The decision to retire can cause a great deal of anxiety, especially if you aren’t sure if you’re ready. Some people use milestones like career achievement, age, or even savings to assess their readiness for retirement, but there are other factors you should consider as well.

Ideally, you should create a comprehensive plan for your financial well-being in retirement. Such a plan makes it easier to deal with financial setbacks and other bumps along the road. Furthermore, the plan should help protect against as many contingencies as possible, to minimize the odds of being caught off guard. To ensure you’re prepared for retirement, it can be helpful to create a readiness checklist. While this list will look different for everyone, some of the key items to include are:

 

  1. Spending estimates

It’s probably not possible to say exactly how much you’ll spend in retirement, but estimates can help you get a general sense. A detailed budget will give you a better idea of how much you’ll need, both monthly and annually. This estimate should include all expenses: basic costs such as housing, utilities, food, transportation, and healthcare, as well as irregular expenses like travel and vacation. Your expenses may change in retirement, but it’s still a good idea to figure out how much you’re spending now, to create a baseline estimate. Remember that the more detailed your budget is, the better—don’t leave any expenses out.

 

  1. Income tally

During retirement, you may receive income from a wide number of sources, including investments, Social Security payments, and more. You may also have an annuity or pension income. Adding up your expected monthly income from these different sources can give you a better sense of what you’ll need to save to close the gap and ensure you can cover your bills. In addition, this tally will help you determine if you’ll need to reduce your spending or increase your income through options like downsizing to a smaller home or getting a part-time job.

income planning

 

  1. Retirement savings

The question of how much you need to save for retirement is a complicated one. Ultimately, you should base this number on the retirement budget you created for yourself, and then add plenty of room for cushion. To get a very broad estimate, multiply your estimated annual spending by 25. If you expect to have other sources of income in your retirement besides savings, subtract them from your annual spending, then multiply that number by 25. If your actual savings are less than the calculated estimate, it is time to revisit your budget and see what adjustments you can make.

 

  1. Draw-down strategy

Prior to retiring, you’ll need to plan how you will draw from your retirement accounts. It’s important to be strategic about how you draw down, especially if you have a variety of different accounts. Typically, tax-advantaged accounts should go untouched for as long as possible. Of course, traditional 401(k) and IRA plans have minimum required distributions once you reach 70.5 years of age, but Roth accounts do not have the same requirements. Roth accounts can continue to grow well into retirement, so try to keep as much money as possible in these accounts, for as long as you can.

 

  1. Healthcare costs

Carefully consider your anticipated healthcare costs in retirement and figure out what insurance you’ll need. For most people, healthcare is the most significant cost in retirement. Medicare is a given, but many people find that they need supplemental insurance. You should also have an emergency fund for expenses not covered by insurance plans. Keep in mind that the cost of long-term care can quickly lead to bankruptcy, because traditional insurance does not cover it. If you know you won’t be able to shoulder the cost of long-term care, it’s vital to research insurance for this level of care. Long-term care policies become more expensive as you age and your health declines, so you may want to purchase a policy sooner rather than later.

medicine

 

  1. Legacy planning

While you might wait until you’ve actually retired to begin legacy planning, start thinking about what you want to leave behind before leaving the workforce. Your legacy could influence your retirement savings target, the timing of your retirement, and your estimated retirement budget. You should also draw up an estate plan. Be sure to revisit it regularly (at least every five years) to ensure everything remains up to date. During retirement, it’s important to have regular conversations with your spouse and heirs, so that everyone knows what to expect and any transition of assets proceeds smoothly.

 

  1. Spousal loss

No one wants to think about the possibility of losing their spouse. However, if you are married, it’s important to consider how your death or the death of your spouse will affect the survivor’s finances. Failing to plan for this could put one of you in a terrible financial situation during one of the most emotional times in life. Talk to your partner about what the surviving person should do; consider things like whether you should stay in the same home or whether you’d need additional sources of income. Some sources of retirement income are tied to one partner, so their death could mean the loss of a specific income stream. Identifying these potential gaps early will help you and your spouse protect each other and your family.