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5 Things to Do Before You Retire

Chris Beesley, MBA, CFP®

Director of Financial Education

Last Updated
June 22, 2022
Happy mature woman wrapped in blanket reading a book

Tips to Help You Prepare

Some people count down the days until they can leave their working years behind them, while others worry about what their future holds as they enter retirement. Regardless of your outlook, completing the following tasks before you retire can help ensure a smooth transition to the next chapter of your life.

#1 – Revisit your goals.

When was the last time you really thought about your retirement goals? Not only your one-time goals, such as a trip to Europe (although these are important, too), but your goals surrounding what you want your life in retirement to look like. Where would you like to live? How will you spend your time? What people will you surround yourself with? What tasks or opportunities will offer you a sense of purpose and fulfillment?

The answers to these questions can help you envision what your ideal retirement looks like. Use this vision to guide your decisions and help you remain focused on achieving your most important goals.

#2 – Create a budget.

Now that you have an idea about what you want your retirement to look like, it’s time to figure out how much it will cost. It can be difficult to transition from living off a regular paycheck to living off your savings, which is why it’s important to create a monthly budget.

Begin by estimating your monthly expenses during your first year of retirement. Use this information to determine the amount you’ll need to withdraw from your savings each month.

By taking into consideration your savings and investments, lifestyle goals, other sources of income (such as Social Security) and current and anticipated expenses, your wealth manager can help you establish a monthly budget and identify any gaps that may need to be filled.

#3 – Plan for inflation and market volatility.

One common misconception among many soon-to-be retirees is that they should transfer all their riskier, growth-focused assets into more conservative investments, such as CDs and bonds, as they near retirement. While it’s true retirees have short-term income needs, many end up living for 20 to 30 years in retirement. If you retire at age 65 and move all your investments into short-term vehicles, you’re going to miss out on a lot of growth while also losing a significant amount of purchasing power to inflation over the next couple of decades. You need to invest for the long term while also funding your lifestyle.

At Creative Planning, we typically recommend maintaining three to five years of living expenses in a short-term, semi-liquid investment account. This is generally a mix of bond funds to provide capital for opportunistic rebalancing and a monthly income. Having a short-term allocation to bonds can prevent you from having to sell out of equities at a loss when markets are low.

Any assets that aren’t needed to fund your short-term needs should be invested in a diversified portfolio with a focus on growth and inflation protection. While this portfolio should be in line with your overall risk tolerance and investment objectives, it can be invested in riskier assets than your short-term account. Your wealth manager can help you identify opportune times to transfer assets from your long-term savings to your short-term savings in a tax-efficient manner.

#4 – Understand your health insurance options.

If you retire before age 65, your health insurance options may include:

  • Retiree coverage through your former employer
  • Coverage under your spouse’s plan
  • A marketplace plan through gov
  • COBRA coverage for up to 18 months

Medicare coverage is available for those who retire at age 65 or older. Your wealth manager can help you determine if additional benefits, such as a prescription drug plan or Medicare supplement plan, are necessary.

If you are a veteran, you may qualify for health insurance through the Veterans Benefit Administration.

#5 – Establish a tax-efficient withdrawal strategy.

Your wealth manager will help you develop a disciplined withdrawal strategy to establish a monthly income stream by drawing from your various accounts and additional income sources, such as Social Security.

The two main benefits of following a disciplined approach include:

  • It can reduce the risk that you spend more than you can afford in any given year; this reduction of risk can help ensure enough assets are available to last your lifetime
  • Drawing down your accounts in a strategic, tax-efficient manner can help maximize the amount available to fund your retirement

Another tax-efficient strategy you may want to consider executing in the first years of your retirement is a Roth conversion. A Roth conversion is the action of moving, or “converting,” traditional/rollover IRA assets to a Roth IRA. This can be beneficial because Roth IRA distributions are tax exempt, whereas traditional/rollover IRA distributions are subject to income taxes. Because ordinary income tax must be paid with traditional/rollover IRA distributions, it’s best to carry out Roth conversions during years where your tax bracket is expected to be low (which, for many, is their early retirement years). Your wealth manager can help you determine whether a Roth conversion is right for you and, if it is, the best time to begin any conversion.

Could you use some help preparing for retirement? Creative Planning is here for you. Our experienced professionals work with clients to help ease the transition from their working years to retirement. To learn more, schedule a call with a member of our team.

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This commentary is provided for general information purposes only and should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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