1. Don't Take It Lightly
Retiring is more than likely the biggest financial decision you will ever make. I'm not just saying this because retirement planning is what I do for a living, but HIRE A PROFESSIONAL! This is not something to be impulsive about, and hiring a professional provides a second opinion at the very least. Working and constantly making money then having it all come to a screeching halt is a major shift, to put it lightly.
2. Blueprint Your Retirement
The key to having peace of mind in your retirement, like anything else, is envisioning and planning what you want. Imagine the disappointment when you envisioned a lavish retirement of traveling and wine tasting, and the budget only allows traveling to your kitchen table and all you're tasting is an old bottle of white wine you keep in the fridge for cooking. (By the way, to each their own!) Get real with yourself, what do you really want your retirement to be like & what will your priorities will be?
3. What Are Your Current Spending Habits?
Your current spending habits are a good place to start planning what kind of lifestyle you'd like to create in retirement. Do you want to maintain your current lifestyle? Downsize? Or maybe upgrade a bit?! Look at what you spend in an average month and WHAT you're spending on & if those habits will carry over into retirement.
4. Anticipate Your Retirement Spending
Continuing with #3, estimate how your spending will change vs. pre retirement. It's helpful to write it out the old fashioned way and compare side by side. Some things to think about as you do this:
- Health insurance, could be a major expense.
- Estimate over rather than under: I'm sure you'd rather have extra money leftover, rather than scraping for it in a time of need.
- Taxes: Especially if you are planning on doing Roth Conversions prior to Required Minimum Distributions
5. Calculate Your Net Worth
When determining if you have enough money to retire, you must understand how much money you actually have to fund your retirement. Your net worth statement details everything you own, and all of the debt you owe. Subtract the liabilities from your assets, and there's your net worth! It's also helpful to know what the tax status is of the different holdings in your portfolio.
6. Determine Your Safe Withdrawal Rate
How much of the assets calculated above can you safely spend each year? Making the shift from consistently adding to these accounts to withdrawing is a major one. Some things to think about during this decision:
- What your Asset Allocation should be as you enter retirement
- How you'll access your pre-tax investments
- If/when you'll make Roth conversions
- Tax optimization
- How you'll handle unexpected expenses
7. Implement A Regular Financial Review
Your retirement lasts longer than you think, things change. It's important to do a review with a professional to update any of the figures you calculated above.
We are always happy to meet with you and give you some insight, don't hesitate to reach out!