Before takeoff, airline pilots go through a checklist to make sure the flaps are in the right position, there’s enough fuel, and everything else is as it should be for a safe flight.
While your retirement may not be a matter of life or death, before wrapping up your career, you owe it to yourself and your family to make sure everything is “as it should be” — that you’re as prepared as possible for a safe transition to post-paycheck living. If you’re within 10 years of your anticipated retirement date, review the checklist below and see which items may need attention.
Intended Retirement Age Set
The natural starting point for retirement planning is choosing a retirement date. However, for many people, that’s easier said than done. You may like your work, want or need to keep your income flowing, or prefer to keep your workplace health insurance (if eligible) rather than transition to Medicare. Besides, retirement is a relatively modern invention and the typical retirement age of 65 is somewhat arbitrary. Perhaps most importantly, the Bible doesn’t say God’s people should plan to stop working one day (unless you’re a Levitical priest!).
Still, whether for health or family reasons, or because you sense God leading you to spend your time in other ways in your later years, it’s likely that you will one day step away from your full-time career. So, pray about this, and if you’re married, be sure to talk it over with your spouse. (According to a Fidelity study, half of couples disagree on their exact retirement age.)
Once you’ve landed on an intended retirement age, consider this: Is it realistic? For many years, the Employee Benefit Research Institute has been tracking a notable disconnect between the age at which current workers intend to retire and the age when today’s retirees actually retired. According to its latest study, 45% of current workers expect to retire after age 65. However, only 19% of today’s retirees actually waited that long.
For many, their deteriorating health (or that of a loved one) required them to stop working earlier than planned. Even if you hope to work past age 65, it may be wise to build an earlier retirement age into your plan. For example, if you’d like to work until age 70, consider building your plan around an age-67 retirement. It’s easy to adjust a plan to accommodate earning money longer, but quite difficult to go the other way.
Retirement Budget Estimated
How much will you need to live on in retirement? It’s a fundamental question, but like so many retirement questions, not easy to answer. Some expenses should disappear (i.e., saving for retirement or your kids’ college) and some may decrease (commuting costs). However, spending in other categories may go up, such as entertainment or travel. Plus, your budget is likely to look very different at the beginning of your retirement than several years into it.
Some writers describe three distinct phases of retirement — the “go-go” years (when entertainment and travel-related expenses tend to be their highest), the “slow-go” years (when your health may begin to slow you down, causing less spending on entertainment and travel), and the ominous-sounding “no-go” years (when your golfing and sightseeing days may be over). Of course, as your health declines, your healthcare spending is likely to grow.
What’s a retirement planner to do? For now, do the best you can to estimate your initial retirement budget, and then reevaluate each year.
Debt-Free Plan in Place
Paying off all debt, including your mortgage, by the time you retire will be a great help to your cash flow. If you have a 15- or 30-year mortgage, and if you keep making the scheduled payments, will it be paid off by your intended retirement age? If not, you may want to begin making accelerated payments. Use an online calculator to figure out how much more you’ll need to pay each month to make that happen.
It’s the same with vehicle debt, student-loan debt, credit-card debt, and any other type of debt. If you have a lot of debt, it may be overwhelming to think about making extra payments on all of it. So, start where you can. The less debt you bring into retirement, the better.
Living Arrangements Determined
Are you in your “forever home” or do you think you’ll live somewhere else in retirement? If you’re staying put, you should have a good handle on the cost of taxes, insurance, utilities, and maintenance. But are you planning to do any remodeling after you retire? How much should you budget for that?
If you’re planning to move, ideally you’ll be able to use the proceeds from your current home to buy your new home with cash. But now’s the time to look into other expenses in the town you’re planning to move to, such as taxes and insurance.
If there comes a time when you can’t live on your own anymore, what will you do? Do you have adult children who could help out? Have you talked about that with them? Should you consider moving closer to them? Is an assisted-living facility an option? These questions may seem irrelevant if you are in good health, but better to consider them now than wait until a sudden need to make a change arises.
“Guaranteed” Income Estimated
Such income sources include Social Security, a defined-benefit pension (if you’re one of the dwindling number of people who will still receive one), and perhaps an annuity.
While estimating guaranteed income may be an oxymoron, it’s the best you can do until you’re actually retired. Social Security benefits are based on your age when you begin receiving them. How much you earn in your last years of full-time employment will likely impact the amount as well.
Healthcare Needs Reviewed
Are you planning to take Medicare when you qualify at age 65 or do you plan to work past that age and stay on your employer’s plan? Either way, estimate how much you’ll pay in premiums. If you’re going with Medicare, consider filling coverage gaps either by adding a Medigap plan to a traditional Medicare plan or going with a Medicare Advantage plan.
Investment Income Estimated
Between your estimated expenses and your guaranteed income there is probably a gap that will need to be filled by your investment portfolio. Here, too, the math is less than a perfect science. But don’t let that stop you from estimating how large your nest egg may be by the time you retire and how much income that may produce. That may motivate you to increase your retirement plan contributions.
There are many free online retirement planning calculators available, but the one SMI recommends is MoneyGuide®, available to SMI Premium-level members for a one-time fee of $50. Many financial advisors consider it the gold standard when it comes to retirement planning because it takes so many factors into consideration.
Clearly, there are many moving parts to the retirement planning process. In the end, there is no perfect plan. Still, the process of planning should prove beneficial, prompting you to think through aspects of your retirement you may not have considered otherwise. As General Dwight D. Eisenhower noted when he reflected on the war-planning process and how many things can’t be fully anticipated, “Plans are useless, but planning is indispensable.”
