When flying a plane, a good pilot will tell you that a written pre-flight checklist is essential when taking control of an aircraft. A good checklist will tell the pilot precisely what they need to know, plan for, and execute during their upcoming flight. The same can be said for approaching retirement—your “work-free years”—where a written checklist can be essential to a successful retirement transition.
Unfortunately, many Americans are woefully unprepared to transition into retirement and haven’t done the necessary legwork to get ready. Very few have a written financial plan outlining what changes they should make before, during, and after their transition into retirement, despite knowing how important a written plan can be.
Too often, people procrastinate, assuring themselves that “they’ll get to it later” or “they’ve got plenty of time to prepare.” However, approaching retirement without a written plan is like attempting to fly an airplane without a pre-flight checklist—it’s risky business and should not be taken lightly.
If you’re within five years of retirement, it’s essential to have a list of all the things you should be doing to prepare yourself for the transition into your work-free lifestyle—just like the checklist used by pilots before they take off for their destination. This will help you not only understand what areas you should focus on as you approach retirement but will also help you get clear about whether or not you’re on track towards a healthy and secure retirement.
A good checklist will center around the three pillars of retirement: your income sources, monthly expenses, and the impact of inflation. Let’s explore the three pillars of retirement in more detail below.
Your income sources.
First, it’s essential to know where you stand concerning guaranteed income sources like Social Security and any pensions that you’ll get during retirement. This is essential because you’ll need to supplement these guaranteed sources of income with additional income from your investments.
Before reaching your work-free years, it’s essential to complete a Social Security analysis to understand what age you and your spouse should file for benefits to maximize the amount of money you both receive over your lifetimes. In addition, if you’re eligible to receive a pension, it’s essential to understand the ins and outs of what you will receive and whether or not you have the option for a lump sum payout and any applicable survivor benefits should you predecease your partner.
Next, your supplemental investment income can come from various sources, such as employer-sponsored 401(k)s or 403(b)s, tax-advantaged IRAs, taxable brokerage accounts, rental income, and even Health Savings Accounts (HSAs). Each of these account types will have different aspects to consider and should be evaluated individually and holistically.
Knowing where you will source your income during retirement is a critical step in ensuring that you won’t outlast your money and can enjoy the lifestyle you’ve imagined during your work-free years.
In addition, when mapping out your income sources, it’s critical to understand the various tax implications that come with each source and ensure that you’re withdrawing from your investments and guaranteed income sources in a tax-efficient manner. This will help you keep more of your hard-earned money on your side of the ledger by limiting your annual tax bill.
Your monthly expenses
Your written plan should outline what you plan to spend in your first month of retirement and every month after that. By understanding your expenses through retirement, you will gain clarity around exactly how much money you need to cover your retirement income needs.
Additionally, as a financial advisor with over three decades of experience helping clients navigate the work-free years, it’s my goal to help you understand some of the common spending themes that occur during retirement. For example, many retirees go through 3 distinct phases during their retirement journey, the go-go, slow-go, and no-go years, each with varying spending levels.
Lastly, your pre-flight checklist should include a detailed look at any significant lifestyle changes you plan to make during retirement, from relocating to be closer to family, to downsizing, to uprooting for a bit to travel the world. These lifestyle changes present planning opportunities and should be addressed in your written plan to ensure success.
The impact of inflation.
Last but not least, you need to know how inflation will impact your spending during retirement. That’s because we need to think about how much money you’ll be spending in the 60th month of retirement, the 80th month, and so on. Over time, inflation will begin to erode your spending power and can lead to unexpected financial troubles if left unattended.
Currently, we are experiencing higher than average inflation rates, which has many retirees feeling uneasy about their ability to maintain a particular lifestyle throughout retirement. Have you bought hamburger meat at the supermarket lately? This is a valid concern that can be addressed with a proper “pre-flight” checklist, which will outline how you can combat the effects of inflation through your work-free years.
I am here to help.
The three pillars of retirement listed above are just a few aspects to consider. In addition, I have a checklist I use that contains 22 critical retirement questions and topics to help you gain the clarity and confidence you need to have a successful retirement.
If you’re serious about planning for your retirement, this checklist can be a great way to get started as it will help remove some of the unknown and reduce some of the anxiety you might be feeling about retiring.
Once you’ve reviewed the checklist, I would love to help you continue the retirement conversation and create your pre-retirement checklist to achieve your financial goals.
If you’re interested in scheduling a complimentary consultation where we can discuss your financial goals, answer your retirement questions, and add some clarity to your financial situation, then head over to Schedule Time With Steve, and let’s connect.