Getting ready to retire in 7 steps

If you’re within five to ten years of retirement, you’ve probably been building your nest egg and doing some basic retirement planning for some time now – which is great. But as you enter the final stretch, you'll find that there's more to do if you want to help ensure a smooth, financially stable transition out of the working world. Before you call it quits for good, there are seven key steps you should try to work through, including:

1. Lock in your retirement goals

2. Review your financial situation

3. Estimate retirement income

4. Estimate retirement expenses

5. Balance your retirement budget

6. Revisit your savings strategy

7. Assess your health and health insurance needs

1. Lock in your retirement goals

You've probably given at least some thought to when you'd like to retire and what you'd like your retirement to look like. But if it's been a while since you've considered these questions and discussed them with your spouse, partner, or loved ones, now is the time to revisit, fine-tune, and clearly define your retirement goals. Start by asking two questions:

• When will your retirement start, and how long might it last?
  First, think about when you’d like to retire. Will you shoot for the 2023 median and retire at age 62¹, or do you plan to continue working to full retirement age -- or even later? Maybe you’d like to retire now. Clearly, nobody knows what the future may hold, but take a best guess based on your current circumstances and goals.
  You also should consider how long your retirement might last. It can be a tricky calculation, but it’s important to have some idea of how many years you’ll have to rely on your savings. Think about the average longevity in your family, your current health status and the expected lifespan of people in the same socioeconomic group as you.

• What is your desired retirement lifestyle?
  Next, think about what type of lifestyle you’d like to have after you stop working. Do you plan to stay in your current home? Do you hope to move to a more upscale resort location where housing costs may be higher? Are you looking forward to extensive travel, or other costly endeavors? Or do you intend to downsize and cut back to minimize your financial needs? These are important questions. How you choose to live in retirement will, in large part, determine your expenses in retirement. And your expenses in retirement will determine how much savings you will need.

2. Review your financial situation

The closer you get to retirement – and no longer bringing home a paycheck – the more critical it is to have a clear picture of your financial situation. If you need to adjust your savings strategy or approach, you don't want to wait until the last minute. The sooner you take the time to see where you stand, the better prepared you'll be to make adjustments.

• Review your retirement readiness
  While there are no iron-clad rules for retirement readiness, there are some guidelines and benchmarks. For example, one guideline recommends the following savings by age:

  • 30: one time your annual salary at the time

  • 40: three times your annual salary at the time

  • 50: six times your annual salary at the time

  • 60: eight times your annual salary at the time

  • 67 (or at retirement): ten times your annual salary at the time

• Review retirement accounts and other assets to see if you’re on track 
  How close – or far – are you from your estimated savings goal? If you continue to save at your current rate, will you reach your goal in time? If not, how much more should you allocate to your retirement savings per year?

• Review your investment strategy and results 
  Is your investment strategy generating the returns you need to reach your retirement savings goal? Could you be earning more on your money without exceeding your risk tolerance? Should you think about annuities? Is it too late to take advantage of a cash-value life insurance policy? If you’re not already working with an investment professional to answer these and similar questions, it may be time to consider it.

• Review and reduce your long-term debt
  How much long-term debt – mortgage, college loans, medical bills – are you carrying? If you continue paying it down at your current rate, will you be debt-free at retirement age? If not, can you find a way to allocate more money to accelerate repayment?

3. Estimate your retirement income

How much monthly income can you expect during retirement? It’s a key question that will help you to start planning your retirement budget and – equally important – help you to determine whether you are on track to financial confidence or need to adjust your savings strategy. While it’s impossible to come up with an exact number, anybody with a calculator or an online retirement planning app can follow these steps to come up with a reasonable estimate.

1. Total your expected income from Social Security and any other government benefits or pensions.

2. Estimate your total savings and investments at retirement based on your current balances and savings rate. Include 401(k)s, IRAs, and taxable accounts.

3. Estimate your retirement income from savings and investments, using a moderate rate of interest.

4. Estimate any income you might generate from other sources, such as rental income or part-time work.

5. Deduct estimated taxes.

6. Total all sources of income.

4. Estimate your retirement spending

Estimating how much you will spend during retirement will take more than a few minutes, but it's central to the planning process. So, be sure to set aside some time to go through the following steps.

1. Start by recording your current monthly expenses. This will serve as a baseline for estimating your spending in retirement.

2. Consider the impact of inflation. Generally, it's advisable to assume an average inflation rate of about 3% per year.

3. Consider any anticipated lifestyle changes – such as downsizing or relocating – and how they might affect your spending.

4. Add in healthcare costs, which tend to increase with age. How much will you spend on insurance, out-of-pocket costs and so on?

5. Evaluate your outstanding debts – including mortgage payments – and figure out whether they’ll be paid off by the time you retire.

6. Think about any plans you have for retirement - such as travel and new hobbies – and include these discretionary expenses in your calculations.

7. Consider potential purchases, emergencies, and other financial obligations, from helping an adult child to buying or leasing a new car.

5. Balance your retirement budget

The next step is to figure out approximately how much retirement income you'll have to generate via your savings and investments to balance your retirement budget. This can be as simple as subtracting your non-savings income (Social Security, pensions, rental income, part-time work, etc.) from your estimated expenses.

For instance, if you estimate living expenses at $90,000 per year, and you expect to earn a total of $45,000 from Social Security benefits, pension, and part-time employment, you'll have to generate $45,000 (after taxes) from your retirement nest egg to make up the difference. Of course, any money you "draw down" from your savings will reduce the amount of income you'll have to generate, but – as a rule - most people prefer not to draw down their savings unless totally necessary.

6. Revisit your saving strategy

If, after completing the prior steps, you feel confident that your current savings and investment strategy will build an adequate retirement fund, just keep doing what you're doing! On the other hand, if you think that you may end up with a shortfall, take some time to review and adjust your strategy. You may want to:

• Increase your savings rate
  Fortunately, even in your fifties, there is still time to build a sizable retirement fund. Many people will be in their peak earning years and able to put aside more funds than they might have been able to in prior years.

• Make catch-up contributions
  Once you reach age 50, catch-up provisions in the tax code allow you to increase your annual contributions to several types of retirement accounts, including 401(k)s, traditional IRAs, and Roth IRAs – so you can build your retirement fund even faster.

• Consult a professional 
  If you can’t seem to reach your savings or investment goals on your own, now might be a good time to speak to a financial professional with retirement strategy and/or investment experience.

7. Reassess your health and health insurance needs

In addition to finances, two of the other key factors will likely determine your quality of life in retirement: the state of your health and the quality of your healthcare coverage. While you can't typically predict what your health will be like when you actually stop working, there are a few things you can start doing to put yourself in a better position, including:

• Stay up to date on all regular checkups and preventive interventions

• Make lifestyle changes to help maintain your health and contain future healthcare costs

• Update budget calculations to reflect possible increases in medical expenses

• Review health insurance and long-term care insurance plans

• Continue contributing to a health savings account (HSA)

• Get up to speed on Medicare, Medicare Advantage, Medigap insurance policies, COBRA, and Medicaid

Guardian Can Help

This information can help you to develop a more effective retirement strategy, but you may need more help to achieve your retirement dreams. As you get deeper into the planning process or closer to your retirement date, consider talking with a financial professional with retirement strategy experience.

If you don't currently have a financial professional, Guardian can help. A Guardian Financial Professional will listen to your needs, help define your goals, work with you through the retirement planning process, help you select appropriate investment options, and make the right decisions for you. Here's how to find someone near you: