As you read this, please keep in mind there could be circumstances specific to your household that add requirements or longer timeframes to this list provided here. Seek counsel from those whom you feel are qualified to provide it and be diligent. You only get one retirement, usually.
12 months prior to your last day:
1. Create a budget of your core and variable expenses to know how much you need coming in on a monthly basis. Core expenses are involuntary. They typically are on auto pay out of your bank account and they are not going to stop any time soon. Car insurance, health care, real estate taxes, and the cell phone bill are all examples.
Variable expenses are items like food and the mortgage (if it is going to be ending soon by paying off the house). Travel is another large variable expense.
Budgeting can be very difficult because one-time items come up, discipline is required to track the data, and let’s face that it is not very much fun. All you are shooting for initially here is an estimate that you can live with and round up in all instances to make sure you have enough income to cover everything. Also, the breakdown between core and variable expenses allows you to structure your income in the same manner. Core expenses should be covered by very reliable income streams like pensions, Social Security, or annuities. Variable expenses other than a mortgage can be covered perhaps by dividends and interest or withdrawals from your portfolio.
2. Assess your investment allocation – This should be an ongoing step regardless of actual retirement date. However, 1 year prior to retirement it would be helpful to monitor how much income your investment allocation is providing. Interest from bonds and fixed accounts, and dividends from stocks both provide income to your household without selling principal. Total this from your account so you know how much you can take without spending down your retirement assets.
3. Sell unwanted miscellaneous assets. This should occur 1 year prior to retirement or closer to the actual date depending on what tax year you want to sell the assets for tax purposes. Cash is very important as you transition into retirement because there are expenses that come up. Fixing up the house like you want it, paying off last debts, travel, and so on are examples.
Most households maintain a majority of their assets in retirement accounts that are taxable upon withdrawal. If you have savings bonds, stock certificates, time shares, rarely used savings banks at other banks, personal property of value, small mutual fund accounts and so on you intended to sell one day anyway then remove that clutter so you have cash readily available. See a tax advisor prior to completing this step to be aware of any tax consequences.
6 months prior to your last day:
4. Analyze your debts 6 months prior to retirement. If you don’t manage to fully pay off debts and will be taking them into retirement it might be better to refinance them while you are working and have documented income that is higher than it might be in retirement. Refinancing may lower rates or consolidate debts.
5. If you are eligible for a pension and have to make a decision regarding survivorship then you should apply for life insurance 6 months or more prior to retirement. Please be aware I am not saying everyone should buy life insurance. Not everyone needs life insurance or should forgo a survivorship provision and replace it with coverage. In many cases it is just not necessary or doesn’t work from a financing standpoint. The reason though is that pension decisions and retirement decisions are dominated by the uncertainty of how long you will live. Life insurance companies make a living out of figuring this out, and they have become very good at it. You may disagree with their rating, but life insurance underwriting has been going on since the late 1600’s. You might not take the coverage or let it affect what pension option you take, however, the medical underwriting result is meaningful for what survivorship option to take. There is no cost to go through medical underwriting with a life insurance company and you gather important information about your health. Depending on what rating you receive, your pension options, your spouse’s needs, your financial circumstances overall and living expenses you may accept life insurance coverage and select a different pension option.
6. Notify your accountant, financial advisor, lawyer, and P&C agent at least 6 months prior to your last day. They may need to adjust tax calculations or have other recommendations for you.
7. Have a family meeting at least 6 months prior to retirement. Talk about spending time together, their financial needs if you still are helping them, what your goals will be with your retirement so they can help support you to accomplish them and other important perspectives they will have.
3 months prior to your last day:
8. Draft or update legal documents 3 months prior to retirement. Typically people enjoy their retirement by traveling. Update your legal documents fully before you leave just in case.
9. If you have already decided to apply for Social Security then do so 3 months prior to your last day for processing reasons. There are so many people applying for Social Security that it can take months for the first check to arrive. If you have not yet decided whether to apply then seek a financial advisor to discuss how possible part time work or delaying application could affect your payment.
10. Discuss with your family how you will maintain health care. If you are 65 or older Medicare is an option. If both spouses are working you may have the option of continuing either’s coverage. Recently established national or state exchanges might also be an option. Choose the one that is affordable but just as important choose the one that specifically covers the health circumstances of your family.
If you would like an assessment of the pace you are on toward your goals feel free to give me a call or email.