Retirement planning checklist

Planning for retirement

As retirement draws nearer, there are several issues to plan for in advance of this critical transition period in your life.

This comprehensive checklist highlights key areas you should take into consideration before retirement.

10+ years until retirement

☐ Establish a financial plan and make sure your retirement savings are on track

In preparation for retirement, it’s important to establish a financial plan that takes your needs, wants, and wishes into consideration. You’ll also want to ensure you have the resources available to meet your retirement needs, goals, and objectives.

Meeting with a financial professional can help. Together, you can determine how much you’ll need to save for retirement by factoring in life expectancy, planned expenses, an anticipated inflation rate, taxes, and more. If you’ve identified a shortfall, you’ll want to determine ways to accelerate savings to try to narrow the gap.

☐ Boost your nest egg with catch-up contributions

You can contribute more to workplace retirement plans and IRAs if you’re age 50 or older. Participants in 401(k), 403(b) and 457 plans who are 50+ can add $6,500 above the current maximum contribution of $20,500. For IRAs, those 50 and older can contribute an additional $1,000 to the current maximum contribution of $6,000.

Putting more money to work in your tax-advantaged retirement accounts through catch-up contributions is a way to potentially boost your financial security later in life.

☐ Diversify your investments

Life is unpredictable. Your retirement savings can take unexpected hits from not only personal circumstances but also major economic and market changes. Diversifying your portfolio in a way that’s consistent with your risk tolerance level can help reduce the potential impact to your investments during a sudden market setback.

If you have employer stock in your retirement plan, try to keep it to no more than 10-20% of your total retirement savings. And speak with a financial professional before you rollover any employer stock into an IRA to determine whether a potential tax-savings strategy on the net unrealized appreciation of the employer stock might be available to you. Specific IRS rules apply to this kind of planning.

☐ Dream big

It’s important to plan for non-discretionary expenses in retirement, but you should also have a vision for how you’ll spend it. What do you wish to pursue once you’ll have more time on your hands? Is it travel? New hobbies or your own business? Helping children or grandchildren financially? Philanthropic endeavors? Add these aspirational goals into your financial planning.

☐ Prepare for a long retirement

It’s not unusual for people retiring today to spend two-to-three decades or more in retirement – and because of that, you might worry that you could outlive your resources.

According to current life expectancy tables, men in the U.S. age 65 are expected to live another 18.2 years on average1, and women age 65 are expected to live another 20.8 years on average.2 That’s why it’s especially important to factor longevity into your planning.

☐ Explore tax-efficient retirement income strategies

Taxes are an often-overlooked expense in retirement. But distributions from workplace retirement plans and IRAs may be taxable. For most people, Social Security benefits are also subject to tax.

Meet with a financial professional to discuss the tax impact on your income sources ahead of time. The more tax-diversified your sources of income, the further you’ll be able to keep and stretch your retirement funds. You’ll also lessen the likelihood of being surprised by the tax bill when you start using those funds.

☐ Leave a lasting legacy

Now is also the time to create or review estate planning documents and trust agreements so you can plan out what you hope to leave to beneficiaries, including any charitable organizations. Consider how permanent life insurance might help you fulfill your legacy and estate planning goals. Also review the beneficiary designations on all of your financial accounts.

☐ Consider your insurance needs

Just as your income protection needs evolve throughout your life, so should your insurance coverage.

  • Determine if you want life insurance once you retire. Not only can it help protect your loved ones, it can also help in structuring the efficient transfer of assets through your estate plan.
  • Keep disability insurance until you retire to protect your current income needs should you suffer a serious injury or illness that prevents you from working.
  • Prior to retirement, it’s helpful to prepare for the cost of long-term care. Most older Americans are likely to need specialized care services at some point in their lives, whether it’s in-home care or care in a facility. Long-term care insurance can not only provide coverage in the event of long-term care, but it may help preserve your retirement assets from potential depletion, as you wouldn’t need to use them for long-term care costs.

New types of long-term care insurance include a hybrid life insurance/long-term care policy that provides additional tax-advantaged benefits for your heirs. The earlier you purchase this insurance, the lower the premium payments will be, and you must have long-term care coverage in place before you need it.

5+ years until retirement

☐ Take an inventory of your sources of retirement income

Develop a list of all accounts that can generate income for you during retirement to get a clear sense of how you’ll create your “retirement paycheck.” Social Security and any pension payments can usually be estimated with reasonable accuracy.

The amount you pull from your savings may vary, but you can project the potential stream of income it can create. Now is also the time to explore potential passive sources of income, like owning a rental property or other real estate ventures.

☐ Create a plan for managing healthcare costs

Healthcare typically represents one of the biggest expenses in retirement. While Medicare is the centerpiece of retiree healthcare coverage for those age 65 and older, it requires premium payments and out-of-pocket costs for most services. On average, you’ll be responsible for more than one-third of healthcare expenses in retirement. Also be aware that if you retire prior to age 65, you’ll need another form of healthcare coverage before qualifying for Medicare.

Some retiree out-of-pocket healthcare costs can be paid using funds accumulated in a Health Savings Account (HSA). Selecting a health insurance plan that includes an HSA while you’re still working allows you to set aside money in a tax-advantaged way. Unused funds in this account can carry over into retirement and are a tax-free source of income to apply toward qualified healthcare expenses, including Medicare premiums.

☐ Location, location, location

A major financial issue in retirement is determining where you’ll live. Take time to consider your options: staying in your current home (and how long it’s realistic to do so), downsizing to a smaller home, townhome or condominium, or owning more than one home. You might also research a full range of senior housing options ahead of time so you can find a location that offers specific services or features that you value.

If you’re considering a move from a high-income tax state to a low-income tax state, find out whether the state you’re considering exempts certain retirement income from calculation of state income tax (pension, IRA distributions, Social Security benefits, etc.), or imposes other taxes such as sales or property tax.

Less than 5 years until retirement

☐ Set your target retirement date

You may have taken this step earlier in your retirement planning process, but now that the date is approaching, you’ll want to try to get more specific about when you plan to be done with work. Consider the sources of income available to you to start on your target date. You want to enter retirement with a high degree of confidence that your income stream is sustainable over the full course of your life.

☐ Decide when you’ll take Social Security

One of the key decisions you’ll make in retirement is when to begin receiving Social Security benefits. You can start collecting it anytime between the ages of 62 and 70. As you consider your options, a starting point is to determine your “full retirement age” (FRA) as defined by the Social Security Administration. It falls between age 66 and 67, depending on your year of birth. This is the age at which you collect your “primary insurance amount,” the base level of Social Security monthly benefits.

If you start to collect before your FRA, your benefits may be automatically reduced. If you delay taking Social Security until after your FRA, your benefits will be higher. Benefits are boosted 8% for each year you delay your start date after FRA up to your 70th birthday.

☐ Establish a withdrawal strategy

A portion of your retirement income will be generated from your savings, retirement and other investment accounts. You’ll want to identify a specific withdrawal strategy that will allow you to meet your current income needs while assuring that you won’t exhaust your savings before the end of your retirement.

☐ Review your Medicare options

Medicare will serve as the cornerstone of your healthcare coverage in retirement. You can choose traditional Medicare (Parts A, B and D) that will cover hospital costs, some clinic and physician services and at least part of your prescription drug costs. In addition, you’ll want to consider supplemental coverage that will handle expenses not paid for by traditional Medicare, which can be significant.

There are premiums for Medicare Parts B and D and a Medicare supplemental policy. Alternatively, you can choose a Medicare Advantage plan (Medicare Part C) to replace a supplemental policy and, typically, prescription drug coverage. Advantage plans generally have lower premiums than supplemental plans but larger out-of-pocket costs.

It’s important to study your Medicare options well in advance of turning age 65 so you can make timely decisions to have coverage in place the month you turn 65.

☐ Revise your asset allocation strategy

As retirement closes in, it may be time to review the level of risk in your investment portfolio. Consider reducing your exposure to investments that are subject to significant market fluctuation. A market downturn just before or after you retire could dramatically impact the size of your nest egg, and consequently reduce the amount of income you can draw from your savings.

While it makes sense to maintain a mix of stocks, bonds and other investments in your portfolio, it should reflect a more conservative risk profile than in your prime wealth accumulation years.

☐ Get major expenses “off the books”

Anticipate and take care of major expense items – home repairs, appliance upgrades, car purchases, etc. – in the last 1-3 years before you retire. Paying for major repairs and purchases during the last few years of work, typically your highest earning years, will allow you to avoid these costly expenses when you first retire and have less flexibility with your cash flow.

☐ Revisit your plan regularly

Your retirement plan isn’t a “set-it-and-forget it” model. Like most financial plans, you can and should adjust it from time to time to account for economic changes and life circumstances that may arise. Meet with a financial professional at least yearly to address any changes — and revisit this retirement planning checklist to make sure you’re still on track to work toward your goals.


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