Do you have long-term care insurance or will you need to take a distribution from your retirement accounts?
Making plans for the unexpected will help you ease any transition you’re faced with.
Step 10. Choose your retirement team wisely
One of the most important steps to take before retirement is to choose your retirement team of experts. From wealth management to tax strategies, it’s vital to have a team of experts by your side.
Partnering with a financial planner and tax professional with retirement expertise is one of the best things you can do to boost your financial confidence. Financial planners and tax professionals understand your retirement needs and can help you see your entire financial picture. By combining their knowledge and expertise with your retirement goals, you can increase your chances of achieving the retirement lifestyle you’ve always dreamed of.
The bottom line
As your retirement countdown continues, taking proactive measures can help ensure that you achieve your retirement fairy tale. And, by taking these steps before retirement, they will go a long way to helping you set up a better financial future.
What does your retirement fairytale look like?