By Nick Strain, CFP®, CPWA®, AIF®, Senior Wealth Advisor at Halbert Hargrove
Retirement may seem far off, but the earlier you start planning, the smoother your transition into retirement will be.
Planning for retirement requires more than just saving money and organizing the first big retirement trip. Similar to how a pilot follows a checklist to determine a plane is safe to fly before taking off, it’s important for a pre-retiree to follow a pre-retirement checklist to make sure they are financially prepared to retire. This includes double-checking everything from current and projected expenses, projected income, health insurance, and investment allocation to help prepare for different stock and bond market conditions. We’ve created a pre-retirement checklist to help you prepare for retirement, which can be downloaded here.
Saving Money for Retirement
One of the first steps of the pre-retirement checklist is to save enough to retire comfortably. Many people underestimate their expenses in retirement, from daily living costs to unexpected expenses like medical bills.
Following the pre-retirement checklist helps give you enough time to properly calculate your current living expenses (taking inflation into account) and account for potential future expenses. Reviewing your expenses and updating your retirement plan and savings strategy should be done on an annual basis.
Manage Your Investments and Help Mitigate Risk
As retirement approaches, it’s likely crucial to shift your investment strategy from growth-oriented to a more conservative, income-focused approach. We do this to help account for major potential stock market dips, (ranging from 10% to 40%), which is what we have seen in previous stock market downturns.
The checklist also allows you to evaluate and adjust your investments to decrease risk and help prepare for some of the ups and downs of the stock market. At Halbert Hargrove, we use the LifePhase Investing® framework to consider each investor’s risk level. If you are within five years of retirement, we would consider this “In Transition”. That means you should start to identify what accounts you would take distributions from in retirement and potentially start to decrease the risk in those accounts. If you have accounts you aren’t planning to take distributions from for 10 or more years, you might consider keeping those accounts more growth-oriented. Regardless, it’s essential to evaluate your distribution options and how you will take income in retirement.
Plan for Healthcare and Other Retirement Expenses
Healthcare can often be one of the largest expenses in retirement, so it’s important to do your homework in advance of retirement to help avoid surprises.
Our pre-retirement checklist allows you to explore individual health insurance policies (pre-Medicare) or Medicare options, supplemental insurance plans, dental, eye, and other healthcare insurance strategies in advance. For example, if you are 55 years old and are planning to retire by 60, you can reach out to an insurance broker at 55 and get health insurance quotes as if you were 60. You should also compare the quotes you receive, both in terms of benefits and costs, and compare them with your current health insurance to make sure you are comfortable with the policy you would likely select in retirement. Some people are surprised by what health insurance or Medicare doesn’t cover.
Planning for healthcare and other potential expenses like “surprise” expenses are important to account for in your retirement planning project. Surprise expenses can be anything from a home remodel project that becomes bigger than expected or unexpected medical or pet expenses. These expenses can also arise for your adult children, grandchildren, or aging parents who may need help financially. Consider adding 10% of your overall expenses to account for unexpected life events.
Why a Pre-Retirement Checklist Is Key to a More Confident Retirement
The pre-retirement checklist takes time to review, research and implement. It’s important to start early and work with a financial advisor who can help you with the analysis. Starting early also gives you more time to brainstorm what you want to do in retirement. What activities do you plan on doing? How much will those activities cost? How much time will you spend doing these activities? Can you test out some of the activities before you actually retire to make sure they are right for you?
Preparation is the key to creating a more confident and enjoyable retirement. Download your retirement checklist here and reach out to a Halbert Hargrove advisor today to discuss your retirement plans.
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