Advertiser Disclosure

Prepare for Retirement Now With This Checklist

Bookmark this guide and conduct a regular progress check-in, especially as retirement approaches.
Investing, Retirement Income, Retirement Planning
retirement-checklist

You create a shopping list when you go to the grocery store and a packing list before a vacation — but how about a to-do list for retirement planning? Maybe not so much.

In an ideal world, you’d start planning for retirement the first day of your first full-time job. But if you’re playing catch-up like most people in the real world, there are several important steps you can — and should — take today to ensure you have a successful and lasting retirement.

1. Craft your exit plan

In your 20s, it’s nearly impossible to envision what life will look like in a decade, let alone some 40 years down the road. But if your goal is quitting work, you’ll need to spend time developing a strategy to get there.

Many people assume their retirement age will be somewhere within a few years of the longtime standard: 65. But that’s not a one-size-fits-all approach. Whether you’re a “live to work” type or have more of a “work to live” mindset, answer two very basic questions:

  • When do you want to retire?
  • How do you want to spend retirement?

If your goal is quitting work, you’ll need to spend time developing a strategy to get there.

Your answers to these questions may change with age, along with your financial situation and your philosophy on full-time work. If you want to opt out of the 9-to-5 grind before the masses, focus on achieving extreme results in order to retire early.

If you plan to gradually transition from full-time work into full-time retirement, that may require additional planning for when you’ll take Social Security benefits, for example.

2. Calculate how much money you’ll need to retire

The retirement strategy you’ve crafted will be achievable only if you can afford to make it a reality. A rule of thumb is that you’ll need at least 70% of your current income in retirement, but your vision of post-work life may require more or less money.

A retirement calculator like the one below can estimate your financial needs and help identify any potential funding gap. It can also allow you to quickly see how small tweaks — shaving a few years off your retirement age or ramping up the amount of monthly savings — could affect your trajectory. Make it an annual (at least) ritual to calculate your progress so you can make any needed adjustments to your retirement plan.

Are you on the right track to retire?

I am

years old, my household income is

and I have a current savings of

.

3. Determine your sources of retirement income

As with any budget, consider both money coming in and money going out.

For Mike Piershale, a chartered financial consultant and president of Piershale Financial Group in Crystal Lake, Illinois, working with new clients begins by running what he jokingly refers to as “the mother of all reports”: a retirement cash flow analysis. This report identifies every future source of possible retirement income, along with expenses (more on those below).

While you can start receiving Social Security benefits as early as 62, delaying up to age 70 means you’ll receive more money for the rest of your life.

Most people’s primary source of retirement income will be money they accumulated while working — such as a 401(k), an IRA or a pension. The amount you amass will depend on factors such as your income, how early (and how aggressively) you began saving and the generosity of your employers’ matching plans or pension benefits.

Social Security is another vital source of income for many retirees, and your monthly benefit is based on your highest 35 years of earnings. But when you decide to begin drawing benefits will make a crucial difference: While you can start receiving Social Security benefits as early as 62, delaying up to age 70 means you’ll receive more money annually for the rest of your life.

To see where your numbers stand, run a Social Security report, which details your earnings records, as well as estimates for retirement, disability and survivors benefits for which you and your family may be eligible.

4. Plan for the non-fun expenses

It’s easy to slip into daydream mode, envisioning your future self enjoying a favorite hobby or traveling when you retire. But retirement isn’t all fun and games. You’ll need money to cover expenses — think taxes, insurance and housing — or your daydreams are at risk of being just that.

Consider the ways your expenses may rise in the future to avoid surprises come retirement.

A recent survey of non-retirees found that 53% had thought about leisure pursuits, versus only 34% who’d considered what they’ll pay in taxes, according to the Wells Fargo/Gallup Investor and Retirement Optimism Index. More than one-quarter of currently retired respondents in the same survey said their health care, living expenses and taxes have been higher than they expected.

Yes, we said above that budgeting for at least 70% of your current income is a good general rule of thumb. But it’s important to consider the ways your expenses may rise in the future to avoid surprises come retirement. Start by answering the following questions:

  • Taxes. How will your sources of retirement income be taxed? Remember, if you’ll be drawing from a 401(k) or traditional IRA, those distributions will be subject to income taxes, but distributions from a Roth IRA will not. What other taxes will you incur in retirement?
  • Health insurance. How do you plan to obtain insurance (most people become eligible for Medicare at age 65), and what’s the estimated cost?
  • Housing. Do you plan to stay in your current home or move elsewhere? What would be the associated expenses in either scenario?
  • Long-term care insurance. You may experience two phases of retirement — one when you’re active and another when your health falters. How are you planning for the latter?

5. Tweak your investment strategy

The choices of your youth may not make sense when you’re older, and that also applies to your investment strategy. As retirement approaches, adjust the holdings in your portfolio to protect the nest egg you’ve spent decades accumulating.

Experts generally recommend that older investors dial down their exposure to riskier assets (like stocks) in favor of safer assets (like bonds), but the extent to which you do so is a personal choice. Retirees needn’t shun the stock market altogether, but you should ensure your portfolio is well-diversified to minimize risk. And don’t forget, just as it took decades to accumulate that wealth, you may be drawing upon this income for decades in retirement.

Many employer-sponsored retirement plans offer target-date retirement funds, which automate this task based on when you’ve indicated you plan to retire. Otherwise, plan to revisit your investment strategy at least once a year.

6. Get your legal documents in order

After years spent building up savings, you want to be sure that money is handled the way you wish after you die or if you become incapacitated. Welcome to estate planning.

After years spent building up savings, you want to be sure that money is handled the way you wish after you die or if you become incapacitated.

Just as you’ve done an inventory of your retirement income and expenses, you should take account of tangible assets, including real estate, vehicles and collectibles, and intangible assets like investments, life insurance policies and retirement plans. Once you’ve estimated the value of these assets, you’ll need to decide how you want these distributed and to whom.

Other items on your legal to-do list should include:

  • A will. This official document specifies your wishes for how your estate will be handled, among other directives. Be sure to update it regularly as necessary.
  • A living will. This medical directive details your preferences for medical care if you’re unable to make decisions, including designating a power of attorney for such decisions.
  • A trust. This may not make sense for everyone, but it can ensure your assets are transferred to your chosen beneficiaries, bypassing a court process.

7. Revisit your checklist as retirement nears

Life moves pretty fast, and if you don’t stop to reassess once in a while, you could miss out on some of your goals. We’ve covered the biggest to-do items here, but this list may not be exhaustive for your needs and shouldn’t be viewed as a one-time task.

Instead, develop a habit of regularly checking your progress toward retirement and how your goals or needs have shifted over time. After all, your familial and financial situations will likely change — and so will your retirement plan.

And if retirement is still years away?

If you’re the type of go-getter who reads articles like this well before retirement, you have the option of making small changes today that can pay off big by the time you leave the workforce.

The biggest single thing people can do today is to start saving more money.

Mike Piershale, chartered financial consultant and president of Piershale Financial Group

It may seem ridiculously simplistic, but the more money you save today, the fatter your nest egg. Even contributing an extra $20 to your 401(k) each week could add up to an additional $100,000 in your account over 30 years, thanks to compounding interest.

Given their tax advantages, 401(k)s and IRAs are the best places to prioritize extra savings. Make sure you contribute at least enough money to your employer-sponsored retirement plan to receive any matching dollars offered by your company. Then fund an IRA to tap into a broader array of investment choices with lower associated fees. The maximum amount you can contribute to both is $24,000 if you’re under age 50 and $31,000 if you’re 50 or older.

“The biggest single thing people can do today is to start saving more money,” Piershale says.

About the author