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8 Steps to Retirement

8 Steps to Retirement

December 27, 2018

Now that you are a “certain age” you may find yourself thinking about retirement, or as I like to call it, the day you quit working for money and start working for fun. These days, retirement is trickier than it used to be. Many of us will live substantially longer than our parents and we will often continue to work after we quit working for money. With that in mind, let’s look at eight things to do in preparation for the day you quit working for money.

1. Decide where you want to live.

Do you want to stay put? Move to the lake? Move closer to the grandkids? Move to be closer to a lifestyle you love? Move to a state with no income tax? Understanding where you plan to live, will help you estimate the cost required to be comfortable there.

If you have always dreamed of living at the lake, maybe you want to test drive that first. If you can, take an extended leave now to try it out. If you can’t take leave, plan the first couple years of retirement as a time to test out various locations with a six-month rental to see if you really like it. 

2. Practice retirement now.

What is the work that you would love to do when money is a priority? Would you like to volunteer for your church? Start now. Interested in teaching for a university? See if you can teach a class now. By practicing your retirement, you can find out what you really want to do—it may not be what you think—and meet new people, too.

3. Retire your debt.

It’s a great idea to be debt-free in retirement. The lower your monthly expenses, the easier it will be to live on retirement income. Imagine a monthly budget with no mortgage, no car payments and no credit card bills. Pretty nice, right? Make a list of your debts, rank them from highest to lowest interest. Make minimum payments on all the debts. Start making extra payments on the highest interest rate debt until it’s retired. Then roll that payment into the next highest interest rate debt. You will be surprised how quickly you can work through all those debts.

4. Reconsider your risk profile.

As you near retirement, you will enter the retirement red zone. That’s the time from five years before retirement until ten years after. This period is critical to your long-term retirement success. It’s a great time consult with a financial planner who is always an advocate for the client – a fiduciary advisor – and only works for the client – a fee-only advisor. You can be confident that the financial advice you get is focused on your best interests and is a good fit for your complete situation.

I help my clients in the retirement red zone manage retirement income risk with the bucket strategy: 

  • Bucket one is cash you expect to need in the next 12 months. 
  • Bucket two is short-term bonds for those expenses in months 13 to 36.
  • Bucket three is a diversified portfolio of stocks and bonds intended to grow for the long term.
  • Bucket four is for special goals like a world cruise, kid’s weddings, grandkid’s college.

5. Think about health care.

If you will be retiring before age 65, you will not be eligible for Medicare. So you will need a plan for health insurance until then. And even with Medicare, you can expect to pay more for healthcare over time. And if you plan to travel, think about health insurance for expenses incurred outside of the United States.

6. Make a budget.

We already talked about where you want to live and a plan you reduce your monthly bills, but the monthly budget is the key to success in retirement. Consider two numbers: 

  • First is money for your needs, like food, housing and health care. 
  • Second is your wants, like travel, club membership, gifts to family, support for grandkids in college.

Your financial planner can be great help in getting this budget and your financial priorities in order.

7. Apply for Social Security ahead of time.

You will want to sign up for Social Security at 65 in order to activate Medicare. It’s a good idea for most people to wait to at least full retirement age before taking Social Security income and you will want to apply at least three months before you want your benefits to start. Make sure you have all the documentation needed. You can find a list of required documents here.

8. Consider rolling over your 401(k).

One important change at retirement is the shift from saving and accumulating wealth to managing wealth and consuming it. At retirement you should carefully consider the benefits of moving your money from the 401(k) to a traditional IRA that you control. Consider this:

  • You can expect to have more investment options in an IRA.
  • You may have lower investment costs.
  • You will probably have easier access to the account through a good financial planner.
  • You have flexibility on estate planning distributions.

How a financial planner can help

This is a great topic to discuss with a fiduciary advisor – one who is paid to be your advocate. She will help you consider all the relevant factors like your age, current financial status and costs involved. It may not be the right time for you to roll over your 401(k), but it is the right time for you to study your options.

Don’t have a financial planner? I suggest you start by locating a  CERTIFIED FINANCIAL PLANNER™ professional in your neighborhood.

CFP® professionals take a multi-faceted approach to your financial planning process that includes budgets, risk protection, retirement planning, investment management, taxes and estate planning. All these related aspects of your financial life are what really matter when it comes to reaching your goals.

A CFP® professional can help you create a financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.

Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.

If this article has you thinking about your own circumstances, contact my office at I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.