Retirement Checklist

Ready or not, here it comes: Retirement. Doesn’t matter if you’re in your 30s and at an early stage of your working life, or in your 60s and winding down a long career. It’s coming.

Are you prepared? If you’re comfortable that you are, great! But you’re in the minority.

A September 2023 YouGov poll for Bankrate found that about 56% of U.S. adults in the workforce say they haven’t saved enough for their retirement, and that includes 37% who say they’re “significantly” behind.

If you’re in that group, well, pay attention. You can still improve your lot in retirement life, regardless of how far off – or how close – it is.

Doing something right now is even more important than it might have been when your parents or grandparents retired. As corporations look to cut expenses, pension plans aren’t as common or as lucrative as they once were, so you might not get as much help from the company as your elders did. Plus, your life expectancy is longer than previous generations, which means you could need to rely on your retirement savings into your 90s.

We all can come up with any number of rationalizations for putting off the preparation process. But there are ways around those retirement roadblocks.

How to start? Just make the commitment to do it. Once you do, this checklist for retirement will help you to the post-working life you deserve.

1. Understand Where You Stand Financially

Before you can figure out how to live comfortably in retirement, you need to know how comfortably you’re living in … well, non-retirement. Like, right now. Are you overspending your means? The goal here is to get a sense for how sustainable your current financial situation is.

So we start this retirement planning checklist by suggesting you take an inventory of all your debts and all your resources. Use a worksheet, or at least make a couple of lists, one for everything (everything!) you owe and one for everything you have in the way of income, savings, investments, property, and valuables. If that sounds like creating a budget, well, it sort of is, except this is a big-picture snapshot of the state of your finances rather than a monthly record of what you spend vs. what you make. (By the way, that snapshot will change over time as the size of your assets changes and you take on new debts or pay off old ones, so it’s useful to do this sort of inventory every now and then, maybe annually.)

Once you have those numbers in place, you can measure them against what you’ll likely need for retirement, and then you’ll know how far you have to go to get there.

And what, you’ll ask, will you need? There are a handful of conventional wisdom equations for determining how much you will need to save for retirement, but of course everyone’s needs are different. It depends on how comfortable you want to be out there on golden pond. Here’s a scary number, though: $1.27 million. That’s the average total that Americans think they’ll have to save by the time they stop working, according to Northwestern Mutual’s 2023 Planning and Progress Study.

It’s an imposing figure. Like we said, scary. So taking stock of your current financial situation is an important first step on your retirement to-do list. It establishes a baseline from which you can measure your progress.

2. Build Your Emergency Fund

You probably don’t want to hear this, and we can hardly blame you. Saving for retirement is challenging enough, right? Now we’re telling you to put some of your money into a separate account, too, just for emergencies?

Yep, we are. Truth is, you should have an emergency fund whether you’ve started saving for retirement or not. If you aren’t prepared for the unexpected medical bill or the sudden loss of your job or any other sort of catastrophe, times can get tough in a hurry. The perfect-world solution is to split your savings efforts, directing some into a retirement account and some into an emergency fund large enough to cover your living expenses through a short-term crisis.

How short a term? Six months should do it; a year if you can manage it. Set a goal for that, and periodically deposit some money into a liquid money market or passbook savings account separate from your other savings. Doing it automatically via payroll deduction might alleviate some of the stress. Designate that account solely as your emergency fund, and don’t touch it for any other purpose.

By the way, maintaining an emergency fund is just as important once you’ve actually retired. It can keep you from being forced to borrow from the retirement accounts that support your day-to-day living after you stop working.

3. Eliminate Your Debt

Now we’re really piling on. You’re already saving for retirement and emergencies at the same time, and you’re supposed to pay off all your debts, too?

Again: Yep!

Why is that important? Because once you retire, you won’t be getting those regular paychecks you’ve been using for your monthly mortgage payment, or your credit card bills or your car loan or even those student loans you took out a lifetime ago. A lot of those debts come with high interest rates, credit cards in particular. Your income in retirement will be fixed; those outstanding debts will take bites out of it that are proportionately bigger than they are right now while you’re still getting paid every week or two.

So you don’t want to retire in debt if avoiding it is at all possible. And how do you avoid it? You need a game plan. It will help to understand that you don’t have to pay off every debt all at once. Deal with the high-interest debts first, bumping up the monthly payments when you can. Prioritize the others, working your way down the interest-rate or balance-size scale.

It’ll take time, especially because you’ll continue putting some of your savings into your retirement plan. But if you start early enough and attack your debts carefully and consistently, you can be debt-free by 50.

4. Determine Your Retirement Needs

All right, enough with the bad news, at least for now. This next step might be a little more fun: Figure out what you want your retirement to look like. Where do you want to live? How do you want to spend your days? Do you want to travel? Is a speedy little fire-engine-red Maserati in your future?

Dream big … for a minute.

Then come back to reality. Look at the last word in that subhead right up above this section. It’s “needs.” Not “wants.” So temper what you want your retirement to look like with how much you’ll need to pay for it and how close you can come to that number. As best you can take stock of what sorts of expenses you expect to have once you stop working and compare them with what you expect your income to be.

That comparison might sober you up a little, but it should help you structure a practical retirement savings plan in the here and now. If your heart is set on the high-flying life of Riley in retirement, you’ll need to save more. If that isn’t possible, be sensible. Make some educated guesses about what you’ll be able to afford, and make sure your savings plan will account for it.

Here’s a tip that might resonate with some of you: Think back to how you saved to send your kids to college and use the same sort of planning to stockpile the wherewithal to pay for the things you’d like to do in retirement. Or apply the budgeting process you’re using for your living expenses right now to the lifestyle to which you’d like to become accustomed when you retire.

That way, you can visualize a realistic retirement. Anything you save over and above what you need for reality can go toward that Maserati.

5. Create a Budget

If you aren’t already following a budget, start now and get in the habit. It’ll come in just as handy in retirement as it will at keeping your finances in order today. Here’s a quick primer on how to create a budget.

Keep track of your expenses every month, in as much detail as you can. That includes everyday expenses like food and clothing, of course, but it also includes expenditures such as loan payments, health insurance costs, travel arrangements, emergency supplies and everything else that sucks the bucks out of your wallet. Make a list, or use a digital budgeting app. They’re easy to find online.

Then list all your sources of income on a monthly basis, including take-home pay, social security, alimony, pensions, disability benefits, child support, investment earnings and whatever else has come your way over the course of the month.

Add up the expenses. Add up the income. Compare and contrast. When you do, it will be easy to see if you’re outspending your means, and you can adjust accordingly. If your monthly outlays are more than 90% of what you’re taking in, it’s time to cut your expenses.

If you’re coming out ahead of the game and you’re earning more than you’re spending, then you can start putting a few of those excess smackers toward your retirement.

6. Plan for Healthcare Costs

You know what happens as most people get closer to retirement, right? They get older. That means their healthcare needs change. As they age, they see their doctors for aches, pains and ailments that might not have been physician-visit-worthy back when they were young, footloose, and dancing the night away with their peeps.

One of the biggest expenses in retirement, as it happens, is healthcare. According to the 2023 Fidelity Retiree Health Care Cost Estimate, the average retiree at age 65 will spend $157,500 in health care and medical expenses during his or her retirement years. For a retired couple, it’s $315,000. (The good news is that those numbers didn’t increase from 2022.)

So yes, planning for medical bills, known and unexpected, is a very important part of retirement preparation. Some of those healthcare costs include:

• Medicare premiums
• Prescription drugs
• Surgeries
• Doctor’s visits
• Hospital stays
• Long-term care
• Chronic health conditions such as heart disease, diabetes, and arthritis

Medicare coverage is available to people when they turn 65, and that’s great … with two catches: 1.) The average retirement age in the U.S. is 61, which can leave a hefty time gap between retirement and Medicare eligibility if you aren’t still covered by your former employer’s plan or your spouse’s employer’s plan; and 2.) Medicare only covers about 80% of approved expenses after you meet an annual deductible. The rest comes straight out of your own pocket.

Your retirement planning, then, should include research about supplemental insurance, Medigap coverage, Medicare Advantage plans, Affordable Care Act (also known as Obamacare) plans, long-term care coverage, tax-advantaged Health Savings Accounts (HSAs), and private insurance. You can invest in some of those options right now to help set yourself up for retirement. They can be pricey, though, so be prepared. Plan in advance, make sure you understand all your options, consider your medical history, and, if possible, create some room in your savings prep now to alleviate the cost of healthcare later.

7. Create a Plan For Your Estate

You’ve spent most of your adult life building and managing your money. Chances are, you want to pass it on to your nearest and dearest once you’ve … well, once your time is up. You can prepare for that through will and estate planning, making sure your family (or whoever you designate) can seamlessly inherit your assets. This is one of those sooner-rather-than-later items on the preparing-for-retirement checklist that many people let slip through the cracks. Remember, you never know what tomorrow will bring.

A will is a legal document that lays out how your assets are to be distributed after your death. You can hire a lawyer to write it for you, though that isn’t necessary if your estate is relatively simple. Kits for writing a will are available to purchase, or you can find a form online. Some states require a will to be notarized, and most require the signature of at least one witness.

Estate planning usually includes a will, but also means choosing a person (called an executor) to make sure your wishes are followed. It can also include specifying your directives about what to do if you become incapacitated and can’t make your own legal, financial, or medical decisions. And speaking of things you can do before you pass, pay attention to the opportunities to give cash gifts (up to the taxable limits) now to the people you love; it may help them avoid hefty inheritance taxes later.

If you die without a will, the division of your assets will be left up to a probate court. That takes time, it can involve fees for the people you’ve left behind, and it might not result in the asset distribution you intended. Best to make sure you have your beneficiaries in place in all of your account documents now.

8. Invest in Retirement Accounts

You can start this process early in your professional life simply by contributing monthly to one or more of a number of different retirement savings plans. When you do, you’re not only stockpiling funds for later in your life, but you’re also earning compound interest on those contributions. The longer you keep up with those investments, the more money you’ll have to finance your retirement. Think of it as investing for life.

The easiest way might be through your employer-sponsored plan, but you can also start an individual account and manage it on your own. There is a myriad of retirement account types, including:

• Traditional 401(k) plans. These accounts are offered by a company for its employees. Contributions generally are done with paycheck deductions and are tax-deferred, which means you won’t pay taxes on them until you withdraw the funds. Plus, many employers will match your deposits up to a certain amount. The amount you can contribute to a 401(k) plan is greater than what you can deposit into an IRA.
• Traditional Individual Retirement Accounts (IRAs). You open these accounts and make contributions to them by yourself. Those funds also are tax-deferred, but the annual limit on the amount you can put into an IRA is smaller than in a 401(k).
• Roth IRAs. The main difference between a Roth and a Traditional IRA is that contributions to a Roth IRA are made with after-tax dollars. In other words, you pay the tax on that money now rather than when you withdraw it.
• High-yield savings accounts. The advantage to these is that the federal government protects your money by not investing it in stocks or bonds, so there is no risk to you. The downside is that the funds don’t grow very fast in comparison to a 401(k) or an IRA, despite the “high-yield” wording in what they’re called.

There are variations on each of those account types, and others to explore as well. They all come with their own set of rules, so make sure you understand from the beginning what you can and can’t do with the money you’re investing in a retirement account. Ask for help from someone in your company’s HR department or reach out to a nonprofit credit counseling agency for guidance.

“All well and good,” you might be saying. “But I’m already well into my career and I didn’t save as much as I could’ve or should’ve when I started my retirement account back in my younger days.”

It happens. But there is a remedy. When you turn 50, you can contribute more than the annual maximum amounts you were allowed earlier. For 401(k) and some other accounts, you can add $7,500 above the max; for IRAs, you can contribute an extra $1,000 once you reach 50. They’re called catch-up contributions. Look into them!

9. Plan Where You’ll Live in Retirement

Remember 1,000 words or so ago when we discussed the importance of deciding what you’re going to need in retirement? One of those decisions is what you’ll need to be where you want to be when you stop working. Do you want to stay in the house you’ve been in for the last 20 years, near longtime friends? Do you want some place new that isn’t tied to your work commute? A second home for weekends or vacations? A better climate? More recreational opportunities? A community that offers services for seniors?

Some of those alternatives will cost more than others, and you should account for that in your decision-making process. You might want to think, for example, about moving to a state with a lower income tax or a lower cost of living, where your retirement savings might last longer. You might want to consider how much living space you’ll need, too, as well as how many stairs you’re going to feel like climbing as you get older. Is retirement the time to downsize into a condo or a townhouse, which could save you some money?

You might not be ready to move into senior housing right now, but it doesn’t hurt to start thinking about where you might be able to find the kind of care and environment you’ll want and need in your later years.

A number of organizations conduct annual studies and surveys about the best places to retire, and they use cost as one of the prime factors. A quick Google search will get you to them.

No reason you have to carve these decisions in granite right away. But a sense of where you eventually want to be can help guide your retirement savings preparation.

10. Plan to Maximize Social Security Benefits

You’ve been paying for Social Security ever since you started working. Retirement is supposed to be when all those payroll deductions over all those years become worth it. You get a monthly check from the government, and you get it without having to sell another insurance policy, drive another delivery truck, teach another class, sit through another business meeting, bus another restaurant table, or write another story about planning for retirement.

Sounds pretty good. But it isn’t perfect, and it might not even be in place for the long term. Along with Medicare, Social Security’s role as an entitlement program makes it something of a government hot potato right now, as conservatives look to reform, privatize or even sunset it. Also, Social Security’s long-range funding isn’t secure; some experts predict its trust fund reserves could run out in the next decade. It’s very unlikely it will go away altogether, but it is possible the system will change in the coming years.

One other thing: Your Social Security checks won’t make (or keep) you rich in retirement. The average monthly check is $1,705.79, as of August 2023, according to the Social Security Administration. It isn’t unusual for retirees to get more than that, but here’s an interesting point of comparison: The 2023 Federal Poverty Level for an individual is $14,580, which breaks down to $1,215 per month. Social Security should keep you above that poverty line, but not by miles.

So it makes sense to get as much out of it as you can, while you can. There are ways to maximize what the program can do for you, starting with when to take Social Security benefits. You can begin getting those checks when you’re 62, but that isn’t the most efficient use of the benefit. The amount you get each month will be larger the longer you wait to start, so it’s worth noting that once you do begin, the size of your checks won’t change in the years to come, except for cost of living adjustments.

If you can wait until you’re 70 to start taking Social Security, you’ll be getting about 75% more every month than you would have at 62. The way to maximize your Social Security benefits, then, is to work for as long as you can before you tap into them.

If retirement is going to happen earlier come hell or high water, it might make sense to use some of your other retirement accounts to cover your living expenses for a year or two or three before you start your Social Security benefits. An investment strategist or a nonprofit credit counselor can help you work through the math to see how that might work.

By the way, retirement income isn’t the only benefit available through Social Security. If you think you qualify, it’s well worth looking into the four other types of Social Security benefits, including:

• Disability benefits to those who can’t work because they have a medical condition expected to last at least a year or result in death.
• Medicare benefits for people 65 or older, or for people younger than 65 who have disabilities or permanent kidney failure.
• Survivor benefits for widows, widowers, and the dependents of eligible workers.
• Supplemental Security Income to disabled adults and children who have limited income and resources, or people 65 or older with limited income and resources.

Whenever you’re ready to start your Social Security benefits, you can apply online at www.ssa.gov/retirement, call the national toll-free service number at 1-800-772-1213, or visit your local Social Security office.

11. Establish a Withdrawal Strategy

Here’s another wrinkle you might not have anticipated. It isn’t always easy to know the best time or way to get the money you’ve saved for retirement, or how to maximize the financial strength of the loot you’ve salted away. There might be penalties for early withdrawals, for example, if you take money out of one of your nest-egg accounts before you’re 59 ½. And when you turn 72 (or 73 if you reached 72 after Dec. 21, 2022), the law will insist you have to take a certain amount out of your IRA as a required minimum distribution (RMD) every year.

If you have an employer-sponsored account such as a 401(k), you’ll need to decide whether to keep that money where it is when you retire or roll it over into an IRA account. There could be tax implications in that decision, which you’ll want to factor into your thinking about what will work best for you.

It’s all a part of juggling how much you’ll need to live the kind of retired life you want, with how long you think you’ll need your savings to last once you stop working. Those are difficult issues, especially if you have a good number of nose-to-the-grindstone years to go before you settle into your front-porch rocking chair. If it’s all too much, you can get advice from a retirement counselor or other expert. But the sooner you start thinking about how and when you’ll use your savings, the better prepared you’ll be.

12. Revise Your Retirement Plan as Needed

Things change.

Retirement accounts change. Laws change. Your health changes. Your life changes. The plans you made in your 30s (or 40s or 50s) might have been perfect back then, but … well, yeah, things change. It’s important to occasionally check the condition of your savings and measure it against your current vision for your life in retirement. Do it once a year if you can.

That might mean increasing (or decreasing) the amount of your annual 401(k) or IRA contributions. It might mean reassessing who you’ve listed as your beneficiaries on your policies. It might mean accounting for children who weren’t around when you started saving, or maybe factoring in a divorce or a death in the family.

Has your health changed? Are you in a different job? How is the state of the economy affecting your investments?

As your retirement gets closer, it’s an especially good idea to have a solid sense of where you are financially and where you need to be to make the most of your life after the job. Think of your retirement preparation as a work in progress. You can always tweak it as necessary up until you walk out of that office or factory or warehouse for the last time.

Get Help Eliminating Debt Before Retirement

We’ve spent a lot of time so far talking about ways to maximize your retirement income. Maybe we haven’t emphasized enough the advantages of minimizing your expenses once you’ve retired.

We mentioned the importance of budgeting, and the very good goal of disposing of outstanding debts while you’re still drawing a regular paycheck from your employer. They’re worth highlighting again. Fact is, those are two of the best ways to make sure you have enough to live the life you want in retirement.

Neither is the proverbial walk in the park. But help is out there, and you can avail yourself of it right away. No need to wait until you actually retire. A counselor from a nonprofit credit counseling agency can talk you through the budgeting process and work with your unique financial situation to create a plan so you can retire debt free.

There are a number of ways credit counseling can help you tackle debt. Certified credit counselors at nonprofit credit counseling agencies are trained in the areas of budgeting, consumer credit, money, and debt management. They’ll examine your income and expenses, review your credit reports, and help you develop a personalized plan that can solve your money problems and get you out of debt and in great shape to get the most bang for your retirement bucks.