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A Pre-Retirement Financial Checklist

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Are you within a few years of retirement? It’s time to get your financial house in order. We are now almost eight years into a bull market for stocks that has seen the S&P 500 move from 677 at the lows of the financial crises to a recent intraday high of over 2,350. Hopefully these stock market highs have favorably impacted your retirement readiness?

Here are several items to include on your pre-retirement financial checklist.

Review your company benefits  

Your 401(k) plan might be your largest and most significant employee benefit, but there may be others to consider as well. Does your company offer any sort of retiree medical coverage? Are there other benefits that you can continue at reduced group rates?

In the case of your 401(k) you will have choices to make at retirement. You will need to determine if you want to leave it with your soon-to-be-former employer, roll it into an IRA, or take a distribution. The last choice will likely result in a hefty tax bill, so this is generally not a good idea for most folks.

Do you have company stock options that you haven’t exercised? Check the rules here. Speaking of company stock, there are special rules called net unrealized appreciation to consider when dealing with company stock held in your 401(k) plan.

Do you have a pension from your current or former employer?

While a pension is certainly an employee benefit, I feel that it deserves its own section. You might have several decisions to make regarding your pension benefit if you are fortunate enough to be covered by one.

  • Do you take the benefit immediately upon retirement, or wait?
  • If you have the option, do you take the pension as a lump-sum and roll over to an IRA or take it as a monthly annuity?
  • Generally, there will be several annuity payment options to consider, which one is right for your situation?

These decisions should be made in the context of your overall financial situation and your ability to effectively manage a lump sum. Since any lump-sum would be taxable if taken as a distribution, it is usually advisable for you to roll it over into a tax-deferred account such as an IRA. If you have earned a pension benefit from a former employer, be sure to contact your old company to get all the details and to make sure they have your current address and contact information so there are no delays or glitches when you want to start drawing on this pension.

Determine your Social Security benefits and when to take them

While you can start taking Social Security at age 62, there is a significant reduction in your monthly benefit as opposed to waiting until your full retirement age. Further, if you can wait until age 70 your benefit level continues to grow. If you are married the planning should involve both spouses’ benefits. There are several planning opportunities for married couples around when each spouse should claim their benefit.

Review your retirement financial resources 

Over the course of your working life you have likely accumulated a variety of investments and other assets that can be used to fund your retirement which might include:

  • Your 401(k)or similar retirement plan such as a 403(b) or other defined contribution plan.
  • IRA accounts, both traditional and Roth.
  • A pension.
  • Stock options or restricted stock units.
  • Social Security
  • Taxable investment accounts.
  • Cash, savings accounts, CDs, etc.
  • Annuities
  • Cash value in a life insurance policy
  • Inheritance
  • Interest in a business
  • Real estate
  • Any income from working into retirement

In the years prior to retirement it is a good idea to review all your anticipated assets and retirement resources to determine how they can be best utilized to support your desired retirement lifestyle.

Determine how much you will need to support your retirement lifestyle 

While this might seem intuitive you’d be surprised how many folks within a few years of retirement haven’t done this. Basically, you will want to put together a budget. Will you stay in your home or downsize? What activities will you engage in? What will your basic living expenses be? And so on.

Compare this to the income that your various retirement resources might generate for you and you will have a good idea if you will be able to support your desired lifestyle in retirement. If there is a gap, you still have some time to make adjustments to close that gap.

You will need to do some planning in terms of which financial resources to tap and the sequencing of these withdrawals over the course of your retirement.

This is a very cursory “checklist” for Baby Boomers and others within a few years of retirement. This might be a good point to engage the services of a fee-only financial advisor if you’ve never done a financial plan, or if your plan is out of date. Retirement can be a great time of life, but proper planning is required to help ensure your financial success.

Approaching retirement and want another opinion on where you stand? Check out my Financial Review/Second Opinion for Individuals service.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out the Hire Me tab to learn more about my freelance financial writing and financial consulting services.  

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Comments

  1. Its so important to learn about the resources you have. Many people fail to explore what resources are available to them until its too late. You’ve given us a great breakdown here. Thanks for the post!

  2. I agree with the Wallet Doctor. It’s so great to get different point of views on retirement to broaden what we can offer our clients. I’ve visited a lot of blogs about retirement and I’m shocked at how many don’t explain the benefits of a tax free, or tax deferred retirement plan. I understand they may not be the best option for a lot of clientele, but there are certainly people out there that can enjoy this type of plan. What’s your opinion on this subject?

    • Roger Wohlner says:

      Thanks for the comment Jim. Certainly I am a fan of people using tax-deferred retirement savings vehicles such as a 401(k) or similar plan, IRAs, etc. As you say each client is different but in general these plans are a beneficial options for most folks.

  3. Good checklist! We reached FI in 2012. I came across this countdown app to early retirement. This would be fun to use before retiring. http://www.CountUsDown.com/retirement

  4. Great points. Would you advise the same for early retirees?

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