Retirement Readiness Checklist

Deciding when to retire is one of the hardest decisions you’ll have to make. Retire too late and you may not have the energy to enjoy it. But if you retire too early, you could end up in financial trouble. A?financial adviser could help you put a financial plan together for your retirement needs and goals. Here’s a checklist with eight things that will help you determine your retirement readiness.

1. Take Inventory of Your Assets

Before you can make a plan, or check on your progress, you need to first figure out where you stand financially. Evaluate your current budget and write down every debt, liability, savings balance, income stream, and insurance policy you have. Don’t forget about properties, vehicles, and other valuable possessions that affect your bottom line. A good way to do this is by creating a worksheet that you can adjust on a regular basis. This process will allow you to assess your current financial situation and plan accordingly.

2. Build an Emergency Fund

Before you take any major financial step, you’ll want to be sure you’re protected should things not go according to plan. Hopefully, you aren’t learning about emergency funds for the first time when you’re within years of retirement. But if you have somehow gotten this far without a?financial security blanket, now’s the time to create one. It will cover you in the event of a personal catastrophe, and it can also make up for delays in the start date of your pension.

Some experts recommend that you sock away three months of living expenses, while others suggest you save enough for at least a year. Six months’ worth of funds should be enough to cover you in case of an emergency. Base the amount of this six-month fund on your expenses, not your income. No matter your current state of employment, this fund is about how much you’re spending. Remember to include expenses like healthcare, because your emergency fund will need to transition into retirement with you.

3. Eliminate All Debt

In an ideal world, we’d all enter retirement without any debt. Since your income is likely to decrease, any fixed payments will start to take up a larger share of your expenses. If you’re nearing retirement, it’s time to take a look at the debt column of your inventory. Add interest rates and terms in a new column beside your outstanding debts.

So, how should you tackle your debts??There are generally two thoughts on where to start: either by paying down debts with the smallest balance or debts with the highest interest rates. If you can stomach it, we suggest starting with the highest-interest-rate debts. This is usually credit card debt, followed by personal loans and car loans. And we don’t just mean hitting the monthly minimum. To really make a dent, you’ll have to put as much money as you can into paying down your priority debt without sacrificing making the minimum payments on other debts.?Mortgages are a good debt to save for last as these tend to have low-interest rates.

4. Determine Your Retirement Needs

Before you can retire, you have to decide?how you want to retire. Consider where you want to live, whether you’ll have a job (this may sound crazy, but some people like to work in retirement), and what your expenses will be. Try to be realistic in terms of retirement length, too. This can be difficult to predict, but you can always refine your estimate down the line. You should also create a timeline to show when different streams of income will begin. This will help you manage cash flow and determine how much you need to save to retire.

5. Square Away Your Health Insurance

In addition to factoring in expenses into your budget, you’ll also want to consider where you’ll be getting health insurance coverage. Whatever your situation, just make sure your insurance doesn’t lapse when you need it most. Know the terms and conditions of your coverage as well as how much you can expect to pay in premiums.

6. Plan Out Your Estate?

No one likes to think about their demise, but as you are near retirement, you’re also really getting closer to the end of your life. Being prepared with an estate plan?will ensure your family is not plagued with financial burdens after you’re gone and that your money is dispersed according to your desires.

In addition to creating a will, you’ll need to assign a power of attorney and healthcare proxy to make decisions on your behalf should you become incapacitated. You’ll also need to establish guardians for living dependents and appoint beneficiaries on life insurance plans, retirement accounts and shared assets. Consider taxes here too, as you don’t want your estate bequeathed to the ATO. You can also craft a letter with any information that hasn’t been accounted for, like desired funeral arrangements or dissemination of sentimentally valuable family heirlooms. Ensure all documents are properly notarized and stored somewhere safe. Include an inventory of personal data like your date of birth, bank account numbers, insurance policy numbers and digital passwords to keep things organized and easy to access.

After you’ve created your plan, remember to review it at least every five years or whenever you experience a life-changing event.

7. Investigate Your Retirement Investing Needs

It’s never a bad thing to have more income. One of the worst mistakes people make is designing their investment portfolio around their retirement date. This leaves little earnings potential for their post-retirement life. Investigating how retirement investments could supplement your retirement account earnings might be beneficial for many looking to extend how long their total amount saved will last.

8. Learn How to Withdraw Funds and Minimize Taxes

You’ve, hopefully, spent your entire adult life investing money into your retirement accounts, so it may seem crazy that it’s finally time to take it out. Of course, you’ll have to understand how to do this first. You should make your decision based on what’s both tax-efficient and what you and your family feel most comfortable with. You can work with the institution that manages your funds to figure out how withdrawals work.

Bottom Line

Retirement can be a wonderful time where you can finally enjoy some of the things you’ve been planning for a long time. You can travel, enjoy family, or spend more time on your hobbies. However, these things are only available if you’re financially prepared for retirement. It’s important to plan ahead and make sure you check in on your retirement plan routinely to make adjustments as needed.