Retirement on the Horizon: A Financial Planning Checklist

Retirement is one of the biggest events you will experience in your lifetime and requires you to have a retirement checklist to plan your finances correctly. Starting that next phase of life brings about significant changes, both personally and financially. Financial freedom and security in retirement does not just happen. Retirement planning takes time, carefully thought-out strategy, and a monitored plan to achieve success. Here is a retirement checklist of items to consider as you are trying to plan for your life after work.

Figure Out Your Retirement Timeline

This sounds simple, but it can be one of the hardest decisions you have to make. Have you picked your targeted retirement date? There tend to be two different scenarios – your company picks your retirement date for you (mandatory retirement at a certain age) or the date is flexible. If the decision is up to you, how do you pick your date? Is it when Medicare kicks in at 65?  Maybe it is when you feel “ready”. Or perhaps it is based on when you have saved “enough” for retirement. A cash flow plan can be very helpful when considering your options.  It will show you a financial picture of where you are today and model out, with targeted financial goals, how financially stable you will be at various retirement ages.  Having this clear picture can help you feel comfortable with the planned retirement date you choose.

Determine Your Spending and Savings Goals

When preparing your cash flow plan, you will be asked how much money is coming in each year and how much you are spending each year. This will show you how much you can realistically save annually for retirement. Will saving the targeted amount be enough to give you the financial freedom you want in retirement? The sooner you do your cash flow plan, the more time you will have to adjust any spending and savings goals in your working years to be where you want to be financially by the time you retire.

Understand Where You Should be Saving Your Assets

After you know how much money you need to save, the next consideration is where to save your money. Which type of account is the best place to contribute your money and grow your assets? There are three main choices:

  • Traditional Tax-Deferred Retirement Account
  • Roth Tax-Free Retirement Account
  • After-Tax Taxable Investment Account

Where to save your money is largely a function of your tax bracket while working and your projected tax bracket in retirement. Saving in the right “bucket” can help reduce taxes over your lifetime as it can allow you to maximize tax-savings strategies through tax-deferrals, and equally as important, it can allow for a tax-efficient draw down strategy in retirement.

Review Your Portfolio Allocations

For the next item on your retirement checklist, consider how your portfolio is currently allocated. Where are you on the scale of aggressive to conservative? More importantly, why are you allocated the way you are allocated? If you do a cash flow plan, you can then become comfortable with how much risk you need in your portfolio to meet your spending needs in retirement. Maybe you have saved enough and no longer need to be aggressive with your investments because a moderate rate of return will be enough to meet your goals.  Maybe you are being too conservative and will not reach your retirement goals without taking on some additional risk.  An easy way to answer these questions is to understand your financial picture now and in the future.  This will give you the comfort level you need to make the best decisions about your portfolio allocations.

Create your Multi-Year Tax Plan

Many taxpayers pay the highest tax rates of their lifetime at the end of their working years and will see a decrease in tax rates once they retire.  If this is your situation, consider how you can take advantage of your change in tax posture. In high income tax years, consider accelerating deductions to minimize taxes. In lower tax years, consider bringing in additional income to absorb the lower tax rates. This tax planning can be especially important if you retire prior to age 70 and you do not yet have to take Required Minimum Distributions from your IRA.  Consider what will happen when your RMDs start at age 70. How much additional taxable income will the RMDs create and at what rate will the income be taxed? Doing a multi-year tax plan will show you any tax-saving opportunities and allow you to maximize your after-tax wealth.

Get an Insurance Review

Try to approach your insurance situation from a planning perspective.  A great place to start is by looking at what insurance products you already have.  Many people buy annuities, life insurance, long term care insurance, and disability insurance at some point in their life.  Understand what you have so you can determine with your planner if it is still the right fit.  For example, maybe you wanted whole life insurance when you were younger because you wanted to be able to use the cash value if you ever needed it.  Do you still need the cash value of a whole life product?  If the cash value is no longer important to you, it might make more sense to exchange the policy for a different type of life policy that also can be utilized for long-term care insurance should you need it later in life.  The insurance industry is one in which change is a constant, so to review your current policies, see what they are costing you, and then determine if they are the best fit for your overall financial plan can be worth-while exercise.

Review Your Estate Plan

Your estate plan is something that should be reviewed as your personal situation changes and as estate laws change.  There are the administrative considerations as well as the estate tax considerations.  When is the last time you looked at your will, your trust, or your beneficiary designations?  Are these all still in line with your intentions?  If you believe you may have a taxable estate when you pass, start planning now if one of your goals is to reduce the amount of estate taxes paid when your assets transfer to the beneficiaries. The more time you have to plan for asset transfers, the more wealth you can preserve and pass to your beneficiaries.

DHJJ Financial Advisors Can Help Plan Your Retirement Checklist

It is never too early to start planning for retirement. Keeping your plan updated and reviewing it as you approach your retirement date will give you the peace of mind about your financial well-being as you transition into the retirement phase of your life. Please contact DHJJ to start your retirement planning.