Your Retirement Checklist
What does an artist and someone planning for his or her later years have in
common? Each visualizes their final objective, but the process is fluid. Although
your situation is unique, there are basic elements you can use to sketch an
effective retirement plan.
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Pointers for the Accumulation Phase
An important action you can take is to determine your retirement needs. This
task involves identifying your potential retirement expenses, as well as estimating
the amount you might receive from each potential source of retirement income
(Social Security, pensions, personal investments, and employment earnings).
Doing this calculation will give you an idea of how much you may need to finance
a comfortable retirement. Don't be surprised if the numbers add up to
be a large sum -- after all, this money may need to support you for 20
or 30 years. Fortunately, there are ways to leverage your dollars.
Starting early and contributing as much as possible to employer-sponsored retirement
plans and IRAs may help you to potentially accumulate more money. Why? Because
investing in these tax-advantaged accounts means your money will work harder
for you. The longer the money sits untouched, the more it can potentially compound.
Another vital step: Determine an appropriate asset allocation -- how you
divide your money among stocks, bonds, and cash -- for your portfolio.
This should be based on your financial goals, tolerance for investment risk,
and time horizon. Be aware that your asset allocation will need to be adjusted
periodically in response to major market moves or life changes.
Once you're nearing retirement, it will also be necessary to craft a solid
plan for distribution of your assets. For example, do you know one of the greatest
risks that retirees face? The possibility of outliving their money, according
to the Society of Actuaries.
That's why it's essential to determine an appropriate annual withdrawal
rate. This amount will be based on your overall assets, the estimated length
of your retirement, an assumed annual rate of inflation, and how much your investments
might earn each year.
Another consideration: After age 70 1/2, you'll have to begin making an
annual withdrawal from some tax-deferred retirement accounts (known as a required
minimum distribution), including traditional IRAs. Preparing for this phase
ahead of time may help reduce your tax burden -- especially if your annual
RMD may push you into a higher tax bracket.
Likewise, this is the time to make sure your final wishes are accurately documented
and estate strategies are well underway to minimize your heirs' tax burden.
As you can see, planning for the different phases of retirement is a lifelong
process. Following is a list that can help you along the way.
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Retirement Planning Checklist
Find the category that
best describes you. After answering the questions, bring the list
to a qualified financial professional who can help make sure your
retirement plan is on target.
Saving for Retirement
1. Have you performed a comprehensive retirement needs calculation?
2. Are you contributing enough to potentially reach your financial
goal within your desired time frame, by maximizing contributions
to tax-advantaged retirement accounts, such as your employer-sponsored
retirement plan and an IRA?
3. Is your asset allocation aligned with your retirement goal,
risk tolerance, and time horizon?
4. Have you determined if you might benefit from contributing
to a traditional IRA or a Roth IRA?
5. Do you review your retirement portfolio each year and rebalance
your asset allocation if necessary?
Nearing Retirement
1. Do you know the payout options available to you (e.g., annuity
or lump sum) with your employer-sponsored retirement account,
and have you reviewed the pros and cons of each option?
2. Have you considered your health insurance options, (i.e.,
Medicare and various Medigap supplemental plans or employer-sponsored
health insurance), out-of-pocket medical expenses, and other
related health care costs?
3. Have you contacted Social Security to make sure your benefit
statement and relevant personal information are accurate?
4. Should you purchase long-term care insurance? If so, have
you investigated which benefits are desirable?
5. Is your asset allocation properly adjusted to reflect your
need to begin drawing income from your portfolio soon?
6. Have you determined an appropriate withdrawal rate of your
assets to help ensure that your retirement money might last
20, 30, or more years?
7. Have you figured the amount of your annual required minimum
distribution (RMD) and developed a strategy to reduce your tax
burden once you're required to begin taking RMDs?
8. Have you appointed a health care proxy and durable power of
attorney to take charge of your health and financial affairs
if you are unable to do so?
9. Have you reviewed all your financial and legal documents to
make sure beneficiaries are up-to-date?
10. Are you making effective use of estate planning tools (such
as trusts or a gifting strategy) that could reduce your taxable
estate and pass along more assets to your heirs while also benefiting
you now?
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Summary
- Planning for retirement is a lifelong process. Determining your retirement needs by identifying your potential retirement expenses and sources of retirement income is an important step.
- Starting to invest early for retirement and contributing as much as possible to tax-advantaged employer-sponsored retirement plans and IRAs are two ways to leverage your retirement dollars.
- Determining an appropriate asset allocation -- how you divide your money among stocks, bonds, and cash -- is a time-tested strategy for helping you pursue your financial goal.
- It's essential to determine an appropriate annual withdrawal rate of your assets during retirement so you don't outlive your money.
- After age 70 1/2, you must begin making an annual required minimum distribution from certain tax-deferred retirement accounts. Preparing for this phase ahead of time may help reduce your tax burden.
- Developing an appropriate estate plan is the important final stage of crafting an effective retirement plan.
Checklist
- Try to accumulate enough emergency savings and insurance coverage so that you can address unexpected financial crises without spending money earmarked for retirement.
- Update beneficiary designations on all retirement accounts and other financial paperwork.
- Consider changing the date of your retirement if it would make it easier to retire with enough money for the future.
- Rebalance your retirement account's asset allocation if necessary.
