The Retiree’s Checklist: Essential Financial Moves Before You Stop Working

Stepping into retirement can create a whole host of feelings. Excitement is the most common outward expression, but financial fear and anxiety can creep into the background. There are several actions and checks you can make to ensure you’re ready for retirement.

Preparing for retirement can feel a lot like closing the door on steady income and stability. It’s not always as simple as “just starting” to withdraw money from accounts you’ve spent your whole life building. This is why getting started well in advance (2-5 years before retirement) and having a thought-out plan can make all the difference.

Phase 1: The Reality Check (Cash Flow & Budgeting)

Understanding your cash flow needs is the first step to preparing for retirement. It’s impossible to guess your way to success. You need real numbers for how much money you need to live comfortably.

Once you know your monthly and annual spending, we can work backwards to make sure you won’t run out of money.

The “Retirement Dry Run”

Understanding cash flow needs is even more important if you’ve been planning on spending less during retirement. It’s a good idea to try living on your projected retirement budget for three to six months while you’re still working.

Better yet, try a couple of “dry run” weeks or months. A mini retirement to calibrate spending and lifestyle can be helpful. It’s better to uncover surprises before you step off into retirement.

Identifying “Needs” vs. “Wants”

Although it seems simple, it’s important to distinguish between essential expenses like housing, food, and healthcare, and discretionary wants like travel and hobbies. You’ll want to cover both.

This isn’t the time to deprive yourself, but you need to be realistic. You’ve worked hard your whole life to get where you are. It’s best to retain some flexibility so you can keep yourself active, happy, and financially stable throughout retirement.

Accounting for Taxes

You’ve focused on accumulating a sizeable nest egg and deferring taxes for later when your income would be lower. Remember, your traditional 401(k) balance is before taxes. Unless you’ve been putting away money in a Roth IRA or Roth 401k, Uncle Sam is going to take his cut.

There are many strategies to save money on taxes, but you can’t avoid them forever. The IRS is impatiently waiting to collect. You’ll have to contend with required minimum distributions and complicated tax laws on inherited assets.

Phase 2: Shore Up the Safety Net

Next, you’ll want to plan for the bumpy roads ahead. Not because we’re focused on the negative, but because we want to get back on track as soon as possible when the inevitable rough patches happen.

The Short-term Cash Bucket

Staying invested long-term requires you to weather the storms when markets swing low. If you’ve been saving for many decades, you already know markets will recover, but market dips feel different when you’re relying on your investments for income.

This is why you need a solid emergency fund and “safer” portions of your portfolio. If you have a safe bucket of bonds and cash, you can avoid selling stocks during a market downturn. This is commonly referred to as your sequence-of-returns risk.

Aggressive Debt Reduction

It’s highly recommended to have minimal high-interest consumer debt in retirement. You’ll want to reduce or eliminate any ongoing debt payments above the “safe” return rate, often considered the 30-year treasury index. This includes credit card balances, installment accounts, and most car loans.

A common question is whether you should pay off the mortgage. Obviously, this depends, but for many folks, math works out to pay on schedule and let your investments continue to grow.

Phase 3: The Income Strategy (Social Security & Pensions)

For retirees, a steady stream of retirement income is vital. This can take the form of Social Security, a pension, or an annuity. Knowing the checks will keep coming helps you spend without fear.

Developing a Solid Social Security Strategy

There’s no one-size-fits-all answer to Social Security, but you should research how Social Security is calculated. You might be surprised at the difference between drawing at 62 versus waiting until 70. There’s no perfect answer because we don’t have perfect information.

Consider when you’ll need the income. Also, plan Social Security alongside other tax strategies, such as Roth conversions. The taxes can get complicated quickly.

Pension Election Decisions

If you’ve put in the time to earn a pension, choosing between a lump sum payout and annuity payments is vital. Most pension plans offer some calculators to help you decide, but once again, we won’t have all the information needed to make a perfect decision until after your retirement is over.

Just make sure you’ve done your research, so you know you made the decision with the best information possible.

The Bridge Strategy

For many retirees, you may want to use personal savings to delay drawing your pension or Social Security to maximize the monthly benefit. Or, in some cases, you might be retiring early. There are ways to tap into your retirement savings, but those may not be ideal or even necessary.

Phase 4: Healthcare – The Great Unknown

Healthcare is one of the most important and expensive variables in retirement. You’ll need to carefully build a healthcare plan to ensure you get the best care for the best price throughout retirement.

The Medicare Milestone

Medicare is a requirement at age 65 unless you meet specific criteria. You don’t want to miss your enrollment window because there are permanent increases to your Medicare premiums if you don’t sign up in time. At a minimum, you’ll need to decide between Medicare Part B & D and Medicare Advantage. You might also want to enroll in a Medicare supplement or “Medigap” policy.

Be careful about comparing costs first. There’s no “free lunch” with Medicare, so even though a Medicare Advantage plan might have lower premiums, your total costs might be higher. However, you may be able to get better quality or access to care.

Covering the Gap

If you’re retiring before Medicare eligibility, you’ll need to look at other options for healthcare. You’ll need to consider COBRA, the ACA Marketplace, or using your healthcare savings account (HSA) funds. Just make sure you’re prioritizing your care before strictly comparing costs.

The Long-Term Care Conversation

For many retirees, long-term care seems far away. However, your options for covering long-term care decrease over time. Make sure you evaluate your insurance or self-funding for potential care needs later in life.

Phase 5: Legacy and Estate Planning

Although our own mortality is the least fun subject possible, it’s better to make decisions early and get back to enjoying life.

Getting Organized

The passing of a loved one is often unexpected and chaotic. You can minimize confusion for yourself and your family by organizing your wills, trusts, and power-of-attorney documents. Having a safe yet accessible place to keep everything is best.

Beneficiary Audit

It’s a good idea to check beneficiary designations every year or when there’s a major change. It’s vital to ensure that all the correct names are listed on your retirement accounts and insurance policies. You also need to ensure your assets are titled to your trust in accordance with your estate plan.

Be sure everything matches everything else. If your trust, beneficiary designations, or wills don’t match, it can cause some serious headaches.

The Family Meeting

Finally, no estate plan is complete until everyone knows the plan. Communicating the plan directly to everyone involved prevents future conflict. Once again, it’s not fun, but talking things through is necessary.

Last Step: Setting Your Retirement Plan in Motion

Retirement is a beginning, not an end. It’s a new phase of life with unique challenges and opportunities. You’ll be adjusting and learning about yourself and your new lifestyle. It’s a similar shift to when you got your first job out of high school or college.

No matter where retirement takes you, having a solid financial plan keeps things running. If you haven’t already, consider adding a financial planner to your retirement team to help guide you into retirement. The first years of retirement are often the most critical, so make sure you take your time, plan accordingly, and get it right.

This article reflects the insights and opinions of its author and is not a recommendation or endorsement of their views or services.

About the Author