Transitioning Into Retirement: A 2024 Financial Checklist for Boomers
If you want your retirement years to be peaceful and easy, without constantly worrying about finances, you should not wait until the last minute or jump in without planning.
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However, sometimes the time to retire sneaks up on you. Many boomers might find that 2024 is the year they’re ready to make that leap.
Andrew Van Alstyne, MBA, a financial planner with Fiduciary Financial Advisors, recommended creating a financial checklist to help you transition into retirement, which he compared to “a pre-flight checklist for a pilot,” adding, “These are things you should be doing before you even get on the runway for takeoff.”
Assess Cash Flow
You should start by assessing cash flow needs, Van Alstyne said.
“The traditional rule of thumb that your expenses will go down in retirement has been proven to be a fallacy in more recent years: your expenses are likely to be maintained if not increased between inflation, lifestyle changes, etc.”
It’s important to make sure you’re correctly accounting for and planning for that, he said.
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Payouts From Pensions and Social Security
If you’re receiving a pension, which he said is further and fewer between, be sure to balance the payout options for those with other income sources.
“Coordinate the strategies between pension, Social Security, and other income streams, making sure that you’re accounting for where the income is coming from,” he said.
If you’re married, and thus two of you both potentially will be claiming Social Security, you may also have to do some coordination, especially if you don’t both retire at the same time.
“Do you both claim jointly? Do you hold out for the maximum Social Security amount?” he asked.
Consider Healthcare Costs
If you retire earlier than 65, when you qualify for Medicare, be sure you’ve got your healthcare costs figured out, especially if you have a health history that might warrant greater or more frequent healthcare costs, he said.
For those retiring before 65, you may have to get healthcare insurance on your own, although some might be able to take their employer benefits into retirement, Van Alstyne said.
However, if you’re taking lower distributions the first few years in retirement, you may qualify for tax credits in the insurance marketplace, as well, he said.
“If you have or had the ability to contribute to a HSA (health savings account), make sure you have a full comprehension of what the current tax code allows for deductions. Coordinate that with your expenses as far as when you may need to tap into that,” Van Alystne said.
“You might also be able to use those for some long-term care expenses, such as recovery from a medical procedure,” he said.
Consider Long-Term Care Insurance
Van Alystne said that as many as 1 in 4 retirees may wind up in a long-term care facility in retirement — not necessarily a nursing home, but a facility where you might have to stay for an extended recovery after a medical procedure.
He said this can be “devastating” to your retirement strategy if not planned for.
“A long-term care option can offset those expenses.”
Don’t Forget Spousal Benefits
Additionally, even if you’re divorced, if your marriage lasted at least 10 years, you may still be able to get an ex-spouse’s spousal benefits, Van Alstyne said.
“That’s also true if your marriage lasted more than nine months and your spouse passed away, so make sure you’re accounting for that.”
Investigate Insurance
Another important area to consider before you retire is any life insurance policies that are still in force, Van Alstyne said.
“Even if you look at the basics, if you’re covering liabilities earlier in life or replacing an income stream, some of those liabilities are no longer there, and that income stream has now shifted to where that plan is already in motion.”
So, you might want to cash out a policy or review the coverage of a policy, he said.
“Just make sure you’re modifying anything that is in existence for your present state of life.”
Don’t Leave Anything on the Table
If you’re leaving behind a job, make sure you’ve gone through all the minutiae of employer benefits, he urged, such as stock options, grants and restricted stock units.
Also, “[c]heck with your employer for any unused vacation days — and how to best use them. Some will allow you to submit for compensation instead of time. Whatever that structure looks like, don’t leave it on the table.”
And if you took out a loan on your employer retirement plan, make sure you’re repaying that on schedule, he said.
Prepare an Exit Strategy
If you’re a business owner, make sure you have an exit strategy in place, he said.
“Nine times out of 10, small-business owners don’t ever fully take their foot off the pedal, but make sure you have a succession plan. If you’re cashing out, make sure that it’s done in a tax-efficient way,” he said.
Consider Tax Planning
When you’re finally ready to take out distributions from retirement accounts, you need to make sure that you’re correctly calculating required minimum distributions, Van Alstyne said.
“If it’s a large amount, it may make sense to do Roth conversions, where you take it from a qualified account that grows tax deferred, and convert it, paying taxes on it in the conversion process, and then park it where it can either further grow tax-free or be a little more liquid.”
And don’t forget to consider your individual state’s tax situations, he urged.
“Federal taxes are applicable to everyone, but every state has different ways they treat different income streams, and different marginal tax brackets.”
Estate Planning
For higher net worth individuals, he urged that they look into estate planning needs.
“Review your current estate and make sure it’s being adjusted for tax exclusions for your plans for estate planning after your passing.”
Always Revisit Your Goals
Once you retire, make sure you continue to review your objectives and goals.
“Now that you’re there, what are your objectives in retirement as far as your investment strategy and has your risk tolerance changed?”
He said it’s common for even those people who had a higher risk tolerance in their working years to become more risk averse in retirement.
“When you’re working, you can recoup some of your losses by earnings,” he said. “Make sure your objectives remain in alignment.”
By checking off the elements on this list with your financial advisor, you should get a clear picture of what your retirement runway looks like.
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This article originally appeared on GOBankingRates.com: Transitioning Into Retirement: A 2024 Financial Checklist for Boomers
