retirement planning

Retirement Planning Checklist – 6 Ways to Make The Transition Easy

A successful retirement isn’t just about how much you save. There are other financial and non-financial considerations you must take into account. To make sure your transition to retirement is stress-free, here is a 6-point retirement planning checklist that you should review before you say goodbye to the daily grind.

S*!@#$ happens!

The number one rule about retirement planning is it’s not always your decision. You could have a plan to save, reduce debt, and do everything you’re supposed to do, and BAM! Your employer has decided to let you go.

You need to prepare for the unexpected. It’s easy to plan for what you want to happen, but this is life, and what you want doesn’t always happen. That is why everyone over 40 should review this list. It doesn’t guarantee a successful retirement, but it tilts the odds in your favor.

1. Create a Budget & Emergency Fund

Stop your whining. Everyone should have a budget and an emergency fund before and after retirement. You no longer have to pour over bank statements with a pencil and calculator. Technology makes it easy now with budgeting apps. You have no excuses anymore!

Knowing how much you will spend in retirement is the first step to knowing how much you need to save. Start a budget as soon as possible. I guarantee if you stick with it, your finances will improve. Knowledge is power.

Having an emergency fund in retirement is just as important as before. You do have one, right? Unexpected things happen in retirement, too. An emergency fund will reduce the need to take substantial withdrawals from retirement accounts. You don’t want an emergency to knock you into a higher tax bracket, do you?

2. Health care costs (sorry, this is the longest part)

Nothing riles people up like health care costs. It will most likely be one of your largest retirement expenses.

Retirement before Medicare eligibility

If I had a nickel every time I hear “as soon as possible,” when asked when you would like to retire, I could retire. The next question, do you have retiree health insurance from your employer? The answer more and more frequently is no.

That is usually the difference between a retirement before Medicare eligibility or not. If you retire at age 58 and have to foot the bill for health insurance for seven years, that will require some significant distributions from your retirement accounts, unless of course, you’ve been socking away money in an HSA

Retirement upon Medicare eligibility

You become Medicare-eligible at age 65, and as long as you’ve paid Medicare taxes, you’ll receive Part A, which covers hospitals, premium-free. Well, not entirely free, you’ll still have deductibles and coinsurance payments.

Part B, which covers doctor visits, and Part D, which covers prescription drugs, have premiums. If your income rises above certain thresholds, your premiums increase. There are also deductibles and copays that go along with those premiums as well. The more taxable income you have in retirement, the higher your Part B and Part D premiums.

Be warned, if you do not sign up for Parts A, B, and D when first eligible, you’ll have to pay a late enrollment penalty. This isn’t just a few bucks here or there. These are some harsh penalties.

One other point to mention. You have to decide if you’ll take just plain old Medicare, Medicare with a Medigap policy, or a Medicare Advantage plan. Typically it’s between the last two, plain old Medicare isn’t going to cut it for coverage.

I know, it sounds like too much work for retirement, but the best plan for you may change as your health changes. You can switch between them, or to a different Medicare Advantage plan during enrollment periods if need be. I’ll be honest, though, it takes some digging and time-consuming analysis, but hey, you’re retired, you have time.

Long-term care

Long-term care (LTC) counts as retirement health costs all right. The cost of a long-term facility will quickly wipe out your savings. The fact is very few individuals purchase long-term care insurance.

It’s costly, far in the future, and an outcome you don’t want to ponder. There are waiting periods, limits, inflation considerations, etc. LTC is hard to put your head around. Trying to think what the percentages are that you’ll use it isn’t the right approach. You don’t do that with your home insurance.

Sit down with a professional and review the risk to your savings and stress to your loved ones. It’s a difficult decision, and unfortunately, the cost is a factor.

3. No debt

Debt in retirement is a pet peeve of mine. Your goal should be to retire with little or no debt. That is becoming less common. Student loans, mortgages, credit cards. They can and will kill your retirement fun. Why use the money you saved all these years to pay off debt? Use it to enjoy life or pay the living expenses. Debt is like a ball and chain on your retirement savings. No debt equals freedom.

4. What will you do?

Retirement does not mean the same thing for everyone and isn’t just a financial decision. You have to be mentally ready. It may just mean moving from a high-stress 40+ hours per week job to a less stressful 20 hour a week job that keeps you busy. It could be traveling, volunteering, working on projects at home, spending more time with family, or doing crossword puzzles. Part of the retirement planning process is determining what the heck you’re going to do with all of that free time.

Whatever your goals are, plan them out ahead of time. You can travel or play golf (some may argue that point), or do other hobbies. There are a lot of hours in the week. Get out and move and do things that will keep you sharp physically AND mentally. It’ll make for a more enjoyable and healthy retirement.

5. Where will you live?

The truth is the majority of people remain in the same area when they retire. The typical move is to downsize to either a smaller home or a retirement community. The desire and ability to maintain a home and property as you get older diminish.

Relocating to a warmer climate always sounds good until the grandchildren arrive. If you’re interested in moving, spend time and rent for a while to make sure you will like it all year long and think about being away from family.

You may sell your home, move to a smaller one, or rent, and use any additional proceeds to help fund retirement.

6. Decide when should you collect Social Security

Full retirement, depending on when you were born, is between ages 66 and 67. You can start as early as 62, at a reduced monthly benefit, or delay taking Social Security up to age 70, and receive an enhanced benefit.

42% of men and 48% of women begin Social Security at age 62. (Center for Retirement Research at Boston College)

Collecting your Social Security at age 62 is not always the wisest choice. Your health, financial situation, employment status, along with your spouse’s age and social security benefit all play a part in this decision. The notion of “give me my income now” may not be in your or your spouse’s best long-term interest.

Have your advisor run multiple scenarios to see the benefit difference when claiming Social Security at different ages. You can learn more in my blog post When Should You Take Social Security?

Get your retirement planning ducks in a row

Retirement isn’t the time for surprises. You can check off many of these tasks well before retirement. The earlier start retirement planning, the easier the transition to retirement will be.

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