10 Ways to Prepare for Retirement

When preparing for retirement, naturally, people wonder what to do in order to be well prepared. Here are 10 ways to be better prepared:

1.) Start by reviewing the financial plan. If you’ve never completed a financial plan, readying for retirement is the ideal time to start. Be sure to shop for a qualified professional, one who acts as a fiduciary, is a good personality fit, and whose area of practice is focused on your needs. This is not the time for product sales, but rather good counsel. Finding the right financial advisor is perhaps its own topic for a similar article – what to seek for financial planning and portfolio planning.

2.) Review the appropriate level of risk in your investments as you near use. Prior to retirement, it is common for a “pedal to the metal” mindset, where investors seek to maximize pre-retirement investing by taking significant market risk as they have throughout a career, always having had the time to make up market disruptions with a sufficient time horizon. As retirement nears, it may be time to consider scaling back some risk. Retirees are long-term investors with a desire to see portfolio growth, but they also develop competing interests of drawing income to meet their needs, and preservation of capital as they realize they can’t, or don’t want to, go out and make it again.

3.) Review when to access Social Security and/or pensions. Very often, pre-retirees intend to start such resources immediately upon discontinuing work. Depending on life expectancy and prospective longevity, it may be a better plan to draw from other resources while fixed resources like Social Security amounts grow prior to initiating benefits. For example, Social Security benefits grow by 8% per year from full retirement age until age 70. For someone whose full retirement age is 67, that means an additional 24% benefit if started at age 70 … along with all those compounded inflation increases along the way. For the higher breadwinner, this also means that it will last as long as your lifespan, but if you are married, it will be the longer of either spouse. In many cases, but around age 80, the accumulated higher monthly benefits overcome the 3 years of not receiving benefits. So, if you expect one of the two will live past 80, starting at 70 may be best. Work with a professional to examine the timing of starting fixed resources like pensions and Social Security. Sometimes the best outcomes are counterintuitive.

4.) Seek to consolidate and simplify the number of accounts. Over a career and lifetime of investing, we tend to collect a mix of investments – multiple employer plans, a stock tip here, a mutual fund there, perhaps even an inheritance, etc. This is the time to simplify the number of accounts and locations, and bring structure to the planning. Approaching retirement is the ideal time to develop a process of how investments will be structured, accessed, and invested. Whether for tax planning or for cash flow considerations, planning where to hold what kinds of investments and approaching a portfolio not as a collection of things acquired along the way, but as a purposeful design for life’s next phase, is the challenge now. In both banking and investing, start thinking of how you will want your resources invested and who will play what role. While you have health and full faculties, start building the team of professionals who will help you and a prospective surviving spouse or your family in the event your abilities diminish over time or at your untimely passing.

5.) Be realistic in planning for expenses and projections for cash flows and inflation. It is common for families not to fully know how much they spend. Start by reviewing what you spend now. It is true that some expenses may diminish or end in retirement – commuting for work, professional wardrobe costs, perhaps even paying off the mortgage. It is also true that some other expenses will increase – initially travel, perhaps later health care expenses. Start by planning to replicate your current spending levels while backing out current investment and savings. Tally up what flowed out of your bank account(s) over a 12-month period. Don’t forget that some extraordinary expenses are likely every year, it just may differ as to which ones. Financial planners have sophisticated software that can plan for wide ranging scenarios of expenses, goals, supplemental work income, different inflation considerations for different kinds of concerns, i.e., health care at higher inflation.

6.) Re-evaluate the need and purpose of old life insurance. For most families prior to retirement, the goal of life insurance is wealth creation or income replacement. It might be to repay debts or amass wealth in the event one doesn’t live long enough to do that through their own earning, saving, and investment. Once wealth is created and you’re prepared to make work optional, existing life insurance, for most families, may become optional. It can be worth deploying these resources to other risk mitigation priorities.

7.) Consider how you will contend with the potentially high costs of long-term care (LTC) late in life. Ultimately, having sufficient resources to meet the needs of estimated long-term care costs is desirable. If there’s enough to protect, but not enough to meet the projected costs, insurance can be a tool worthy of consideration. Those with unlimited resources might consider insurance as a means to contain costs, but LTC insurance is costly, so it is a challenge to plan the ideal mix of coverage and risk. Now there are several means of managing risk with traditional LTC insurance policies, life insurance hybrid policies, and even annuity hybrids. Each has their virtues and challenges. Evaluate the best plan for your family’s health and resources.

8.) Evaluate whether your current home and location meet your retirement desires and needs as you age. Will you relocate for climate, family, or one-floor living? Retirement is often a time to relocate to warmer climates or long-desired destinations. Some seek to be near family. Many consider where their final home may be to allow a longer period of staying in place as their needs change with age. Single floor living and simplified maintenance can be key for aging. Additionally, downsizing can come with benefits of lower costs for taxes, utilities, and maintenance.

9.) Get serious about estate planning. Although it may have been adequate to simply have a will when the kids were young, it might be time for a more elaborate plan now. Most retirees will want to have documents for incapacity concerns, like a healthcare proxy (aka healthcare power of attorney) or a living will (depending on your jurisdiction), and financial documents like a power of attorney. Trust documents are often selected for incapacity and testamentary disposition. There are some fundamental choices to be made for estate planning direction, including one that is geared toward Medicaid planning. This focuses on protecting assets from the concerns of spending down to become eligible for Medicaid but limits your access to your own wealth by giving funds away or placing them into an irrevocable trust where principal is not accessible. Otherwise, for those with wealth, perhaps the more preferable approach is to use a revocable living trust which helps you manage financial concerns for incapacity, testamentary disposition, probate avoidance, and potentially creditor protection for heirs.

10.) Reimagine your life’s purpose. Start planning for how you’ll spend your time. For many, work is intimately tied to their identity, so develop other interests and priorities as to how you want to spend your time and life’s energy. Retirement marks not only an ending but also a new beginning. It is an opportunity to reimagine what will give your life meaning and focus for the next phase. For some it will involve recreation, golfing, boating, etc., or travel. For others it will afford new professional ventures – consulting, teaching, entrepreneurship. Many find the opportunity to cultivate a creative side with writing, painting, or some long intended venture in the arts. And, for many, it is an opportunity to give back to some element of their community, whether through volunteerism, board service, church engagement, and so on. The imagination, and one’s financial resources after competent planning, are your only limits.

Take the time to prepare, before it’s time to retire. Start your preparations now with the support of experienced financial advisors and prepare for the life you might imagine!