Countdown to Retirement – An Important Checklist

Countdown to Retirement – An Important Checklist To See If You Are Ready

The final step before retiring requires addressing a series of financial questions before you set the actual date. Not all retirement issues are financial. Some of the most important issues you need to face will involve lifestyle decisions. How will you spend your time when you’re not working anymore? Will you work as a volunteer or maybe start a new avocation? How frequently will you travel if at all? Will you spend winters in a warmer climate? These issues will be addressed in detail in future newsletters but for now, let’s assume you have already addressed the big financial issues – you have enough money to retire and if you are under age 65 and ineli­gible for Medicare, you have deter­mined how you will cover your health insurance needs. Here are some other financial questions should you address.

Retirement plan options

Tradi­tional pension plans are becoming rare. But if you are retiring from a company that still offers retirees a pension, you will have to choose a method for how your monthly benefit will be calcu­lated. These options will involve whether you want to include a benefit for your spouse – joint life expectancy for all or some portion of the benefit. You may want to consult a financial planner to help you evaluate this option. Once you make your pension election the decision is often irrev­o­cable. Generally, the option based on a single life expectancy will offer a higher monthly benefit, and the option based on joint life expectancy will provide lifetime income and provide more security for you and your spouse.

Even today’s more popular defined contri­bution plans, such as 401(k) and 403(b) plans offer a choice of lifetime income or a lump sum distri­b­ution. You will need to consider carefully all the options available to you. Some of the options could have serious tax conse­quences if the wrong choice is made.


A key ingre­dient in the recipe for retirement success is the ability to control your spending and stay within your projected cash flow needs. High balances on credit cards can translate to a monthly bill of several hundred dollars and can be a red flag that you cannot control impulse buying. You should eliminate your credit card debt while you are still working. Make sure the balance is paid off in full each month and that this expense is calcu­lated into your future spending estimates. Home equity credit lines pose the same problem when they are used to subsidize spending.

The desire to be debt free can also work against you when you have a balance on your mortgage and plan to use the lump-sum distri­b­ution from your retirement plan to pay off your house. Doing so could reduce your monthly bills substan­tially but at what cost? Paying an additional 20% or more in taxes to pay off a 5% mortgage may not be a wise financial decision. Partic­u­larly if you are in the last few years of the amorti­zation and only a small amount of the payment is going to pay interest.

Tax Planning and Social Security

Careful planning is required to generate the income you want in retirement with the smallest tax impli­ca­tions possible. Following this advice will help assure you will not outlive your assets because fewer will be needed to pay income taxes. If you have followed The New Three-Legged Stool™ strategy, you will have three sources of funds to draw from. You will need to run tax projec­tions to determine how much should be withdrawn from each of the three legs to minimize your taxable income.

Social Security planning goes hand-in-hand with tax planning. You will need to get a copy of your most recent Social Security estimate of benefits. You may want to make some changes in how your investment assets are positioned before you start drawing benefits. Not all of your Social Security benefits will be taxable. Smart planning could put you into a position where none of them are taxable.

Retirement and estate planning goals

Your retirement plans can have a major impact on leaving a financial legacy for your children. Pre-tax accounts such as IRAs have the worst tax conse­quences for your heirs. Tax-free Roth IRAs have the best tax conse­quences. For your children to minimize negative tax impli­ca­tions and maximize the positive ones you need to have the benefi­ciary desig­na­tions set up properly.

This is also a good time to consider your chari­table goals. Since charities don’t pay income taxes and your children do, the charities should be the benefi­ciaries on your IRAs and your children the benefi­ciaries of your Roth IRAs.

Final thoughts

Retirement planning is an ongoing process. Picking up your gold watch does not mean you can rest easy from now on. Each year, you will want to check in with your financial adviser to make sure your financial strategy is performing as expected and make any adjust­ments that may be needed to help you stay on track.

Ease into your new retirement lifestyle. Don’t make dramatic changes, such as selling your house and buying a new one in another part of the country. What may seem like a good idea could turn out to be a financial disaster. You should consider renting a place first. Take your time to make sure this is really what you want to do and where you want to live.

Rick’s Insights

  • Most retirement distri­b­ution options are irrev­o­cable elections. You should
    seek profes­sional guidance to help you make the right choice.
  • Ongoing credit card debt could be a sign of spending problems. You must be
    able to live within your means to have a successful retirement.
  • Avoid big lifestyle changes with permanent financial impli­ca­tions when
    beginning retirement. Test drive the changes first to avoid costly regrets.