Retirement Planning Checklist: Everything You Need to Do

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Are you nearing retirement? No matter what your age, a comfortable retirement requires saving for retirement and retirement planning and readiness from a financial, personal, and lifestyle point of view.

This retirement planning guide will help you prepare, starting today.

Today: 401k 101

When it comes to retirement savings, many employers offer a 401k retirement plan to help their employees save money for retirement. You contribute a percentage of your pay with pre-tax money. Your money grows tax-free until you’re ready to withdraw it in retirement. If you have a 401(k), these are some important things to know when saving for retirement:

The IRS defines how much you can contribute to your 401k retirement plan each year.

Your employer’s contributions are available to you only when you are vested in the plan. Different companies have different vesting policies. You may need to be employed for three years or more, or you may be vested in a percentage of the employer’s contributions each year until you reach the maximum amount. Check with your HR or workplace benefits representative for details about your employer’s vesting schedule.

While saving for retirement, you always can withdraw the 401(k) contributions you’ve made, as well as any vested employer contributions, but you’ll pay a 10% penalty (in addition to any taxes owed) if you do so before age 59½. There are a few exceptions, such as for certain medical expenses, a first-home purchase, or college costs. You also can take an early withdrawal if you lose or leave your job at age 55 or later, but only from your last employer’s 401(k) plan.

You can borrow against your 401(k) without penalty, so long as you pay the loan back with interest within five years.

Once you leave a job or retire, your employer is required to maintain your plan if you have more than $5,000 invested. Otherwise, you’ll receive a lump-sum distribution of all the funds in your account. You can roll over any or all your 401k retirement plan funds into an IRA without penalty.

Today: Social Security 101

You’ve probably been paying into Social Security all your working life and Social Security is a form of retirement savings. At age 62, you can begin collecting on that long-term investment. Here’s what you need to know:

As you work and pay taxes, you earn Social Security credits. Most people need 40 credits (10 years of work) to qualify for benefits, whether at retirement or due to disability.

You can claim Social Security any time from age 62 to age 70, but you’ll get a bigger benefit the longer you wait. At full retirement age (66–67, depending on the year you were born), you’ll receive full credit. Prior to that, your benefit is reduced. Later than that, your benefit will grow by about 8% each year until age 70, when you’ll get the maximum payout possible.

You can continue working once you’re collecting, but Social Security limits your earnings if you haven’t reached full retirement age.

If you have a pension for public sector work — whether as a public school teacher or government employee, you may be eligible for Social Security if you have also worked for a private business and have the required number of Social Security credits. However, your benefits may be subject to the Windfall Elimination Provision (WEP), which limits “double-dipping” from both Social Security and your employer’s pension.

Five Years Before Retirement: Retirement Savings and Additional Income and Retirement Planning

Will your retirement savings plus Social Security and any pensions cover your expenses in retirement? This is the time to find out. These retirement planning steps will help you take stock. If you’ve been saving for retirement all along, you may discover that you’re on target and simply need to keep doing what you’re doing. If you’re falling short of your savings goal, you still have a five-year window of time to adjust.

Estimate Your Monthly Retirement Income

Where will your money come from when you retire? The primary sources of income for most retirees include:

Pension
Social Security

Pension

If you are a beneficiary of this valuable benefit, you will get a guaranteed amount based on your salary history and years of service, either in a lump sum or with monthly payments for the rest of your life, provided you are vested. During retirement planning, talk to your HR representative — for your current and any previous employers — about pension benefits for which you will be eligible and their amounts.

With all the news about failing and underfunded pensions in recent years, you may wonder if yours is secure. While not the guarantee they once were, pensions are protected by contracts, laws, and regulations. Private pensions also may be insured by the federal Pension Benefit Guaranty Corporation (PBGC), which will pay benefits up to a certain limit should a business fail.

Social Security

If you have paid Social Security taxes during your working life, you may qualify for Social Security benefits when you retire. The Social Security Administration provides a variety of online calculators that can help you plan for retirement and estimate your future benefits based on different retirement ages. You also can create a personal “my Social Security account” to review your expected benefits based on your actual work history to date. (If you have a public pension and also qualify for Social Security, be sure to use the WEP calculator as your Social Security benefits may be reduced.)

Other Income Sources

These may include, for example, annuity payments you may receive, real estate you plan to sell to help finance your retirement or rental properties.

Estimate Your Retirement Expenses

For a rough estimate of your future expenses in retirement, a general rule of thumb is to multiply your current income by 70–90%, or, depending on your individual circumstances and the lifestyle you hope to enjoy. You’ll want to create a more detailed budget as you get closer to retirement, but this is a good ballpark formula to use in these early retirement planning stages.

Inventory Your Assets: Add up Your Retirement Savings

Add up the retirement savings you expect to have by the time you reach retirement (such as 401(k)s, IRAs, and personal savings and investments) and divide the total by the number of years you expect to live in retirement (this longevity calculator can help) to determine the savings you will have to draw upon each year. Note that if you’ve been saving for retirement with before-tax dollars, you’ll need to pay taxes on both your contributions and earnings, which could mean less money available in retirement than you expected.

Put It All Together: Now crunch the numbers: Add together your annual income and the retirement savings you’ll withdraw each year and compare that to your annual expenses. Better yet, plug your numbers into a retirement calculator, such as this one from AARP, for a more complete calculation that factors in inflation, income taxes, raises, and rates of savings return. You also can use a calculator to experiment with what-if outcomes under different savings and spending scenarios.

Make Sure You Are on Track: If your calculations show you’re on track, you can breathe a sigh of relief and stay the course with your current retirement savings plan. Otherwise, you have some adjustments to make, whether that is to reduce your expenses in retirement, save more over the next five years, plan to work part-time in retirement or push out your retirement date.

Talk to a Financial Advisor: A financial advisor who specializes in retirement planning can help you sort through your options — and review your portfolio’s allocation among stocks, bonds, and cash. The closer you get to retirement, the less time your portfolio must recover from market tumbles, which is why a more conservative investing approach is generally recommended as people age. This may be the time to begin moving your investments around, depending on your unique circumstances and tolerance for risk.

Build a Cash Reserve: In retirement, a one- to two-year cash reserve is recommended, to cover short-term and emergency expenses. Otherwise, you could be forced to tap your investments in a down market and risk spending down your portfolio too quickly. Begin building a reserve now, so that it’s well established by the time you retire.

Three Years Before Retirement: How Much Do I Need to Retire?

This is the quintessential question for most pre-retirees. If you followed the steps recommended above, you have estimated the retirement savings you’ll need using the 70–90% (give or take) guideline. But what you’ll need is a moving target, given rising healthcare costs, inflation, taxes, your life expectancy, and other unknowns. It also depends on your spending habits, which is one of the few things you do have control over, both now and in your retirement years.

With three years to go, take the following steps to evaluate your current spending in greater detail, update your financial projections, make sure you don’t have retirement concerns and that you’re ready for retirement in other important ways.

Create a Retirement Budget

Creating a detailed budget well in advance of retirement will give you a realistic picture of your future expenses — and help you alleviate retirement concerns and approach this new chapter of your life with greater confidence and less stress.

Start by gathering your bank account and credit card statements for the past six months to a year. If you manage your finances with a personal accounting program such as Quicken, this can be as simple as generating a monthly spending report.

Identify your essential and discretionary expenditures, their current costs, and if you expect them to increase, decrease, or go away altogether when you retire. For example, commuting costs and retirement savings may no longer apply and your mortgage may be paid off, but other expenses may increase, such as those for travel and hobbies.

Consider healthcare. Healthcare may be your single largest expense in retirement. With healthcare costs on the rise, this is a budget line item that will probably cost you significantly more in retirement than it does now.

Now that you have a handle on your expenses, where can you cut back on spending? Which debts can you eliminate before you retire? Start acting now to help your retirement cause.

Recheck Your Pension and Social Security Benefit Amounts

The future income you calculated at year five may change during your working years in accordance with pay raises you receive, adjustments for inflation, and any changes you make to your retirement date. To keep tabs, get an update on your pension and from Social Security on an annual basis. You may be pleasantly surprised to learn that your retirement income has grown since the last time you checked.

Reevaluate Your Financial Projections for Retirement Income

Reevaluate your future expenses considering your projected retirement income and savings. Are you still on track? Are adjustments needed?

Get Essential Information in Order

In case of an emergency, you can help your family attend to your affairs by gathering essential documents and putting this important information down in writing:

Account numbers for your financial assets and where they’re held
Mortgage and loan information
Property deeds and vehicle titles
Insurance policies
Important contact information, such as for your attorney, insurance broker, financial advisor, doctor, veterinarian, and anyone else who will be essential in taking care of your affairs
List of passwords for all your online accounts

Tip: Tell at least one person how to access this information. Revisit it yearly and revise as necessary.

Confirm Your Beneficiary Choices

Also confirm the beneficiary designations for your various accounts, such as your life insurance policy, retirement savings accounts, and pension. These types of accounts are not governed by your will. Without stated beneficiaries, they will go through probate, which may lead to outcomes you didn’t intend.

If you need to add or change beneficiaries, contact your employer or the company that holds your account. They will send you a beneficiary form for you to complete, sign, and return.

Evaluate Long-term Care Insurance

Long-term care can be outrageously expensive, and it’s generally not covered by Medicare. Retirement planning is the time to investigate it (if you haven’t already), especially if you have health issues or a family history of long-term care. The earlier you purchase a policy, the lower your premiums will be and the less your likelihood of being declined coverage.

But weigh your need for long-term care insurance carefully against other options. You may have the assets to pay for long-term care expenses yourself, or you may discover that a life insurance policy with living benefits provides similar protection at a lower cost.

Review Your Employer’s Retirement Benefits

Make sure you understand all benefits your employer offers to retirees, such as:

Retiree health insurance. This can be invaluable protection if you retire before you’re eligible for Medicare at age 65; it also may supplement your Medicare coverage after age 65.

Other retirement insurance protection. This may include life and long-term care coverages, often for a lower cost than you would be able to get on your own, as well as dental and vision insurance.

Accumulated sick, vacation, and leave time. Does your employer have a “use it or lose it” policy? Or will you be able to credit all or a percentage of your accumulated sick or leave time toward your retirement pension or health insurance?

Tip: Continue to work with your financial advisor on your investment and retirement planning strategies.

Two Years Before Retirement: Retirement Planning

A successful retirement plan is years in the making, but there’s more to it than money. It encompasses every area of life, from where you’ll live, to what you’ll do, to who you will be. This is your opportunity to shape your life in new and potentially more satisfying ways. The better the plan, the better the potential outcome.

At this point, retirement isn’t just a dream, it will soon be a reality. Your retirement planning preparations should be in high gear, both from a financial and lifestyle point of view.

Refresh Your Financial Projections and Review Retirement Savings

Get the latest estimates of your pension and Social Security benefit amounts. Take a fresh look at your retirement savings and budget. How is everything holding together? Do you need to make any changes?

Think About Your Purpose in Retirement

What will you do when you retire? Many people have all sorts of fantasies of what life will be like when their time is finally their own, only to find that retirement presents unexpected challenges. You may lose your sense of identity or purpose, or not know what to do with yourself when work no longer consumes your days.

Retirement can most certainly be the time of fun, freedom, and renewed purpose you’ve always imagined, but it helps to have a plan. Set aside time to create your personal bucket list — whether that means to travel, become a volunteer, pursue a hobby, go back to school, or even launch an encore career — and to begin getting involved while you’re still working. This will help ease the transition when your retirement time opens.

Explore Your Housing Options

If you’re a homeowner, your home may be your biggest asset and greatest source of comfort, but will it be the right place for you in retirement? Put aside time this year to contemplate your housing options. You may wish to sell your home, to declutter and downsize, to relocate to a warmer or less expensive part of the country, to explore housing alternatives such as cohousing or a niche retirement community, or to age in place but pay off your mortgage in order to lower your housing costs.

If you plan to refinance your current home or purchase a new one, it’s best to do so now while your income allows you to secure a mortgage. And if you’re thinking about moving, spend some time in your targeted location to make sure it suits the retirement lifestyle you want.

Test Out Your Retirement Budget

You have a retirement budget by now, but is it realistic? Give it a trial run for three to six months. If you can make ends meet, you’re on your way to retiring for real. If not, it’s good to know that in advance, so you can tweak your plan and/or expectations. Your financial advisor also can provide perspective and assistance on your retirement planning, particularly for your budget.

One Year Before Retirement

This is the year to review and finalize your retirement plans — from your budget and your retirement savings withdrawal strategy to your medical insurance and estate planning. It’s also the time to take advantage of employee benefits while you’re still in the workforce.

First off, you’ll want to refresh your financial projections (again). Rerun your retirement plan numbers, including the pension and Social Security income you can expect to receive. Take a fresh look at your retirement budget and your savings. Are you still on track to meet your goals?

Make a Final Decision About When to Claim Your Social Security Benefits

Once you’ve decided on your retirement date, Social Security can provide the actual amount of your benefit checks. Remember, if you claim your benefits before your full retirement age, your benefits will be permanently reduced. If you claim later, your benefits will get a boost.

Develop a Retirement Withdrawal Strategy

Once you retire, you’ll need a withdrawal strategy that stretches your retirement savings over the long haul, while minimizing the taxes you need to pay. Advisors recommend this strategy to draw from your savings in a tax-efficient way:

Plan on withdrawing 4–6% during your first year of retirement, adjusting for inflation each year after that.

Tap your taxable nonretirement accounts first, such as mutual funds, individual stocks and other investments, followed by your tax-deferred accounts (such as 401(k)s and IRAs), and then your tax-free Roth accounts. This allows your tax-deferred and tax-free assets to grow tax-sheltered for a longer period.

Include Required Minimum Distributions (RMDs) in your withdrawal strategy. These are the annual withdrawals you are required to take from tax-deferred accounts such as 401(k)s and IRAs once you reach age 70½.

Draw from your one- to two-year cash reserve for emergencies and unexpected expenses.

Your financial advisor can help you devise the withdrawal strategy that works best for your unique financial situation. This is also a good time to review your asset allocation and adjust or rebalance your investments in preparation for your coming retirement.

Finalize Your Plan for Post-Retirement Health Insurance

If you retire at age 65 or older, your obvious choice for health insurance is Medicare. But Medicare can be complicated, so take the time to educate yourself on its various parts and how it works in conjunction with other medical plans, including Medicare supplement insurance plans — that help pay for things Medicare doesn’t — and any retiree insurance your employer may provide. Make sure you avoid gaps in coverage and get the protection you need at the lowest cost.

If you retire before age 65, your health insurance choices include employer-sponsored retiree health insurance, COBRA, or purchasing coverage through the private health insurance marketplace or the ACA. Premiums for COBRA, private, and ACA plans are expensive, so be prepared.

An Important Aspect of Retirement Planning: Get Medical Checkups

Your out-of-pocket medical costs will likely rise when you retire, so in the last year of retirement planning, take advantage of your employer’s health insurance plan in this final year before you leave your job. Visit your doctor, dentist, and vision professional for routine care and to take care of any medical issues that need your attention.

Put an Estate Plan in Place (If You Haven’t Done So Already)

Estate plans aren’t just for the rich and famous. They can help protect you and your assets while you are alive, and benefit your spouse and children when you pass on. Essential estate planning documents include:

A formal will
Any trusts, which allow a third party or trustee to hold assets on behalf of one or more beneficiaries
A durable power of attorney, which allows you to designate someone to attend to your financial matters if you’re no longer able to do so yourself
A living will that states your desires about medical treatment if you’re unable to communicate your wishes

Six to 10 Months Before Retirement

It’s countdown time. The months leading up to your retirement date can pass quickly—with lots of details to attend to and plans to finalize as you make retirement a reality.

At six to 10 months, it’s important to ensure all the efforts of your retirement planning and retirement arrangements are in place. You’ll want to crunch the numbers one last time so you’re up to date on your finances. Talk to the experts who can confirm you’re good to go. This is also the time to begin formalizing your retirement plans with your employer.

Refresh your financial projections (yet again). Review and update the exact dollar amounts of your retirement savings, pension and Social Security benefits. Also, develop a tentative budget for the first two years of your retirement.

Plan Your Departure

Schedule an appointment with your employer’s business office or manager to discuss company guidelines for retiring. How much notice is required? What paperwork needs to be submitted—and by when—to initiate your retirement benefits? How should you submit your official notification?

Most employers need a formal letter of your intention to retire and its effective date. This will go in your employee file, documenting the terms of your departure and the beginning of your retirement benefits. It’s also an opportunity to let your employer know of your willingness to keep the door open for opportunities post-retirement, such as working part-time or as an independent contractor.

Meet With the Experts

Review and confirm your final retirement plans with your financial advisor. Make sure all of your beneficiary designations are up to date, and that you understand the specific tax-related issues that apply—for example, when taking distributions from your retirement plans, selling your home, or transferring assets to family members or heirs. A tax specialist also can offer invaluable assistance at this time, helping to minimize your tax liability while maximizing your income.

One to Three Months Before Retirement

The last few months of retirement planning are not unlike moving into a new house. You’ll need to sort through what you want and need to bring with you. Complete the paperwork that ends the employed chapter of your life and sets the stage for what’s ahead.

Migrate From Work to Home

Establish a personal email and move any personal online accounts to the new address.
Move personal files from your work computer to your personal computer. In most cases, you can easily do this using a thumb drive, a Google account, the cloud, or other file sharing apps.
Change any online profile information to reflect your post-retirement contact information.
Create a personal calendar and begin using it. Also, migrate important work contact information to a personal address book.

Finalize Arrangements With Your Employer

Submit your resignation letter when the time is right.
Submit any paperwork required to initiate your retirement benefits.
Confirm all retirement data from your employer and file all papers in a permanent file.

Apply for Social Security Benefits

If you wish to begin collecting immediately upon retirement, you can submit your Social Security application up to four months before you want your benefits to begin. You must be at least 61 years and 9 months old when you apply.

Consider Your Auto and Home Insurance Needs

Even if your lifestyle changes, you’ll need to keep both your auto and home insurance policies. Auto insurance is legally mandated in most states, and homeowners or renters insurance helps cover your property and possessions. Make sure to update both policies if you move, get a new car or experience other major life changes during this chapter of life.

After Retirement

Once you’re retired, one of your primary objectives is to make your assets last if you can, and retirement planning does not end here. Beginning in your first year of retirement, monitor all your retirement plans carefully and tweak where required. If you receive a lump-sum distribution from a pension or 401k retirement plan, you can roll it over into another qualified retirement plan or IRA to defer any taxable income until you begin making withdrawals.

But your most important objective is to enjoy this new chapter in your life. After decades in the workforce, you deserve a happy and fulfilling retirement—and careful retirement planning can make it all you’ve hoped for.

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