By Steve Seals
Can you believe it? With decades of hard work behind you, this is it: the last 12 months until you retire. You’ve been waiting for this moment for a long time and now it’s finally here. But as exciting as it is to imagine doing all the things you couldn’t do while you were working, rather than coasting, this could be the most important planning year yet!
We want you to feel confident your transition into retirement will go as smoothly as possible by taking some key steps. This checklist is your go-to guide to help keep you on the right path and avoid any unexpected bumps along the way.
1. Evaluate or Create Your Retirement Plan
It’s time to evaluate your retirement plan—or create one if you haven’t yet. This should map out the specifics, from exactly when you will retire to how you will spend your time. Imagine your ideal retirement scenario: will you be retiring with your spouse? Thinking about part-time work, volunteering, or taking off to explore the world? These answers set the tone for the entire checklist, so be purposeful and practical in sketching out your plans.
2. Strategically Choose When to Claim Social Security
As retirement approaches, many people struggle to determine exactly when to take Social Security benefits. Depending on when you retire, you might face choices between reduced benefits at 62, full benefits at 67, or maximum benefits at 70. If you opt for early retirement but postpone benefits, it’s crucial to plan for an alternative income stream during that period.
Regardless of when you claim the benefits, once you hit 62, your benefit amount increases annually with the cost-of-living adjustment. For couples where both partners contributed to Social Security, claiming strategies become essential for the surviving spouse. To make the most of their benefits, couples can look to take one early and delay the other until 70; however, this may mean the surviving spouse could have reduced benefits in the future. This becomes especially important in cases of big earnings differences or potential pension loss upon the death of one spouse. It’s vital to think carefully about how and when you decide to claim your benefits.
3. Create a Realistic Retirement Budget
With Social Security off your mind, it’s time to take a look at your budget. With all the free time headed your way, overspending might sneak up on you. But since your income is fixed, a realistic budget you can hold yourself accountable to is one of the best things you can do in the months leading up to the big day. Even a short stint of overspending can trim down the lifespan of your assets.
Your budget doesn’t need to be perfect, just realistic. Track your expenses for a couple of months to see where your money is really going. Once you have all your costs outlined, consider if there are areas where you can cut back or items that may increase in retirement.
4. Consider Saving More
If you’re earning more than you need in the year leading up to retirement, consider contributing more to a tax-advantaged retirement account like a traditional or Roth IRA, or a 401(k) or 403(b). With enhanced contribution limits for those over 50, this strategy can powerfully accelerate your retirement savings and reduce taxable income just before you step into retirement.
5. Decide on Your Withdrawal Strategy
Many retirees mistakenly believe that as long as their savings are substantial, they don’t need to worry about how or when they withdraw from their retirement accounts. Or that they’ll always be in a lower tax bracket in retirement. This oversight often leads to inefficient withdrawals, unnecessarily increasing tax liabilities and diminishing your portfolio’s longevity. The timing of withdrawals is a critical element in shielding your retirement nest egg.
Take, for instance, a $50,000 withdrawal from a Roth IRA versus the same amount from a traditional IRA—the tax implications differ substantially. Haphazardly withdrawing funds may trigger increased Social Security taxes, investment surtax, capital gains taxes, and elevated Medicare premiums, eroding the funds intended to sustain you through retirement. Crafting a tax-efficient withdrawal plan before retirement can help you manage tax liabilities and maintain the life of your retirement accounts.
6. Consider Your Long-Term Care Needs
Around 70% of today’s 65-year-olds will likely need long-term care down the road. Without a game plan, those costs can skyrocket—quickly. Take this time to examine your needs and consider long-term care insurance to supplement what you can afford to spend out of pocket.
Take into account both family health history and your own lifestyle, health requirements, and projected life expectancy when considering long-term care. Hard as it may be, getting a handle on this now is the smart move to safeguard your savings for the journey ahead.
7. Assess Your Housing Needs
Many retirees use this time to think about their current housing situation and whether it will still make sense in retirement. Maybe home maintenance is the last thing on your mind now that you’re retiring. Have you always wanted to relocate? Would you easily be able to age-in-place or would significant accessibility modifications be required? These are all questions to ask yourself in the year leading up to retirement. Since housing is one of the largest ongoing expenses you’ll have during your golden years, it’s important to thoroughly consider your options.
8. Review Your Life Insurance Needs
If you’ve been lucky enough to have supplemental life insurance policies through your employer benefits package, you may find yourself more vulnerable come retirement. That’s because many of these policies lapse at retirement, leaving retirees potentially unprotected. Whether you have a mortgage and want to make sure your family is covered, or you want to provide an inheritance, be sure to review your life insurance needs, as well as any existing policies you have in place. If it makes sense, explore options like extending your employer’s coverage or obtaining a private insurance policy.
9. Take Advantage of Employer Healthcare Benefits
Before entering retirement, look to leverage any healthcare benefits provided by your employer. Sustaining both your physical and mental well-being is key to a long and satisfying retirement. Verify you’re current on physicals, check-ups, and prescriptions, particularly if you’ve already met your annual deductible.
For those with an FSA, consider spending the funds, and if you possess an HSA, think about covering expenses out of pocket to keep up their tax-deferred growth.
10. Review Your Medicare Options
Depending on how old you’ll be when you retire, it may be too early for you to enroll in Medicare (eligibility starts at age 65). In case there’s a gap between retirement and Medicare eligibility, consider alternative coverage through options like the Health Insurance Marketplace, COBRA, private insurers, employer retiree insurance, or your spouse’s employer coverage. Be sure to plan ahead, though, because these alternatives vary widely in cost and coverage.
11. Evaluate Your Estate Plan
As your retirement date approaches, dedicate time to evaluate your estate plan and confirm everything is in order. You should have basic estate planning documents like a will, durable power of attorney, and healthcare power of attorney to clearly communicate your wishes and designate a trusted individual who can act on your behalf if something were to happen. If you anticipate a more complex estate and substantial assets to leave behind, consider incorporating trusts into your estate plan.
12. Partner With a Professional
Finally, if you’re anything like the clients we serve, you’re looking to focus more on the excitement and less on the stress of retirement. Just remember this: you don’t need to go it alone.
At Seals Financial Planning & Investments, we can walk you through the retirement process and help you plan for the unexpected. For us, knowing we were part of a client’s journey and seeing them enjoy their hard work makes all the effort worth it. To see if we’re a good fit, please give us a call at (859) 230-3476.
About Richard Stephen (Steve) Seals
Steve Seals is owner and independent Registered Investment Advisor Representative at Seals Financial Planning & Investments VI, LLC, a financial planning services firm based in Lexington, KY. As an independent Registered Investment Advisor Representative with about two decades of experience in the investment and insurance industries, Steve’s firm is founded on getting to know each client personally, allowing him to provide sound financial advice throughout their career and into retirement. With the mission of guiding clients on the path of success, Steve is fueled by his commitment to excellence and goes the extra mile to make sure clients are fully satisfied. He believes in maintaining a positive mindset, creating partnerships with a purpose, and always striving for significant outcomes.
Born in Jenkins, Kentucky, Steve grew up with a love for basketball and serving his community. After high school, he served nine years in the United States Marine Corps, then earned a bachelor’s degree in accounting. He was eventually able to put his degree and desire to help others to work as a fiduciary financial planner. Prior to founding his own firm in 2014, Steve learned from working with Edward Jones, US Bank, University of Kentucky Federal Credit Union, and CUSO Financial. He also received his Security Series 63 and 65/66 through Keystone Financial Group, LLC, and holds various life, health, and variable insurance licenses.
Steve and his wife, Angie, have three daughters (Lauren, Peyton, and Ashton) and two grandsons (Kenyon and Kai). Steve holds a private pilot’s license, and the family enjoys sports, spending time at the lake, and traveling. To learn more about Steve, connect with him on LinkedIn.
