If you want to do retirement right, you'll need a checklist. But what tasks should be on your pre-retirement checklist? Here's what experts had to say.
Are you sure you want to retire? First, revisit your retirement date. "For some, making a decision to stay on the job an extra year or two beyond your planned retirement date will enable you take advantage of your company's match in your 401(k) plan, delay triggering Social Security to maximize monthly payouts later, and accumulate more money in your savings," says Sandra Timmerman, a nationally recognized gerontologist.
Can you afford to retire? Dead set on your retirement date? Determine whether you can afford to retire — whether you'll have sufficient income and assets given your household's retirement expenses and liabilities.
To do that, create a financial plan, and stress test it. What will your sources of income will be in retirement; how much can you expect from each source and for how long? The average retiree has income from Social Security, wages, retirement accounts such as IRAs and 401(k)s and, for some, a pension.
Visit the Social Security Administration's "my Social Security" website to get your benefit estimate and earnings statement, says Stuart Michelson, a finance professor at Stetson University and editor of the Financial Services Review. Review, too, your company's retirement benefits, including your pension, 401(k) or other retiree benefits.
Figure out not just your gross income, but your after-tax income and whether you can live on that. "I've seen so many situations where people look at the amount of their retirement benefits and compare that to their take-home pay," says Larry Frank Sr., a financial adviser with Better Financial Education in Roseville, Calif. "Big mistake since the retirement benefits, be they from a pension, Social Security, and/or their 401(k), 403(b), 457 and the like are in gross dollars."
Create an investment plan. "Make sure your portfolio is designed around the rest of your lives, and not just hitting the retirement date," says Carl Richards, director of investor education for the Bam Alliance in Park City, Utah. "Because the goal for so long has been to retire, and most people have been so focused on that goal, they fail to realize that life goes on, and the whole point of saving and investing over decades is so there will be enough money in retirement to live."
Do a dry run. Determine whether you'll have enough income to support your desired lifestyle in retirement — before you retire. "While you're still working, and it looks like you will have less to spend in retirement from all sources compared to working, then practice the transition first," says Frank. "You do this by saving more, which equals spending less."
If you can successfully live on less, then you've shown yourself you can retire as planned. "If you can't, then you need to work longer," says Frank.
What will your expenses be in retirement? Visualize and price what retirement will mean and determine an appropriate income-replacement ratio. "This might include doing mundane things such as figuring out the cost of living for small items in a new city or costing out leisure-time activities," says John Grable, professor of financial planning at the University of Georgia and co-author of The Process of Financial Planning.
New retirees can expect a U-shaped expense pattern in retirement. "During the early years expenses may be near pre-retirement levels," Grable says. "Over time, expenses should drop as the routine of retirement kicks in, but at some point, health care costs may drive expenses back up," says Grable. "Be prepared for this now is a sign of prudent planning."
Evaluate whether you need to replace some or all of your employee benefits in retirement. "For those who are Medicare-eligible, it's important to make sure the transition is seamless, and to figure out supplemental insurance options and pricing," says Timmerman. "To many people's surprise, health care and dental care costs are higher in retirement than they anticipated."
If you have an employer-sponsored retiree health care plan, consider the possibility that your employer might cancel or trim this benefit in the future.
On average, retirees spend anywhere from 11% to 16% of their after-tax income on expected health care expenses. And don't forget to plan to pay for unexpected health care expenses, too.
Plan for two eras in retirement. For couples, there are two general eras in retirement for which to plan, says Frank. One, when both are living, and two, when either one is the survivor.
Pension choices range along a spectrum of 100% to survivor and 0% to survivor, with the maximum benefit today being 0% to the survivor. "If people stopped to think about this for a moment they'd realize their retirement choice has a big effect on the second retirement era," Frank says.
Ditto the decision around when to claim Social Security benefits. . "Claiming Social Security should also factor how to maximize benefits for the survivor era," says Frank.
Work with a financial planner. Would you benefit from hiring a financial planner who can build a retirement plan or who could vet your plan? "Work with a financial planner or actuarial adviser to get a good feel for life expectancy," says Grable. "How long one will live is the key factor driving savings requirements for a pre-retiree along with assumed rates of return pre- and post-retirement."
Do you have flexibility? If you're unsure whether you want to retire full time or part time, give yourself some options. "Set up your life so you can be flexible and test things out without making major commitments, says Joe Tomlinson, a financial planner with Tomlinson Financial Planning in Greenville, Maine.
Where will you live? Revisit your housing options in retirement. "Most of us plan to stay in our current homes and communities when we retire, but there might be practical reasons to move," says Timmerman. "If your home is too big, too hard to maintain and not suitable should you become impaired, you might consider downsizing to a newer, more accessible home in a less-expensive area, and use the money to supplement your retirement nest egg. Even if moving is not on the radar, it's helpful to think through your changing housing needs as you age."
What will you do? What you want to do with your life in retirement once the honeymoon period is over? "Traveling and playing golf isn't enough for most people who have had an interesting, busy work life," says Timmerman.
Identifying the things you've always wanted to do and how you will get started — whether launching a new business, having deeper community involvement or developing new skills — will add fulfillment and excitement to your retirement planning process, she says.