Six Steps to Prepare for Retirement
Preparing for retirement can be nerve-racking, but it doesn’t have to be! The image on the right lists six steps to help you prepare as you approach retirement age.
Not approaching retirement but still want to prepare? - visit our Retirement TIPs for all ages blog post.
Let’s break down a few of the steps seen on this list…
Retirement Spending & Goals:
#1 - Create a retirement spending plan (budget): the word “budget” often gets a bad rap, but one of the primary determinants of how much is enough for retirement is your day-to-day (or lifestyle) spending. Having an idea of what you currently spend or want to spend during retirement is key. Your spending doesn’t have to be overly complicated; there can be as many or as few categories as you want (housing, lifestyle, entertainment, etc), but remember, the more accurate or specific you can be, the better off your plan and roadmap to success will be.
Consider your goals and some of your variable lifestyle expenses, and try breaking them into these three categories ….
Basic needs - what are basic living expenses? Any fixed expenses and those expenses that make life reasonably comfortable. This often includes medical expenses.
Wants - this might include some of your variable or discretionary spending in retirement. Consider your entertainment, dining out or travel expenses - for those living here in Orange County, that might be an annual family vacation up to Santa Barbara or Mammoth, Tahoe (or the mountain of your choice). Fun fact - this is something our family does every year, same house, same beach. It is a way to carve out family time as the kids grew up and our immediate family grew (marriages, babies etc.). To this day, the family looks forward to this trip.
Wishes - If everything goes accordingly to plan, what else would you like to do in retirement? Sticking with travel, that “Wish” might be a grand family vacation to Europe. It might be a one-time goal or a family vacation that happens bi-annually. For some, this may include leaving an inheritance to your children or, better yet, additional giving while you’re still alive (ministry or family gifting). You decide what’s most important or realistic for you.
Breaking out your retirement expenses and goals into these 3 buckets can help you be more prepared in retirement- learn why in our previous blog ‘Thinking about retirement.'
Social Security:
#2 - Determine your Social Security strategy: When it comes to retirement planning, initial Social Security conversations usually come in one of two ways: either “when is the best time to begin taking benefits?” or pure skepticism. Regardless of what side you fall on, dismissing social security in your retirement plan can be a mistake. While for most of us, social security will not be the primary source of retirement income. It can still play an essential role in ensuring your income and retirement savings last as long as you do.
If you haven’t already, consider creating your my Social Security Account. It will give you secure access to your benefit information, including the basics of estimating your benefit at 62, full retirement age, and age 70. All of these can allow you to “plan for your future and manage the present.”
Investing:
#4 - Investment strategy: For many, the question, “should I make a change to my investment strategy when I retire?” comes to mind. However, the day you retire doesn’t necessarily mean you need to make massive shifts to your strategy or, more specifically, your allocation (how your investment accounts are divided among different asset classes (stocks, bonds and cash)). You’ll likely need to maintain a strategy that continues to provide and balance growth and preservation. So take the time to put together a well-thought-out investment plan that continues to meet your comfort level of risk and match your goals for retirement.
#5 - A tax-smart distribution strategy is often key. If you want to read more about income distribution strategies, visit Vanguard’s resource on how to set up your withdrawals for some tips that may be helpful as you prepare to retire and structure distributions from your existing retirement savings accounts.
Lastly (and equally as important)….
#6 - Emotionally Prepared?! - this might seem like an odd one, but you’ve spent the last 2-3 decades building your retirement savings and investment accounts (and you’ve likely worked hard to do so, too). Well, when you retire, that will all change. Instead of adding to these accounts, you’ll likely be taking money out. For some, this is an easy task (after all, it’s logical this is what you’ve been saving for). For others, it might be more of a struggle, as this certainty requires a shift in one’s thinking. If it’s the latter, remember that money is simply a tool to accomplish those goals and priorities God has placed on your heart. For Christians: If you believe this, then this money is to be used to fulfill those priorities and take care of those God has placed in our lives. Remember your savings or investing should not replace your trust or faith in God’s plan. This money is to be used.
Lastly, retiring from your 9 to 5 can open up possibilities, but it can also take some getting used to. It’s not unheard of to experience stages during retirement. In some cases, retirement can even lead to a somewhat surprising problem: depression. Take some time to consider #3 - what does retirement look like? What might you do in retirement? What do you enjoy, and what are your talents or skills? Is there a local or community need you can help fill? (Discover more on the Meaning of Retirement). After all, when you retire, God’s not done with you yet - you still have skills and talents He can use. Don’t let it surprise you; start mentally preparing for retirement.
Let us know if we can help you plan and invest toward your dreams.
Don’t leave your financial future to chance.
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