What Should Be On Your Retirement Checklist at the Start of the Year?

By John Csiszar

Planning for retirement is a lifelong endeavor, and at times it can seem like a goal that will never arrive. But as your retirement date comes into view, it may instill a bit of uncertainty, as you may not be sure of what steps you should take to begin. This is the time to take action. As you switch from decades of accumulation to the period when you’ll actually begin living off your nest egg, you’ll want to make some specific plans to ensure that your retirement funds will last and provide you with the retirement that you wish for. 

Project Your Income

Once you retire, you’ll be losing your primary source of income. You’ll need to ensure that the nest egg you’ve been accumulating will be enough to fund the lifestyle you imagine in retirement.

You can start the process by making a post-retirement budget, using your pre-retirement budget as a point of reference. Many financial advisors suggest that you should plan on spending about 70% of your pre-retirement budget after you retire, but depending on the type of lifestyle you plan to lead, you may want to bump that up higher. If you plan on traveling more in retirement than you did while you were working, for example, your overall expenses might actually be the same or even higher. This is why it’s important to sit down with a financial advisor who is an expert in retirement planning to help you make an accurate budget.

Once you plan out your anticipated expenditures in retirement, you can work on adapting your portfolio so that it provides you with the income you’ll need.

Plan Your Social Security Claiming Strategy

Social Security was never intended to fully fund your retirement lifestyle, but nonetheless, it can be an important cornerstone of your retirement income. Your financial needs in retirement and your other sources of income will help guide you in choosing the right Social Security claiming strategy, but you’ll also likely want to speak with a financial advisor so that you fully understand the ramifications of your choice.

Although you can file for benefits as early as age 62, you’ll be permanently lowering the amount of your monthly check. The longer you can delay claiming benefits — up to age 70 — the higher your check will be. From full retirement age of 67 to 70, your benefit climbs by a whopping 8% per year. This amounts to a 24% gain in monthly income if you can wait just three short years from age 67 to 70. The difference is even more dramatic if you wait to file until age 70 vs. age 62, perhaps as much as 75% or more. But if you need the income as soon as possible, filing at age 62 may still make more sense.

Check For Pension Benefits

Although pensions are not nearly as common now as they were in past decades, it’s entirely possible that you may be entitled to some type of pension payout in retirement, particularly if you ever worked for a larger company. Even a few hundred dollars per month can make a big difference in your retirement planning, as those payouts last for life and can ultimately amount to thousands of dollars. Check your statements at home and/or contact your former employers to ensure that you’ll be receiving all the benefits to which you’re entitled.

Order Your Withdrawals

If you’ve been saving diligently for retirement, you likely have an assortment of taxable and tax-free accounts from which to draw. Generally speaking, advisors recommend that you withdraw money from your taxable accounts first, such as checking, savings, CD or regular investment accounts. Next up should be your retirement accounts, such as your IRAs and 401(k) plans. Last should be your tax-free accounts, such as portfolios of municipal bonds or Roth IRAs. This way you’re still maximizing the tax-deferred or tax-free growth in your accounts for as long as possible.

Evaluate the Risk/Reward in Your Portfolio

As you enter retirement, you’ll likely want to decrease the risk in your portfolio. As you’ll no longer have a job providing regular income, you won’t be in a position to add to your portfolio if your investments fall in value. You also won’t have as much time to let them recover. If you’re living off the income in your portfolio and its value drops by 30%, for example, you’d have to adjust your lifestyle to live off that dramatic drop in income, which may not even be possible. Although you should likely maintain at least a portion of your portfolio in more aggressive, growth-oriented investments, you’ll want to protect against the damage that a bear market could cause to your retirement income. This is an important area to discuss with your financial advisor.

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