By Shawn McGuire & Matthew Gaude
Are you gearing up for retirement? It’s the homestretch—when the kids have flown the coop, your mortgage is either paid down (or, if you’re fortunate, paid off entirely), and the idea of stepping back from the workforce is on your mind. As you approach this significant life transition, it’s crucial to assess your financial readiness, consider your goals, and plan for a comfortable and fulfilling retirement.
Whether it’s confirming that your savings are on track or exploring investment strategies, taking thoughtful steps now can pave the way for a smoother season ahead. Use our 14-step checklist to keep you on the right path.
Review or Create Your Retirement Plan
If you haven’t done so already, now is the perfect time to review or create a retirement plan. This should include everything from exactly when you will retire to how you will spend your time. Take the time to think about what you want retirement to look like for you. Will you be retiring with a spouse? Do you want to work part-time, volunteer, or travel the world? The answer to these questions will inform the rest of the tasks on this list, so it’s important to be both intentional and realistic about your plans.
Decide When to Claim Your Social Security Benefits
Deciding when to take Social Security benefits is one of the biggest questions you will have to answer in the year leading up to retirement. Depending on your age when you retire, you could be looking at reduced benefits (age 62), full benefits (age 67), or maximum benefits (age 70). If you decide to retire, but delay benefits until a later date, you will have to plan for an alternate income stream during that time.
Keep in mind that once you turn age 62, your benefit amount will be increased annually based on the cost-of-living adjustment. This adjustment occurs even if you don’t claim your benefits until a later age.
If both you and your spouse worked and contributed to the Social Security system, then you have two benefit amounts to consider. For married couples, claiming strategies are critical for the surviving spouse. Couples can make the most of their benefits by taking one benefit early and delaying another until age 70; however, claiming reduced benefits early also means the surviving spouse could have reduced benefits. This is particularly important to evaluate for couples that have big earnings differences or if a pension will be lost when one spouse dies. It’s vital to think carefully about how and when you decide to claim your benefits.
Create a Realistic Retirement Budget
Once you’ve assessed your Social Security benefits and decided when to claim, it’s important to take a look at all other sources of retirement income and create a realistic budget. With your newfound free time, it can be easy to overspend without realizing it. But since your income is fixed, a realistic budget that you can hold yourself accountable to is one of the best things you can do in the months leading up to the big day. Overspending, even for a short period, can shave years off the longevity of your assets.
The budget doesn’t need to be perfect, but it should be something you can honestly stick to. Try tracking your expenses for a couple of months to get an idea of what you spend currently. Once you have all your costs outlined, consider if there are areas where you can cut back or items that will increase in retirement.
Make Major Purchases Now
On the topic of cash flow and income, you should look to make purchases which require significant capital while you are still employed. This way, you do not have to find ways to finance a large repair or medical bill while on a fixed income. And while you are at it, set up alternative sources of income and credit, such as a home equity line of credit, while you are still employed.
Unfortunately, we have seen some larger banks stop making HELOCs or increase their lending standards in this area. In addition, interest rates on HELOCs have increased due to the high rate of interest rates currently. The good thing about a HELOC is you only have to pay interest if you borrow the money. A good place to start is your local credit union.
Consider Saving More
If you are earning more income in the year leading up to retirement and you don’t necessarily need it for daily expenses, consider contributing more to a tax-advantaged retirement account like a traditional or Roth IRA, or a 401(k) or 403(b). These accounts have increased contribution limits for taxpayers over the age of 50 and contributing more can be an effective way to boost your nest egg while reducing your taxable income just before retirement. This may also be a good time to increase and build up your savings in your money market/savings account for discretionary expenses.
Determine Your Retirement Income Strategy (and Roth Conversions)
Retirement could last 35 years; and whether it actually does or not, everyone needs a plan. The trick to the retirement income needs analysis is to determine how much you will be spending in retirement and what your income from Social Security, pensions, and retirement accounts will be during retirement.
Many retirees mistakenly assume that how and when they withdraw from their retirement accounts doesn’t matter as long as they have a sizable amount saved. They also falsely believe that they will always be in a lower tax bracket in retirement. This can result in inefficient withdrawals that increase your tax liability unnecessarily and greatly reduce the longevity of your portfolio. The timing of withdrawals makes all the difference—and it’s a key component in safeguarding your retirement nest egg.
For example, a $50,000 withdrawal from a Roth IRA will have a wildly different tax impact than that same distribution from a traditional IRA. If you blindly take your money and run, you could trigger an avalanche of higher Social Security taxes, investment surtax, capital gains taxes, and even higher Medicare premiums, which eats away at the funds that were supposed to carry you through retirement. Creating a tax-efficient withdrawal plan before retirement can help you strategically withdraw from your various retirement accounts and minimize your tax liability.
If you expect to have large required minimum distributions (RMDs), consider strategies to reduce your RMD, such as Roth conversions either pre-retirement or early in retirement. Additionally, if you know your income will be lower in retirement, consider deferring Roth conversions until you are in a lower tax bracket.
Review Your Life Insurance Needs
Many employers offer group and supplemental life insurance policies as part of a benefit package for employees. These are great during your working years, but they often expire at retirement, and retirees who only have group insurance may be left unprotected. Whether you have a mortgage and want to cover your family, or you want to provide an inheritance, be sure to review your life insurance needs, as well as any existing policies you have in place. If it makes sense, consider extending your employer’s coverage or look for a private insurance policy and ask yourself these three questions:
- Do I still rely on outside income?
- Am I in significant debt?
- Are my children and spouse (their survivors) dependent on my income or other funding?
If the answer is “No” to every question, it might not make sense to keep a life insurance policy, and we should discuss more with you about potentially terminating the policy.
Take Advantage of Employer Healthcare Benefits
Another important step to take before retiring is to utilize any healthcare benefits offered by your employer. Maintaining good physical and mental health is a key component to a happy and fulfilling retirement. Make sure you are up to date on your physicals, check-ups, and prescriptions before retiring, especially if you have already met your deductible for the year.
If you have an FSA, consider spending down the account, and if you have an HSA, consider paying for expenses out of pocket to keep the funds growing tax-deferred.
Review Your Medicare Options
Once you turn 65, you will be able to enroll in Medicare. Depending on your age at retirement, don’t forget to mark your calendar for this important milestone. You can enroll in Medicare Part A and Part B during your Initial Enrollment Period, which includes the three months prior to turning 65, the month when you turn 64, and the three months following turning 65.
If there is a gap between when you’re retiring and your Medicare eligibility, you will have to find alternative coverage through the Health Insurance Marketplace, COBRA, private insurers, employer retiree insurance, or your spouse’s employer coverage. These options can vary dramatically in cost and level of coverage, so it’s essential to plan ahead.
Since Medicare is very complicated with a number of different plans in which you can enroll, we have an independent Medicare specialist we can refer you to that can help you pick the best plan based on your current medical needs and physicians.
Evaluate Your Long-Term Care Needs
It’s estimated that 70% of today’s 65-year-olds will need long-term care services at some point in the future. Without proper planning, these costs can quickly spiral out of control. The year before retirement is the perfect time to assess your needs and consider long-term care insurance to supplement what you can afford to spend out of pocket.
Consider family health history as well as your own lifestyle, health needs, and projected life expectancy when thinking about long-term care. As difficult as it can be to think about, planning ahead is the best way to safeguard your savings as you head into retirement.
Evaluate Your Housing Needs
If you haven’t already, take stock of your current housing and if it will still make sense in retirement. Are you an empty nester in a five-bedroom house? Have you always wanted to relocate? Do you have a mortgage? Would you easily be able to age-in-place or would significant accessibility modifications be required? These are all questions to ask yourself in the year leading up to retirement. Since housing is one of the largest ongoing expenses you’ll have during your golden years, it’s important to thoroughly consider your options.
Review Your Estate Plan
Now that you’re gearing up to retire, take the time to review your estate plan and confirm everything is in order. You should have basic estate planning documents like a will, durable power of attorney, and healthcare power of attorney to feel confident your wishes are clearly communicated and a trusted individual can act on your behalf if something were to happen. If your estate is more complex and you’ll leave behind significant assets, consider utilizing trusts in your estate plan.
A few factors to consider:
- Change in residency: Estate laws may be different in a new state, including laws addressing marital property, rules on executors, wills, trusts, healthcare powers of attorney, and general powers of attorney. It is important to have an attorney review your situation if there is a change in address.
- Recent law changes: State or federal laws may have changed since you last reviewed your estate plan. It’s important to keep your estate documents and planning in line with current laws.
- Confirm that you have designated a general power of attorney, and review your appointed agents and successor agents and the recency of the document.
- Review and update your healthcare power of attorney.
- Review the details of your will.
Enjoy Life
Last but not least, retirement isn’t just about money and saving taxes. It is a special time and it should be about enjoying life. You have spent the majority of your life working, saving, and preparing for retirement. Now you have time to do what’s meaningful to you.
Work With an Experienced Advisor
Finally, remember that you don’t need to go through this transition alone. Teaming up with an experienced professional often reduces feelings of anxiety and stress because you know you’re being supported along the way. At Live Oak Wealth Management, our goal is to guide you through the retirement process with confidence and clarity so you can enter retirement prepared and confident. If you’d like to take the first step toward partnership, we invite you to call our office at 770-552-5968 or email [email protected].
About Shawn
Shawn McGuire is a financial advisor and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. He has worked in financial services since 2002 in positions ranging from financial advisor to stock broker and portfolio manager. As a CERTIFIED FINANCIAL PLANNER™ professional, he is trained to help clients with virtually all their financial needs. To learn more about Shawn, connect with him on LinkedIn or visit www.liveoakwm.com.
About Matthew
Matthew Gaude is an *investment advisor representative and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. Working first as a commodity broker and then as a Business Development Manager for a national broker-dealer in previous jobs, he has the insights and experience to help clients understand the complexities of the market and implement strategies to minimize risk. To learn more about Matthew, connect with him on LinkedIn or visit www.liveoakwm.com.
Securities offered through American Portfolios Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through *American Portfolio Advisors, Inc., a SEC Registered Investment Advisor. Live Oak Wealth Management, LLC is independently owned and not affiliated with APFS or APA.
Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc.(APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.