Retirement Checklist: 8 Steps You Need to Take

The Social Security Administration defines full retirement age as falling between 65 and 67, depending on your year of birth, while your employer may say something different. Deciding when to retire is a major financial and personal decision. If you retire too late, you may not have the energy to enjoy it, while retiring too early could lead to financial trouble. Below is a checklist with eight things that will help you determine your retirement readiness.

A financial advisor can help you put together a financial plan for your retirement. Connect with financial advisors who serve your area today.

1. Take Inventory of Your Assets

Before making a plan or checking your progress, you need to determine where you stand financially. Evaluate your current budget and write down every debt, liability, savings balance, income stream, and insurance policy you have. Don’t forget about properties, vehicles, and other valuable possessions that affect your bottom line. A good way to do this is by creating a worksheet that you can adjust on a regular basis. This process will allow you to assess your current financial situation and plan accordingly.

As you review, keep in mind that you won’t be getting a paycheck once you retire. Conventional wisdom once suggested that at least $1 million was needed to retire comfortably, but data from the Bureau of Labor Statistics shows that households of people 65 and older spent an average of $60,087 in 2023. That means you would need approximately $1.5 million in savings to support a 4% withdrawal rate and take $60,000 in withdrawals in your first year of retirement.

Whichever benchmark you use, it will at least give you something to measure your current status against.

2. Build an Emergency Fund

Before you take any major financial step, you’ll want to be sure you’re protected should things not go according to plan. Hopefully, you aren’t learning about emergency funds for the first time when you’re within years of retirement.

But if you have somehow gotten this far without a financial security blanket, now’s the time to create one. It will cover you in the event of a personal catastrophe, and it can also make up for delays in the start date of your pension or Social Security.

Some experts recommend setting aside three months of living expenses. while others suggest saving enough for at least a year. Six months’ worth of funds should be enough to cover you in case of emergency. Base the amount of this six-month fund on your expenses, not your income. No matter your current state of employment, this fund is about how much you’re spending. Remember to include expenses currently covered by your employer, like healthcare, because your emergency fund will need to transition into retirement with you.

Keep your fund somewhere safe and separate from your other savings so you aren’t tempted to spend it. A passbook savings or money market account could be a good option. They’re liquid in case you need to access your funds but still earn interest. Before making a decision, you should learn more about the best places to put your emergency fund.

3. Eliminate All Debt

In an ideal world, we’d all enter retirement without any debt. Since your income is likely to decrease, any fixed payments will start to take up a larger share of your expenses. If you’re nearing retirement, it’s time to take a look at the debt column of your inventory. List interest rates and terms in a new column next to your outstanding debts.

So, how should you tackle your debts? There are generally two approaches to consider: There are generally two thoughts on where to start: either by paying down debts with the smallest balance or debts with the highest interest rates. If you can stomach it, we suggest starting with the highest-interest-rate debts. This is usually credit card debt, followed by personal loans and car loans. And we don’t just mean hitting the monthly minimum.

To really make a dent, you’ll have to put as much money as you can into paying down your priority debt without sacrificing making the minimum payments on other debts. Mortgages are a good debt to save for last as these tend to have low-interest rates.

No matter what repayment strategy you choose, the most important thing is sticking with it. Map it on a calendar, track your progress and ask a friend or family member to keep you accountable. Anytime you successfully pay off a debt, give yourself a small reward to stay motivated.

4. Determine Your Retirement Needs

Before you can retire, you have to decide how you want to retire. Consider where you want to live, whether you’ll have a job (this may sound crazy, but some people like to work in retirement), and what your expenses will be. Try to be realistic in terms of retirement length, too. This can be difficult to predict, but you can always refine your estimate down the line.

You should also create a timeline to show when different streams of income will begin. This will help you manage cash flow and determine how much you need to save to retire. Look to your Social Security account, employer-sponsored retirement accounts, individual retirement accounts, and, for some, wages and a pension. Be sure you’re thinking of each income in post-tax dollars, as many retirees fail to factor in taxes.

See how your pre- and post-retirement budgets compare. The more realistic you are, the better prepared you can be. If you need help building or vetting your plan, you can find a financial advisor to help.

5. Square Away Your Health Insurance

Healthcare is one of the biggest expenses you’ll face in retirement. According to the 2023 BLS Consumer Expenditure Survey, households of people between 55 and 64 years old spent $7,164, while the figure jumped to $8,027 for those ages 65 and older.

In addition to factoring these expenses into your budget, you’ll also want to consider where you’ll be getting health insurance coverage. If you retire at or after the age of 65, you can largely rely on Medicare for your retirement needs. You can get an overview of Medicare coverage and costs at the official www.medicare.gov site. Pay special attention to anything you need that isn’t covered. Some people like to have a supplemental insurance plan.

Things get trickier – and more expensive – if you plan to retire early. If you don’t receive health insurance from your former employer or through your spouse’s employer and don’t yet qualify for Medicare, you’ll have to get health insurance on your own. Whatever your situation, just make sure your insurance doesn’t lapse when you need it most. Know the terms and conditions of your coverage as well as how much you can expect to pay in premiums, deductibles, co-pays and out-of-pocket costs.

6. Plan Out Your Estate

o one likes to think about their passing, but as you approach retirement, it’s important to have an estate plan in place. Being prepared with an estate plan will ensure your family is not plagued with financial burdens after you’re gone and that your money is dispersed according to your desires.

In addition to creating a will, you’ll need to assign a power of attorney and healthcare proxy to make decisions on your behalf should you become incapacitated. You’ll also need to establish guardians for living dependents and appoint beneficiaries on life insurance plans, retirement accounts and shared assets. Consider taxes here too, as you don’t want your estate bequeathed to the IRS. You can also craft a letter with any information that hasn’t been accounted for, like desired funeral arrangements or dissemination of sentimentally valuable family heirlooms.

Ensure all documents are properly notarized and securely stored in a safe or with a trusted advisor. Include an inventory of personal data like your Social Security number, date of birth, bank account numbers, insurance policy numbers and digital passwords to keep things organized and easy to access. After you’ve created your plan, remember to review it at least every five years or whenever you experience a life-changing event.

7. Assess Your Retirement Investing Needs

It’s never a bad thing to have more income. One of the worst mistakes American workers make is designing their investment portfolio around their retirement date. This leaves little earnings potential for their post-retirement life. Exploring retirement investment options can help extend the longevity of your savings.

Keep in mind that your risk tolerance may change as you age and stop earning a paycheck. You may want to employ a total return portfolio that allows you to withdraw a certain percentage while working toward a long-term rate of return but that isn’t your only option. Retirement income mutual funds, government bonds, real estate, closed-end funds, dividend income funds, and annuities are all good options for retirees. The more you know, the better you can decide which option is right for you.

8. Learn How to Withdraw Funds and Minimize Taxes

If you’ve spent your entire adult life investing for retirement, withdrawing funds may feel unfamiliar. Of course, you’ll have to understand how to do this first.

If you have an employer-sponsored plan, figure out if you want to leave money there or roll it into an IRA account. Consolidating is probably the better option if you’re over age 59 ½. At this time, you can take money out of your retirement accounts without incurring an early withdrawal penalty. By age 73, the law requires you to take required minimum distributions (RMDs). You should make your decision based on what’s both tax-efficient and what you and your family feel most comfortable with. You can work with the institution that manages your funds to figure out how withdrawals work.

Next, you’ll have to decide when to sign up for Social Security. Most experts recommend waiting until full retirement age to maximize benefits, though you can claim Social Security anytime between 62 and 70. The longer you wait, the bigger your check will be. You can apply for Social Security online, by phone, or in-person at a local Social Security office.

Bottom Line

Retirement can be a wonderful time when you finally enjoy the things you’ve planned for years. You can travel, enjoy family or spend more time on your hobbies. However, these things are only available if you’re financially prepared for retirement. It’s important to plan ahead and make sure you check in on your retirement plan routinely to make adjustments as needed.

Tips for Getting Retirement Ready

If you’re planning for retirement, a financial advisor can help you organize things for taxes, investments and more. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Make sure you’re investing in the right retirement plan for you. A 401(k) might be a good option for you if your employer offers one and a match to go with it. But that isn’t the only option. You may also want to consider traditional IRAs and Roth IRAs.