Steps To Take Before Retirement

Key Steps To Take Before Retirement

Fritz Gilbert, a successful early retiree, shares how he set an in-retirement budget and withdrawal rate.

One of the trickiest aspects of retirement planning is anticipating how spending might change and establishing a system for taking withdrawals. On a recent episode of The Long View podcast, Fritz Gilbert, an author and retirement blogger at The Retirement Manifesto, shared how he approached those jobs in the years leading up to his retirement at age 55.

Jeff Ptak: You said that the most popular article ever on The Retirement Manifesto site is called “20 Steps to Take in the Year Before Retirement.” One of those steps is to create an in-retirement budget and then to try living on it. Can you walk us through that process?

Christine Benz: Well, I want to ask about how you approached withdrawal rates. But before we get into all that, I wanted to talk about this one-off expense reserve account that you’ve written about. It’s kind of an emergency fund for retirement. Can you talk about how you decided how much to hold in it?

Benz: I’d love to hear your thoughts on how you set your withdrawal rate. And I think we could probably do this whole interview on that topic because it’s so huge. But can you talk about how you arrived at what you consider to be a sustainable withdrawal rate for yourself?

This article was adapted from an interview that aired on Morningstar’s The Long View podcast. Listen to the full episode.

Create A Retirement Budget

Your retirement budget will need to include the money you have coming in, your expenses, and your revolving debt balance. Its 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 youre 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.

Develop A Plan For Health Insurance

As outlined in Health Insurance: Unsolved, I made the decision after several meetings with HR to extend my company insurance for 18 months under the COBRA plan. This is not a decision you want to make in your final month of work. Build it into your monthly checklist in various stages. For example, 12 months out I started doing some preliminary research on COBRA and other options. As I got closer to my retirement date, I started fine tuning my decision. I also learned that its best, if possible, to avoid scheduling any doctors appointments for ~a month after you retire to ensure the transition to COBRA is implemented with the minimal chance of disruption.

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Consider Ways To Boost Your Pension

Are you nearing retirement and the amount youre likely to retire on is less than youd hoped? There are still things you can do to before you retire.

Two ways of increasing your pension pot are to:

• pay more into it, and
• put back the date you start taking money from it.

This allows you to increase the amount youll have to retire on and reduce the amount needed due to having a shorter overall retirement.

You can also check for gaps in your State Pension and make voluntary contributions to help fill them.

Find out more in our guide Ways to boost your pension in the run-up to retirement

You could also consider using releasing money from your house to increase your income. This means you receive a loan now, which gets paid off later when your home is sold if you move in with relatives or into care, or on your death.

Find out more in our guide What is equity release?

A less far-reaching way of generating an income from your home is to take in a lodger if you have the space.

Under the governments Rent a Room scheme, no tax is charged on the first £7,500 a year you earn from a lodger.

Find out more about renting out a room in our guide Rent a Room scheme how it works and tax rules

You might also be entitled to some additional State benefits when you retire, or your existing benefits might be affected.

Find out more in our section on Benefits

How Much Do You Need To Save For Retirement

One of the hardest parts about preparing for retirement is thinking about life as a 70-something. A lot of people get so overwhelmed about saving for an unknown future, that they end up not saving anything at all. Thankfully, planning for retirement is not overly onerous, but you will need a road map one that can evolve over time to keep you on track.

The first place to start is to think about what your life might look like in retirement. Sit down with a pen and paper and write down your retirement goals.

Then think about how much everything will cost. We don’t know what prices will be like in the future, and in recent years inflation has run below the Fed’s benchmark of 2%, but the average inflation rate in the U.S. over the past century was 3.22%. So plan for higher prices in the decades ahead. You’ll also want to factor in your day-to-day expenses, like housing costs, food and health care. Remember, some of the costly expenses you have now, such as a mortgage or childcare costs, will no longer exist, which could result in a decrease in your overall expenses as you near retirement.

Next, add up all the income you might receive in your post-working years. Factor in pension income if you have one, social security payments and any other dollars, such as rental income from a property, that may come your way. Match up revenue and expenses and you’ll get a good idea of what you’ll need to set aside for every year of your retirement.

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Determine If Your Asset Allocation Matches Your Current Goals

As you get closer to retirement, its important to reassess your asset allocation to ensure its aligned with your risk tolerance, time horizon, and retirement goals. In retirement you may not be able to stomach volatility as the markets change. Thats why its essential to review your asset mix.

Reviewing your asset allocation annually may help you remain financially confident through market turbulence during retirement.

Schedule Your Retirement With Your Partner

Photo via @photographybyami

If youre married or in a domestic partnership, its a good idea to sit down together and discuss your collective retirement goals. Can you retire at the same time? Do you both aspire to early retirement? Will one of you continue to work while the other starts retirement? Getting on the same page can help you come up with a plan and strategize how to best spend your retirement together.

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How To Get Ready Now Before You Stop Working

Scott Spann is an investing and retirement expert for The Balance. He is a certified financial planner with over two decades experience. Scott currently is senior director of financial education at BrightPlan. Scott is also a published author and an adjunct professor at Maryville University, where he teaches personal finance.

Tom Merton / Getty Images

The journey to retirement begins to take on a greater sense of importance during the final decade of your working years. Thats because the steps you take during the last 10 years of your career are critical to securing a financially stable retirement.

These years can be full of major life events, too. Children may be leaving the nest and launching their own careers, and your parents may be well into their own retirements or needing extra care. You may find yourself somewhere in the middle of all of those changes, wondering what your own retirement will look like as you continue to work hard and save as much as possible.

The final decade of your working life may be when you are finally able to make saving a top priority. But with retirement nearing, there are some other important steps you should also take to help make your transition a successful one.

The Benchmarks For Those Closer To Retirement

The range gets wider as you get older, so we also provide more detailed estimates for people approaching retirement. This helps someone find a realistic target based on income and marital status, which affect Social Security benefits.

A Closer Look at Savings Benchmarks Later in Your Career

Assumptions: See Savings Benchmarks by AgeAs a Multiple of Income above. Dual income means that one spouse generates 75% of the income that the other spouse earns.

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Copy Your Work Address Book

Similar to my calendar, Ive always kept my address book on my work computer. Since I first had a PalmPilot way back in 1998, Ive been storing contact information electronically. Most recently, it was all kept in Microsoft, again on our company server.

Fortunately, I had a friendly IT Help Desk contact who was sympathetic to my cause and invested significant effort on his part to migrate all of my information from my work server to Google Contacts. This was one of the items I worried about as I thought about my retirement, but I was fortunate to find a way to capture over 20 years of contact information and continue to maintain those addresses post-retirement.

Ironically, with Social Media these days, the majority of my post-retirement contact with folks Ive known over the years has been through the Instant Messaging platform on LinkedIn, Facebook, Twitter, etc. If you dont yet have a presence on LinkedIn, Id suggest you set it up before you retire, its a great way to keep in touch with previous colleagues once youve retired.

Two Work Out Your Likely Retirement Income

Its now time to work out how much youre likely to have in retirement. Its a good idea to do this about two years before you retire.

This involves the following:

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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 topretirementgoals. 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, its okay. Your retirement goals can be an outline to get you heading in the right direction.

What Investments Accounts Should You Use

Setting aside a certain amount of money every month is, of course, the most critical part of retirement savings. But you won’t reach your goal without putting that money into the market. One reason to invest is because you want to take advantage of the power of compounding, which is when gains grow on top of other gains. For instance, if you invest $100 in one year and it goes to $110 the next, your next year’s gains will be on top of the $110, not the original amount you put in. Over time, that compound growth can really boost returns. No matter what account you use, your investments will compound year after year.

How much you can save and what tax you may have to eventually pay, though, does change depending on the account.

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Update Your Profile Data

As you work through the various sites via your Password Manager, take a few minutes to ensure your personal profile data is updated on the various sites. If youve listed your work phone/email, make sure you update it to reflect your post-retirement contact information. If youve used your work email to sign up for newsletters, make sure you migrate them to your personal email.

I made a point of watching my work email throughout my final year and taking a few minutes to update any site which sent me emails to my work address. Its surprising how many different places youve used your work e-mail, and its impossible to remember them all.

Migrate Your Personal Stuff From Work

For years, I used Microsoft for everything. I had tons of personal files on my work computer . I didnt want to pay for Microsoft in retirement, and I was happy with the Google toolbox . I spent ~12 months migrating my personal files from Microsoft on my laptop to my personal Google Drive, converting them from Microsoft to Google formats in the process. Every time I opened a personal spreadsheet or file on my laptop, I either migrated/converted it on the spot, or added it to my checklist of items I needed to migrate. It took some time, but it was manageable.

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Maximize Your Registered Savings Plans

If you have unused contribution capacity in your registered plans, your tax-free savings account growth is tax-free, so put it there first.

After that, consider using all of your registered retirement savings plan contribution capacity to maximize your tax deduction and refund. Then put your tax refund to use.

Create A Plan For Your Time

While some people assume retirement will be absolute bliss, many new retirees find they have too much idle time on their hands, says Albuquerque Financial Planner Jose Sanchez.

Sometimes, leaving work creates an unexpected void that can leave new retirees depressed and anxious for something to do.

Don’t let the success of retirement be an empty victory, says Sanchez. After the initial excitement of retirement dies down, youll need to stay busy.

To plan a retirement that provides your life with substance, you should come up with a list of activities to dive into. Ask yourself, What am I retiring to?

Perhaps you can work on a passion project part-time, volunteer for a cause you care about, or perfect a new hobby. Whatever you decide, make sure you plan activities that will give your retirement substance.

You have all the time in the world now. What will you do with it?

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Get A Head Start On Future Health Care Costs

Medicare is a big piece of the retirement health care puzzle. But it won’t cover everything, and there are out-of-pocket costs.

Rob says, “Be sure to include the costs of premiums and out-of-pocket expenses in your retirement budget. When Medicare kicks in at age 65, it’s reasonable to plan on spending about $450$850 a month.”3 But where you live, inflation, and other personal factors play a role, so consider talking to a financial planner for a more accurate estimate.

If you’re eligible, an HSA can help you save for health care costs before and after you retire. An HSA lets you set aside pre-tax dollars to pay for qualified medical expenses . Money you save and invest in your account also grows tax-free, and as long as you use it for qualified medical costs, you won’t owe taxes on it. At age 65, you can no longer contribute to your HSA, but you can use any money you’ve saved in it to pay for health care costs tax-free. After age 65, you can also use the funds for non-medical expenses without a penaltyyou’ll just owe ordinary income tax.

If you’re receiving Social Security at age 65, you’ll be enrolled automatically in Medicare Parts A and B . You can also add Part D . If you’re not receiving Social Security, you’ll need to sign up on your own. Keep in mind, Medicare has special enrollment periods, and signing up late can lead to penalties or gaps in your coverage.

Estimate Your Cash Flow In Retirement

Where will your money come from in retirement? Whether you have a pension, 401, 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.

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