A good friend of mine was recently forced into early retirement by changes at the federal agency where he worked. His unexpected departure from the workforce drove home something I always emphasize with clients: Retirement is a major life milestone that requires thoughtful planning and preparation, whether it comes on your terms or not.
The final stretch leading up to the end of your work life really matters when it comes to setting yourself up for financial security and personal satisfaction in retirement. To ensure a smooth transition, it’s important to consider all aspects of your future. While everyone’s journey looks different, I’ve found there are some basic steps that apply to just about anyone making the transition from their working years to retirement.
Here is a 10-point checklist to help prepare for this important life transition with confidence.
1. Take Stock of Your Financial Situation
To start, get clear on where you stand financially. Take a close look at your retirement savings, investments, and any other sources of income. Think about what kind of lifestyle you want in retirement and how you’ll be spending your time. Then figure out roughly how much money you will need to maintain your desired lifestyle and compare it to what you have saved so far. Doing this simple exercise will give you a clear idea of whether you need to make any adjustments to your savings plan and determine when you can stop working or if you’ll need to consider other options, such as reducing your work hours or working part time. I’ve found for most pre-retirees, thinking this way about retirement is good motivation to make much-needed changes to keep their goals on track.
2. Map Out Your Retirement Budget
I know, I know, nobody likes the “B” word but having a well-thought-out budget is crucial for managing your finances, especially during retirement. List all your expected expenses, including housing, healthcare, groceries, transportation, and leisure activities. Keep in mind that some costs (especially healthcare) tend to go up over time. Your retirement budget doesn’t need to be perfect but it should be realistic enough to guide the financial aspects of your retirement planning process. .
3. Boost Your Retirement Savings
I can’t say it enough: The years leading up to retirement are your last best chance to make the most of your retirement savings opportunities. Max out your 401(k) or IRA contributions if you can, or at least contribute as much as you can to these accounts, especially if your employer offers a matching contribution. If you’re 50 or older, take advantage of those catch-up contributions — they’re designed to help you save as much as possible as your working years wind down. The more you save now, the more comfortable your retirement will be.
4. Pay Off Debt
There’s nothing like entering retirement debt-free. It lowers your monthly expenses and significantly reduces financial stress. Focus on paying off high-interest debts first, such as credit cards and personal loans. If you have a mortgage, consider paying it off before you retire. Owning your home outright can help ensure a smoother transition to retirement while giving you more breathing room in your budget.
5. Plan for Healthcare Costs
Healthcare will likely be one of your biggest retirement expenses, and it’s one people often underestimate. For that reason, healthcare is a vital aspect of your long-term retirement planning. Make sure you understand what your needs will be and plan accordingly. Get familiar with how Medicare works, including what it covers and what it doesn’t. Look into supplemental insurance options to fill the gaps. Know when to enroll to avoid costly penalties, and build a realistic healthcare budget that includes premiums, deductibles, and potential out-of-pocket costs. Healthcare costs can be a significant burden during retirement.
6. Maximize Your Social Security Benefits
Deciding when to start collecting Social Security benefits may be one of the most important retirement planning decisions you’ll ever make. You can start receiving benefits as early as age 62 but your monthly benefit will be higher if you wait until your full retirement age or even age 70. Most people benefit from waiting as long as possible — think of it as setting yourself up to receive a guaranteed retirement income stream that’s protected against inflation and lasts as long as you live.
7. Consider Your Housing Options
Where you live in retirement can have a significant impact on your quality of life and expenses. Should you stay in your current home, downsize to something more manageable, or move somewhere new altogether? Consider what matters most to you: being near family and friends, keeping your living costs reasonable, good weather, having good healthcare nearby, or living somewhere with the amenities that support your ideal retirement lifestyle.
8. Plan for Long-Term Care
As you age, you may need help with basic daily activities or require long-term care. Now is the time to explore long-term care insurance options or set aside some funds specifically to cover these potential expenses. Have honest conversations with your family about your preferences, and make sure they know what you’d want if you end up needing care. Advanced financial planning for long-term care can help reduce stress for loved ones and protect your retirement savings.
9. Find Purpose Beyond Work
For many people, one of the most challenging non-financial aspects of retirement is transitioning from being focused on your career to enjoying life and pursuing your passions. Think about ways you’ll stay active and engaged in retirement, whether that is participating in hobbies, volunteering, learning new skills, or taking part in new activities. The happiest retirees I know all have something that gives their days purpose and meaning.
10. Review and Update Your Estate Plan
Making sure your estate plan is in good shape is a gift to yourself and your loved ones. That includes ensuring your will reflects your current wishes, your beneficiary designations are up to date on all accounts, and you’ve established powers of attorney for healthcare and finances. Consider whether setting up trusts might make sense in your situation. Discuss your plans with your family and a financial advisor to make sure everything is in order.
Need Help Planning Your Retirement Transition?
Life comes at you pretty fast, and sometimes retirement arrives before we’re fully prepared. Just ask my friend who found himself retired earlier than expected. Whether you’re actively planning your transition to retirement or facing an unexpected career change, having experienced guidance can make all the difference when it comes to merely surviving or fully thriving in your golden years.
At Blankinship & Foster, we help people make a successful transition from their working years to a fulfilling retirement. Our team of San Diego financial advisors can work with you to develop a personalized retirement income plan, fine-tune your investment strategy, and make sure all the elements of your financial life work together in harmony. Don’t leave your retirement success to chance. Contact us to schedule a complimentary consultation with one of our wealth advisors or grab The Essential Guide to Retirement Planning. Together, we’ll create a clear plan for your successful transition to retirement.
