Are You Ready for Retirement? 10 Things Everyone Must Do


Getting ready for retirement can be a stressful undertaking. After all, retiring is something you should only do once. Here are ten steps that everyone must take to prepare for a stress-free retirement.

1. Pay Off Your Credit Card Debt

Buying stuff with credit has become an American pastime. In retirement, however, carrying a balance on a high-interest rate credit card makes no sense. Even in this current low-interest-rate environment, credit card rates can run well over 20%. That’s crazy even if you’re still working.

As you get ready for retirement, paying off your cards should be step number one. In terms of your balance sheet, credit card debt simply occupies a spot in the “liabilities” column. Paying them off doesn’t change your net worth at all – but it does reduce the ongoing interest expenses on your cash flow statement.

There’s nothing wrong with using your credit card before or during retirement. Just be sure to pay it off every month.

As for other forms of consumer debt, such as auto loans, continue your plans to pay them off over time. Who knows if the era of zero interest rate car loans is behind us, but I’m guessing it is. Once you retire, be careful about adding new liabilities.

2. Understand Your Healthcare Costs

Unfortunately, healthcare is a big-ticket item in retirement. If you’re retiring before age 65, start pricing out some of the individual policies that are available to you through the ACA Marketplace. If you’ve worked as a W-2 employee for a long time, these premiums can come as a shock. However, it’s best to price these out before making your budget.

If you tend to have recurring out-of-pocket costs and prescription drugs, review those expenses in years past to get a sense of what to expect in addition to your insurance premiums.

Of course, Medicare changes things when you turn 65. Most people enroll in Medicare Parts A, B, and D. While Part A is free to everyone, the premiums for Parts B and D vary based on your income.

After making your Medicare decisions, do you enroll in a Medigap policy or Medicare Advantage Plan? These options are much more affordable than pre-Medicare individual health insurance policies and put a cap on your out-of-pocket expenses.

3. Make a Plan for Long-Term Care

Not only do long-term care, assisted living, or nursing home care costs tend to be high, but the fact that they’re (hopefully) off in the distant future makes planning for them even more difficult.

Unfortunately, long-term care insurance policies are extremely expensive. In fact, they’re so expensive that most insurers no longer offer them. A colleague in the insurance business told me recently that only two companies are still offering these types of policies. It seems that if you can afford the premiums, you can likely self-insure (i.e. pay the expenses out of pocket).

No matter whether you choose to buy a long-term care policy or plan to pay out-of-pocket, at least pencil-in costs for these later-in-life expenses. A popular strategy is to use home equity to fund some or all of these costs once you’re ready to leave home.

4. Consolidate Your Accounts

Another step to take to get ready for retirement is to consolidate your investment accounts. There’s no reason to have separate 401(k) plans in different places. Pick the brokerage firm that you like best and move everything there. These firms have lowered costs drastically over the years to attract everyday investors. The net effect is that the firms like TD Ameritrade, Schwab, Fidelity, Vanguard, and others have low fees, access to a massive array of investments, and great technology.

Managing your retirement investments when you need to access them becomes much harder if you have multiple accounts squirreled away at different firms. There’s no additional safety benefit for having your money at one firm over another – they are all insured by SIPC.

Having one login at one firm to access your investments greatly simplifies everything. In retirement, I’ve found that retirees who simplify their plans tend to have better outcomes.

5. Map Out Your Income Sources

The next step in getting ready for retirement is to map out your income sources. Of course, pensions and Social Security are the first that come to mind here. While you may have no choice over when to start your pension, you do have the option to delay your Social Security income. For some people, it may make more sense to start taking Social Security as late as age 70.

You may also have income from other sources, such as a part-time job or rental real estate. However, consider that you may not want to work or be a landlord for the rest of your life.
What will your income look like after these activities stop?

Finally, plan for the income you expect to take from your investments. In the past, I’ve talked at length about the benefits and drawbacks of the 4% rule, but it’s at least a good place to start.

6. Understand Your Taxes

Taxes in retirement can surprise you, especially if you have significant 401(k) savings. When you start drawing from these accounts, you’ll have the option to withhold federal and state taxes from any distributions. If you don’t like writing a big check to the IRS every April, withholding may be a good option.

These taxes may also lower the net income you can expect in retirement that you’ve already mapped out. If most of your investments are in tax-deferred accounts, go back and factor this into your retirement income calculations.

7. Review Your Current Expenses

Reviewing your current fixed and variable expenses gives you a great baseline to begin planning your retirement budget. Look back on your bank account and credit card activity not just for the repeating expenses like your mortgage, utility bills, and insurance premiums, but also for some of the one-time expenses like car repairs, home maintenance, and vacation costs.

Some people may argue with me on this point, but not everyone experiences a reduction in expenses in retirement. The rule-of-thumb says that retirees will spend 80% of their pre-retirement expenses in retirement, but that may not always be true. Your mileage may vary – I’ve seen it dozens of times.

8. Plan Your Budget

Now that you’ve reviewed your current expenses, it’s time to make changes for retirement, if needed. Will your retirement income cover what you want to spend? If not, consider which items to cull.

If you need to bridge the gap, there are options. The first is simplest: delay retirement. Maybe you just need more time to save, invest, and accumulate funds in your nest egg.

Will your mortgage roll-off at some point? Could you downsize successfully? These can be difficult decisions. However, it’s best to make them now than to have them forced on you after you’ve retired.

9. Make a Plan to Occupy Your Mind

The mental aspects of retirement are equally as important as your budget or sources of income. Retirement can (and should) be a breeze. Many of you have told me as much – and I’ve written about many of the wonderful things to expect in retirement in the past.

However, for those retirees who found purpose and connection in their careers, the freedom that comes with retirement can be unsettling. I’ve written about this before as well. Having a plan to keep you connected to a goal, cause, or purpose, no matter how small, is essential in retirement.

10. Get Help If You Need It

While there are plenty of people out there that can do all of this themselves, engaging with an experienced financial planner can make things easier. Most people would prefer to enjoy their free time rather than spend it managing their investments. As someone told me once, “You help people retire every day. I’ll only retire once.”

If you need help getting ready for retirement, then click here to set up a quick, complimentary introduction call to see if Prana Wealth is a good fit. We do still have the capacity to take on new clients.

As a fee-only financial advisor in Atlanta, we can (and do) work virtually with clients all across the U.S. and we’re here to help you when you’re ready.

The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but is intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax, or financial advice. Please consult a legal, tax, or financial professional for information specific to your individual situation.
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