7 Milestones to Reach Before Retirement

Retirement planning is one of the most complex parts of financial planning.  

There are so many factors to consider, from investment allocation to social security to monthly expense needs. On the other hand, it’s also one of the most exciting parts of our role as a planner.  It’s incredibly fulfilling to help clients work toward this major goal, and to assist them in planning out their golden years.

With that being said, there are major planning milestones that need to be accomplished prior to retiring, and we have compiled a list of the top seven:

1. Retire to something, not from something.

This can often be a confusing piece of advice to clients.  What exactly does it mean?  The main premise of this milestone is to have a purpose and a passion throughout your retirement years.  What are you looking forward to?  Is it travel, volunteering, or more time with the grandkids?  Maybe all of the above?  We’ve seen time and again folks who have retired only to be unfulfilled with the way they spend their time in retirement.  We encourage anyone who is considering retirement to map out what a sample week may look like.

2. Determine your monthly expense need.  

Once you’ve decided what you would like to do and how you would like to spend your time, try to build an annual budget around that figure.  It doesn’t have to be an exact figure, but you want to be close to the ballpark.  As a general rule of thumb, most individuals spending habits do NOT drastically change when reaching retirement.  

PRO TIP – When reaching retirement age, it’s incredibly beneficial to be debt-free.  We strongly encourage knocking out those debts (including your mortgage) prior to retiring! Want to know how? Let us know!

3. Determine your monthly income sources.  

Do you have a pension?  Rental income?  Income from the sale of a business?  Regardless of what your income sources are, list those out.  Don’t forget to include your social security as well!  When it comes to receiving social security benefits, there are many important decisions to make, including the age in which you begin receiving benefits.  We’ll cover all these nuances in a future blog post.

4. Determine the monthly gap that exists between your monthly expense need and your income sources.  

This amount will need to be filled by distributions from your assets.  When it comes to taking distributions from assets, the 4% rule can be used to ensure that your withdrawal rate is sustainable.  In other words, you want to make sure that the annual distribution taken from your assets is 4% or less of the lump-sum balance.  For example, let’s assume you start the year with a balance of $500,000 in retirement assets.  4% of this value is $20,000.  Therefore, a sustainable withdrawal rate would be $20,000 or less.  While the 4% rule isn’t guaranteed, it’s proven to be a statistically strong measure of success (as long as it’s implemented with a well-balanced, diversified portfolio).

5. Ensure that your portfolio is set up for long-term success.  

When entering retirement, it’s critical that your investment portfolio is properly diversified and allocated.  A typical retiree has a balanced portfolio of stock and bond holdings.  This enables them to outpace inflation while also having less volatile holdings to pull from in the event of a down market.  Properly managing this allocation over time is key to retirement success.

6.Discuss your income changes with your tax professional.  

When you begin receiving retirement income from different sources, it can be overwhelming and confusing trying to understand all of the different taxation rules.  It’s important to have a tax efficient income strategy so that you can minimize the amount paid to Uncle Sam and maximize the amount that you can use to your enjoyment.

7. Continually review your plan to ensure long-term success.  

Make sure to surround yourself with a team of professionals that can help you to make these important decisions.  Ultimately, you want to be able to enjoy these years as much as possible.  Outsource to the expert so that you can live your best life!

Clark Hayden, CFP®*

Financial Advisor, Partner, CFP®