Every year, when our kids were young, we took a summer family vacation. We spent months dreaming about our vacation and planning our trip. We talked about where we would go… where we would stay… and what sights we wanted to see. Our family saved money throughout the year to pay for our trip.
Planning for retirement is like planning a family summer vacation… albeit an extended vacation. But how do you convert your dreams into reality? It is important that every retirement plan include some core fundamentals. I hope this retirement plan checklist will help you plan for the exciting journey ahead.
Goals
Write down your goals. Where do you want to live? What activities will you enjoy doing every day? Will you join a club or association? Do you enjoy travel? Will you visit family and friends? Will you find a sense of community as you did in the workplace? Will you be happy with a different sense of purpose? Where will you find a new sense of purpose?
Expenses
Compile your fixed and variable expenses that are associated with your goals. What will you typically spend each year? Have you included health care and long-term care costs? Do you have any big events coming up, such as a graduation, a wedding or perhaps a new grandchild? Do you plan on putting an addition on your current home or buying a vacation condo?
Income
Record your sources of income. Do you qualify for Social Security benefits? When will you claim your benefits? Will you receive a pension from a current or past employer? Do you have an annuity? How will you convert your assets to cash flow?
Taxes
Incorporate federal and state taxes into your plan. How much of your income will be subject to federal or state taxes? Will the withdrawals from your 401k or IRA be subject to federal and state taxes?
Inflation
Add inflation to your plan. Remember to increase your expenses by inflation each year. As an example, a reasonable current rate of inflation for typical expenses would be 2- 2.5%. For health care and long-term care expenses, you should use a higher rate, such as 6 – 6.5%.
Net Worth
Assemble a list of your assets and liabilities. What is your net worth? How much of your assets are liquid assets? How much is tied up in real estate or business ownership? Which assets can be used for future expenses? How much are your debts? Do you still have a mortgage? Are you planning on paying off your mortgage or any other debts before you retire?
Insurance
Secure good health care coverage before you retire. Health care insurance is one of the most important components of your retirement plan. Make sure you have good medical and dental insurance. Remember to start the Medicare part A enrollment process 3 months before your 65th birthday. Investigate long-term care insurance and see if it is necessary or desired for your plan. Will you be subject to the Medicare income-related monthly adjustment amount for Medicare parts B and D?
Estate Plan
Update your estate plan. Make sure you have current estate planning documents and your beneficiary designations are up to date. At a minimum, your suite of documents should include a Power of Attorney, Health Care Directive, Will, and possibly a Revocable Trust. Is the ownership of your assets in sync with your estate plan?
There are a range of considerations to work through and plan prior to retirement, and for many, a few year’s head start is a big help, allowing them to work through some of the many emotional considerations that go with the financial and practical aspects of the next phase of your life. This isn’t a comprehensive check list, but more like a guide or series of conversation starters, to spur the thought process toward crafting a final plan. If you have questions about what should be considered, what should or shouldn’t be included, be sure to ask your financial advisor. Retirement happiness isn’t automatic… you have to give it some consideration and thought in advance to reach the goal you’ve been saving for a lifetime to achieve.
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Disclosures
Pinnacle Advisory Group, Inc. (“Pinnacle”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Pinnacle and its representatives are properly licensed or exempt from licensure.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
