I truly believe that one of the things to concentrate on is creating a vision for what retirement might look like for you. A purpose. Something that gets you out of bed every day that you’re looking forward to. We’re going to talk about, specifically, money-type items, but the challenge may be… What drives you? What gives you that motivation on a day-to-day basis?
So, five years prior to retirement, which could be a 30-year journey, there are some specific things one can look at. First, start the income plan conversation. This is the year to put everything on the table and to start sifting through all possible sources of income. Social Security statements, pension statements, current 401K balances, former employer balances, investment accounts, cash resources, real estate, and other business interests. Start working on an income plan for retirement.
Review your retirement budget. Be ready to discuss what average housing costs might be, transportation, health care, food, and personal insurance. Start building a personalized budget. There’s a tool out there from the Alliance for Lifetime Income that helps in developing a plan that would lay out what your needs, what your wants, and what your wishes are.
Also, start an annual spending audit. Take a look at the past year’s activity of your discretionary and essential spending habits. Start to do a “Spring clean spending plan”. What I mean by that is start looking at things that may be unnecessary in the next several years or even the next decade. Things like mobile applications that you may be paying for, magazine subscriptions, gym memberships, and local social club memberships. Shop around. Look for the items that may or may not be applicable as you are transitioning into this next phase of life.
Year Two - Getting excited and staying healthy. Explore ideas for the future. Spend time envisioning what this retirement looks like. We talked about that previously, and I can’t stress enough, to think about - What are the areas in your life that you really want to spend more time doing? And I think one of the most important things is - Who do you envision doing these things with?
Assess your healthcare options. Assess your long-term care needs and goals. What do you want to happen if you become incapacitated? Who do you want to be able to care for you? How do you pay for that? Assess any current life insurance or disability needs as you are transitioning.
Work on an estate plan. Putting together the important documents, such as a will or a trust, a living will, and a power of attorney. Those are all very critical pieces of estate planning documents that one needs to have put together in writing and then shared with their loved ones.
Continue to work on that Spring cleaning audit that I mentioned previously. Again, looking at things that may or may not be applicable as you are transitioning into this next phase of life. If you plan to live in your home, one idea would be to do a thorough, comprehensive home inspection. Then you will have a good idea of what projects you may have to lay out some significant expenses for prior to retirement. Also, look at maybe some of the large one-time expenses that you might need to do prior to retirement. Those are all good things to assess during year two.
Year Three - you’re moving from worker bee to potentially retiree. There are several different resources and books out there that we can provide to you that would be very helpful in terms of thinking about what this next phase, these next 30 years, may look like. If you still have a mortgage, you’ll want to look at the interest rates on that, see if there’s any way to reduce some of the expenses on it. Hopefully, there’s a plan in place to have that mortgage paid off prior to retirement. Again, continue to assess your overall expenses. Just make sure that your cash flow is tightened down and you have a really good understanding of what your cash flow looks like now and what it will look like when you transition.
Year Four - So you’re just a couple of years away from making this major transition. You’ll want to look at tax-smart investment planning and investment strategies. These will help facilitate generating a lifetime stream of income and help you maintain your lifestyle over the next 20 or 30 years. Maybe there’s a practice run in retirement. Maybe you can go part-time for this next year or two to just see what it might look like, as far as retiring. It could be a phased retirement. Continue to assess your expenses and keep going on that.
Year Five - One year before you retire. What does it really, truly look like? What does your health insurance look like? I think a good transition plan would be - looking at having at least one year’s worth of your income needs as something very, very safe and secure. It could be an additional bump to your emergency fund, it could be just expanding that emergency fund, but I think a good transition plan would have some additional cash reserve set aside.
Continue to review your retirement budget and put those items in place that may need to occur prior to retirement. Typically, we want to review your power of attorney about every five years; that is very critical. That may be something to take into consideration as you’re looking at your estate plan. And maybe go back and look at the last five years and figure out - what, if anything, you need to touch upon or fine-tune?
Now I have a terrific worksheet that can be very helpful in terms of looking at these five years prior to retirement, so please just let me know if that’s something that would be helpful to you.
We really appreciate your trust and confidence in Summit, and we look forward to helping you navigate the path to a better, more secure future in this next phase of your journey.