As the famous saying goes, “The best time to plant a tree was 20 years ago. The second-best time is now.” Just like that tree, your retirement needs careful planning and preparation to grow into something truly rewarding.
This article is based on my years of experience in retirement planning, and I will walk you through a comprehensive 10-year retirement checklist, ensuring that you’re on track for the golden years ahead. Whether you’re years away or just around the corner, it’s never too early—or too late—to start preparing for the retirement you deserve.
10+ Years Before Retirement: (Age 45)
Saving and Planning
With more than ten years until retirement, prioritize maximizing your savings. In 2024, you can contribute up to $23,000 to a 401(k) (with an additional $7,500 catch-up contribution if you’re 50 or older) and $7,000 to an IRA (with a $1,000 catch-up contribution if you’re 50 or older). Ensure you take full advantage of any employer 401(k) match.
Consulting a financial professional can help you set your retirement savings goal, considering factors like life expectancy, expenses, inflation, and taxes. If there’s a shortfall, look for ways to increase your savings.
Life can be unpredictable, so protect your retirement savings by diversifying your portfolio according to your risk tolerance. Limit employer stock in your retirement plan to 10-20% of your total savings. If rolling over employer stock into an IRA, check for potential tax-saving strategies.
Visualize your daily life in retirement to make it feel more tangible and motivate you to save. Plan social activities and other aspects of your future lifestyle.
Tax-Efficient Income Strategies
Taxes can greatly affect your retirement income. Meet with a financial professional to discuss the tax implications of your income sources. A range of tax-efficient income sources can help extend your retirement funds and prevent unexpected tax bills.
Estate Planning
Create or update estate planning documents and trust agreements. Consider how permanent life insurance can assist with your legacy and estate planning goals. Ensure beneficiary designations on financial accounts are current.
Make sure your will is current, and you’ve assigned durable powers of attorney for both medical and financial decisions. Create or review your advance healthcare directive. These documents form the foundation of your estate plan and provide crucial protection for you and your loved ones.
Insurance Needs
Review your insurance coverage needs as retirement approaches:
- Life Insurance: Decide if you need it to protect loved ones and facilitate asset transfer.
- Disability Insurance: Maintain it until retirement to safeguard your income.
- Long-Term Care Insurance: Plan for potential long-term care costs. New hybrid life insurance/long-term care policies offer tax-advantaged benefits and lower premiums if purchased early.
Manage Healthcare Costs
Healthcare is one of the biggest expenses in retirement. While Medicare covers retirees 65 and older, it requires premium payments and out-of-pocket costs for most services. On average, you’ll be responsible for more than one-third of healthcare expenses in retirement. If you retire before 65, you’ll need other healthcare coverage until Medicare kicks in.
Funds in a Health Savings Account (HSA) can cover some retiree out-of-pocket healthcare costs. If your health insurance plan doesn’t include an HSA, you can open a separate HSA and fund it.
This is another great way to save up for medical and long-term care expenses. It can also boost your retirement savings because, after age 65, it can be used for any expenses without penalty; you’ll have to pay taxes on distributions not used for medical needs.
9 Years Before Retirement: (Age 46)
Refine Investments
Adjust your investment allocation as retirement nears, shifting from stocks to bonds to protect savings. Consider target-date funds if you’re unsure how to balance your portfolio.
Plan for potential issues like early retirement due to illness or downsizing.
Before retiring, consider converting pre-tax retirement accounts, such as a traditional IRA or 401(k), into a Roth version. You’d owe taxes upfront on any amount transferred, but the future withdrawals would be tax-free. This move could make sense if you scale back your work and are now in a lower tax bracket. Be sure to consult a tax professional about the tax bracket maximization strategy for Roth conversions.
Financial Progress
Bump up your contributions to retirement accounts if possible. This is a good time to review your asset allocation with your advisor and rebalance your portfolio if needed. Check your Social Security statement online to ensure all earnings are correctly recorded.
Focus on reducing high-interest debt. A debt-free retirement provides much more financial flexibility and peace of mind.
Health Focus
Build on the health foundation you started last year. Establish regular mental health routines like meditation or journaling. Look into whether a high-deductible health plan might make sense for HSA eligibility.
Legal Updates
Review beneficiaries on all your accounts and insurance policies. Life changes like marriages, divorces, births, and deaths can affect who should be listed.
Skill Development
Start identifying skills that could translate into consulting or freelance work in retirement. Many retirees find part-time work fulfilling and financially helpful.
Home Improvements
Consider making minor home renovations that could add resale value if you’re planning to downsize eventually.
8 Years Before Retirement: (Age 47)
Forgotten Funds Tracking
List all your past jobs and check for any forgotten retirement savings, pensions, or stock options. Consolidate old accounts into your current plan for easier management. Move idle cash to high-interest savings or certificates of deposit.
Investment Expansion
Look beyond traditional retirement accounts. Consider whether taxable brokerage accounts or real estate investments might diversify your retirement income. Use a retirement planning tool to run projections of your current savings trajectory.
Comprehensive Health Check
Schedule dental, vision, and hearing checkups. These areas often get overlooked, but can become significant expenses in retirement. Set specific health milestones like target blood pressure or cholesterol levels.
Long-Term Care Research
Start researching long-term care insurance options. The earlier you purchase a policy, the lower your premiums will typically be.
Retirement Priorities
Create a list of “must-have” versus “nice-to-have” retirement experiences. This helps clarify your financial priorities and ensures you’re saving for what truly matters to you.
Location Research
If you’re considering relocating, research the cost of living in your target retirement locations. Look at housing costs, taxes, healthcare access, and lifestyle amenities.
7 Years Before Retirement: (Age 48)
Setting a Retirement Budget
Estimate your retirement expenses, including housing, food, taxes, travel, hobbies, and insurance. Plan for Medicare Part B premiums and potential additional coverage. Adjust your plans based on changes in health, family, or other factors.
Financial Security
Reevaluate your emergency fund. In the years approaching retirement, having 6-12 months of expenses saved becomes even more important. Look for areas where you can reduce discretionary spending and redirect those funds to savings.
Family Health History
Review your family medical history to identify potential health risks you should plan for. This information can help you make more accurate healthcare cost projections.
Trust Documents
If you have trust documents, review and update them as needed. Ensure they still reflect your wishes and current family situation.
Retirement Lifestyle Test
If possible, test out part-time schedules or take a sabbatical to get a feel for what retirement might be like. This can provide valuable insights into how you’ll want to structure your time.
Home Equity Assessment
Compare your home’s current value to your remaining mortgage balance. Understanding your home equity gives you a clearer picture of your overall net worth.
6 Years Before Retirement: (Age 49)
Income Evaluation
Estimate whether your savings and expected retirement income can cover your budget. The 4% rule can help gauge sustainable withdrawal rates from your savings. It isn’t a perfect rule to follow, but it’s a good start. Stress-test your retirement plan with a financial adviser and adjust as needed.
Account Consolidation
Simplify your financial life by consolidating old retirement accounts. Check for any unclaimed retirement benefits from previous employers—this happens more often than you might think!
If you’re eligible for a pension, evaluate your options for taking it as a lump sum or annuity payments.
Fitness Routine
Establish a consistent fitness routine that you can maintain into retirement. Something as simple as tracking your daily steps can make a big difference in long-term health.
Document Security
Ensure all your legal documents are stored securely, and communicate their location to trusted family members or your executor.
Vision Refinement
Revisit and refine your retirement vision based on what you’ve learned in the past few years. Your priorities and goals may have shifted.
Home Inspection
Get a professional home inspection to identify any potential costly repairs that might come up in the next few years. Addressing these before retirement can prevent financial surprises later.
5 Years or Less Before Retirement: (Age 50)
Finalization of Plans
Set a specific retirement date and ensure your income sources are sustainable. You may have taken this step earlier in your retirement planning process, but now that the date is approaching, you’ll want to try to get more specific about when you plan to be done with work. Consider the sources of income available to you to start on your target date. You want to enter retirement with a high degree of confidence that your income stream is sustainable over the full course of your life.
Consider when to take Social Security
You can start collecting it anytime between the ages of 62 and 70. As you consider your options, a starting point is to determine your “full retirement age” (FRA) as defined by the Social Security Administration. It falls between age 66 and 67, depending on your year of birth. This is the age at which you collect your “primary insurance amount,” the base level of Social Security monthly benefits.
If you start to collect before your FRA, your benefits may be automatically reduced. If you delay taking Social Security until after your FRA, your benefits will be higher. Benefits are boosted by 8% for each year you delay your start date after FRA up to your 70th birthday.
Establish a withdrawal strategy for your savings
A portion of your retirement income will be generated from your savings, retirement, and other investment accounts. You’ll want to identify a specific withdrawal strategy that will allow you to meet your current income needs while assuring that you won’t exhaust your savings before the end of your retirement.
Develop a list of all accounts that can generate income for you during retirement to get a clear sense of how you’ll create your “retirement paycheck.” Social Security and any pension payments can usually be estimated with reasonable accuracy.
The amount you pull from your savings may vary, but you can project the potential stream of income it can create. You may also want to explore investment options to generate income in retirement, such as annuities.
Review Medicare Options and Adjust Investment Risk
Medicare will be the cornerstone of your healthcare coverage in retirement. Study your options well before turning 65 to make timely decisions. Consider long-term care insurance, hybrid life insurance policies, or self-insuring if affordable.
Revise your asset allocation strategy to reduce risk as retirement approaches. Consider reducing your exposure to investments subject to market fluctuation.
Also, please check with a professional since Medicare can be complex.
Think about long-term care
Genworth estimates the average cost of a private room in a nursing home at more than $9,000 a month — over $108,000 a year.
One way to cover the costs is through a long-term-care insurance policy. Another option is a hybrid life insurance policy. If you need long-term care while you’re alive, you’ll receive money from the policy, and if you don’t ever need care, the policy will pay your heirs the insurance death benefit.
If you can afford it, you can always self-insure and pay out of pocket.
Revise your asset allocation strategy
As retirement closes in, it may be time to review the level of risk in your investment portfolio. Consider reducing your exposure to investments that are subject to significant market fluctuation. A market downturn just before or after you retire could dramatically impact the size of your nest egg, and consequently reduce the amount of income you can draw from your savings.
Get Major Expenses “Off the Books”
Address major expenses like home repairs, appliance upgrades, and car purchases in the last 1-3 years before retiring. This allows you to avoid costly expenses during retirement when you have less flexibility with your cash flow.
Location Considerations
Decide where you’ll live in retirement. Options include staying in your current home, downsizing, or researching senior housing options. If moving to a low-income tax state, check if certain retirement income is exempt from state income tax.
Revisit Your Plan Regularly
Your retirement plan should be adjusted as needed to account for economic changes and life circumstances. Meet with a financial professional yearly to address changes and ensure you’re on track to meet your goals.
4 Years Before Retirement: (Age 51)
Financial and Medical Coverage
Consider investing in annuities to guarantee lifetime income. Plan for health insurance if retiring before 65, explore COBRA, a spouse’s plan, or Affordable Care Act options.
Income Strategy
Finalize your Social Security claiming strategy. The age at which you claim benefits can significantly impact your lifetime income.
Create a comprehensive list of all potential income sources in retirement: Social Security, pensions, annuities, rental income, investment withdrawals, and any part-time work.
Medical Cost Estimation
Calculate your estimated annual medical costs in retirement, including premiums, deductibles, copays, and medications. Reevaluate all insurance coverage, including life insurance needs.
Legal Review
Have an attorney review all your legal documents to ensure they’re up to date and comply with current laws.
Budget Practice
Begin “practicing” living on your retirement budget. This gives you time to adjust and identify any unrealistic expectations.
Property Tax Research
Research property tax implications for seniors in California, including any exemptions or reductions you might qualify for.
3 Years Before Retirement: (Age 52)
Retirement Lifestyle Testing
Try out your retirement plans to see if they meet your expectations.
You should also review your estate plan. Make sure your will is up to date if you have one. If you don’t, write one. Also check the beneficiary designations on your various accounts, retirement plans, and life insurance policies. These instructions override your will. If the wrong person, such as an ex-spouse, is listed he or she would inherit the accounts when you pass away instead of your other heirs.
Finally, consider having an estate lawyer create a financial power of attorney and a living will/advance health care directive, naming a trusted family member or other loved one to make your financial and medical decisions when you cannot.
Financial Audit
Conduct a thorough audit of all financial accounts. Work with your advisor to rebalance your investment portfolio toward a more conservative allocation that protects against market volatility.
Healthcare Review
Review your out-of-pocket medical expenses from the past few years to refine your healthcare cost projections.
Digital Documentation
Create digital copies of all legal and financial documents, stored securely with appropriate password protection.
Community Connections
Start identifying local organizations where you might volunteer in retirement. Building these connections before you retire can ease the transition.
Downsizing Preparation
Begin the process of decluttering and preparing for a potential downsize. This takes longer than most people expect!
2 Years Before Retirement: (Age 53)
Budget Finalization
Lock in your retirement budget based on all the information you’ve gathered. Run final projections with your financial advisor to ensure you’re on track.
Healthcare Transition Planning
Get specific quotes for COBRA and ACA health insurance plans if you’ll need coverage before Medicare eligibility.
Activity Planning
Create a specific list of post-retirement activities, including clubs you might join, classes you want to take, and travel you hope to enjoy.
Home Valuation
Get a professional appraisal for your home to understand its current market value, especially if selling or downsizing is part of your plan.
1 Year Before Retirement: (Age 54)
Retirement Preparation
Wrap up your career on a positive note. Use remaining work income to clear debts and set financial boundaries with dependents. Consider relocating to a lower-cost area to maximize your retirement budget.
Withdrawal Strategy
Set up your specific withdrawal strategy and tax plan with your financial advisor. Confirm all income streams and their start dates.
Make your final catch-up contributions to retirement accounts.
Health Screenings
Schedule all major health screenings before any potential changes in your health insurance coverage.
Family Communication
Share your retirement plans and the location of important legal documents with trusted family members.
Transition Celebration
Plan a meaningful way to celebrate your transition to retirement. This rite of passage deserves recognition!
Housing Finalization
Complete any planned moves or home renovations before your retirement date.
1 Month Post-Retirement
Roll over any non-active employer plans into IRAs for easier management. Implement the income plan developed with your financial advisor and enjoy your retirement!
By following this checklist, you can approach retirement with confidence and readiness for the opportunities ahead.
Conclusion
A well-crafted retirement checklist serves as a roadmap to ensure a smooth transition from your working years to a fulfilling retirement. By following this 10-year plan, you can address key aspects like financial stability, healthcare, and lifestyle adjustments, ensuring that you are fully prepared to enjoy your golden years with peace of mind.
