Preparing for retirement can be both thrilling and challenging. Whether you're retired or working towards it, preparation can make all the difference. This comprehensive checklist covers key items to consider across Financial Planning, Investment Management, Tax, Estate Planning, Insurance, and more. Completing all checklist items is quite valuable, but may be both complex and challenging. We recommend using this checklist in one of two ways:
To help you personally prepare for retirement as an exhaustive Do-It-Yourself Guide or;
To help you interview a financial advisor to gauge their level of expertise
Retirement Checklist
This checklist is optimal for individuals that are either currently retired or close to retirement. It is divided into 7 sections that cover the key areas of wealth management:
Financial Planning
Investment Management
Tax Strategies
Estate Planning
Insurance
Charitable Giving
Other Things to Consideration
Financial Planning
Financial planning is the process of organizing your financial information, building a financial model, and using that model to evaluate key planning decisions. Everyone's financial plan is different and this section of the checklist provides some key items to consider.
Build your financial plan
In order to navigate all the checklist items, you're going to need a high quality plan in place. A complete and accurate financial plan provides the inputs required to make most planning decisions. To get started building your plan, we recommend gathering the following items:
Income: Include salaries, business income, interest income, dividends, capital gains, social security, pensions, and other income sources.
Expenses: Include mortgages, debt payments, insurance premiums, rent, living expenses, large one-time and other expenses.
Taxes: Projecting taxes is a challenging exercise, but one that will need performed to build a complete financial plan. For help with tax forecasting and strategies we'd recommending speaking to an accountant for a financial advisor.
Cash Flow: Cash flow is generally income minus expenses and taxes, plus any outside assets received (such as gifts, new borrowed funds, or inheritances)
Assets: Include your primary residence, real estate holdings, stocks, bonds, ETFs, Mutual Funds, checking accounts, and other assets.
Liabilities: Include mortgages, auto loans, student loans, credit card debt, medical debt, home equity loans, business loans, and any other borrowings.
Building the financial plan is the hardest part of the checklist, but also the most important. For professional help, you may consider an expert financial advisor that specialize in the planning process.
Setup your emergency fund
An emergency fund should cover 3 to 6 months worth of expenses. To calculate how much, multiply your average monthly expenses (excluding any large one-time items) by 3 or 6. Most individuals keep their emergency fund in a checking account for easy access. An emergency fund that exceeds 3 to 6 months of cash is generally inefficient, as the surplus cash could earn higher rates of return in stable investments inside an investment account.
Pay off high interest rate debt
When referring to "high interest rate", we mean anything over 8%. This would include credit cards, personal loans, certain auto loans, and other types of credit. By prioritizing the repayment of high-interest debt, you can save money in the long run and free up more funds to invest, save, or use towards achieving your financial goals.
Consolidate high interest rate debt
An alternative to paying off high interest rate debt is to consolidate it into a loan that charges lower interest. This usually means refinancing your mortgage or using a Home Equity Line of Credit (HELOC) to pay off student loans or credit card debt. While your total amount of debt has not changed, borrowing against your home at a lower rate and using those funds to pay off debt at a higher rate will save you money in the long term. Be careful when using this strategy to consider other expenses such as origination fees on a new mortgage.
Determine your Social Security benefit
The majority of people generally claim their own Workers Benefit or their Spousal Benefit:
Workers Benefit: These benefits are available to individuals who have accumulated enough Social Security credits through their work history. The amount of the benefit is based on the individual's average lifetime earnings. This can be found by login in to the social security website.
Spousal Benefit: A non-working or lower-earning spouse may be eligible to receive a spousal benefit based on their spouse's work record. This benefit is generally up to 50% of the working spouse's full retirement benefit.
However, there are other potential benefit options that are less common:
Ex-Spouse Spouse Benefit: If you are divorced but were married for at least ten years, you may be eligible to receive Social Security benefits based on your ex-spouse's work record. The ex-spouse's benefit does not affect their own benefit or their current spouse's benefit. This may apply regardless of whether your ex-spouse is alive or deceased.
Survivor Benefit: If a "working spouse" passes away, their surviving spouse, children, or dependent parents may be eligible for survivor benefits. The benefit amount varies based on factors such as the deceased worker's earnings and the number of eligible survivors.
Disability Benefit: Social Security provides disability benefits to individuals who are unable to work due to a medical condition that is expected to last for at least one year or result in death. The benefit amount is based on the individual's work history and average lifetime earnings.
Child Benefit: Children of retired, disabled, or deceased workers may be eligible for benefits until they reach a certain age, typically 18 or 19. In some cases, benefits may continue until the child finishes high school.
Decide when to claim Social Security
Evaluating your optimal Social Security timing is a complex process that involves considering several factors. You may choose to start claiming benefits as early as age 62, or delay until as late as age 70, depending on your financial situation, retirement goals, lifestyle preferences, and life expectancy. If longevity runs in your family, delaying benefits until a later age could result in higher lifetime benefits. Conversely, if you have health concerns that might limit your life expectancy, claiming earlier could be more beneficial. Other factors to consider include your current and projected income, the potential impact on your spouse or dependents, the tax implications of claiming benefits, and the future health of the Social Security system itself. It's important to perform a thorough analysis or consult a financial advisor to make the best decision for your unique situation.
Additional Resources
Choose pension payout(s)
The three most common types of pension Straight Life, Joint and Survivor, or a combination of the two.
Straight Life - Provides the highest monthly benefit but ceases upon your death, with no benefits passed onto a spouse or dependents. This might be an appropriate choice if you're single, don't have dependents, or if your spouse has their own secure income or pension plan.
Joint and Survivor - Provides a lower monthly benefit, but it ensures that your spouse or another designated beneficiary continues to receive benefits (usually a percentage of the original amount) after your death. This option is generally best if you have a spouse or dependent who relies on your income. Some plans offer a combination of these options, allowing you to adjust the balance between your monthly benefit and the survivor's benefit.
Lump Sum - A one-time payment that gives you the entire value of your pension fund when you retire instead of periodic payments over time. If invested properly, this can be an attractive option for many retirees.
Additional Resources
Investment Management
Investment management involves strategically allocating your wealth across various assets to meet your financial goals while considering your risk tolerance. Just as each individual's financial plan is unique, so too is their investment strategy, and this section of the checklist outlines important considerations when building your investment portfolio.
Invest your surplus cash or savings
Surplus cash refers to the funds that remain after you've established a solid emergency fund to cover unexpected expenses. This money is above and beyond what you require for immediate or short-term needs. It's advisable to invest this surplus cash in an optimized portfolio, which could help grow your wealth over time, rather than letting it sit idle.
Know what you own and why you own it
Understanding the investments in your portfolio and the reason you own each is vital for successful investing. This involves knowing the type of asset (e.g., stocks, bonds, real estate), the inherent risk and return characteristics, and how each investment aligns with your overall financial goals and risk tolerance.
Diversify your portfolio
Portfolio diversification involves spreading your investments across various asset classes to reduce risk and potentially improve returns. This strategy can help to ensure that a decline in one type of asset can be cushioned by the performance of others. In general, a well-diversified portfolio contains a mix of stocks, bonds, and other investments across different industries and geographies.
Check the cost of each investment
The expense ratio of your investments is crucial as it directly impacts your returns over time. It refers to the annual fees charged by investment companies to manage your funds. Keeping a close eye on these ratios is essential because lower expense ratios generally mean more of your money is being invested and has the potential to grow, whereas higher ratios can eat into your returns significantly. Mutual Funds and ETFs must display their expense ratio on a Fact Sheet or Prospectus which can generally be found by searching the ticker.
Additional Resources
Check if your investments are tax efficient
Tax efficiency is a critical aspect of investment management. Different investment types are taxed differently, and the placement of these investments in tax-advantaged or taxable accounts can significantly impact your after-tax returns. Consider consulting a tax advisor or financial planner to ensure your investments are structured in the most tax-efficient manner.
Check the leverage of each investment
Leverage refers to the use of borrowed money to increase potential return on investment. However, while leverage can amplify gains, it can also magnify losses. It's essential to understand the degree of leverage within your investments and ensure it aligns with your risk tolerance and investment goals.
Do all investments align with your values?
Socially responsible investing involves aligning your investment choices with your ethical, social, and environmental values. If this is important to you, review your portfolio to ensure your investments reflect these values, whether that involves investing in companies with strong environmental, social, and governance (ESG) practices or avoiding investments in certain industries.
Routine Checks
The Investment Management process is a continuous process that requires constant updating. Here are several factors to consider before making portfolio adjustments and things to review on an annual basis:
Before Selling Assets
Will the sale create long-term or short-term capital gains?
Long-term capital gains refer to profits earned from the sale of assets that were held for more than one year, while short-term capital gains are profits from assets held for one year or less. If you have an investment that is nearing the one-year mark, waiting to sell it can be beneficial as it may qualify for the lower tax rate applied to long-term capital gains, potentially saving you money on taxes.
Check IRMAA brackets for potential surcharges
Income-Related Monthly Adjustment Amount (IRMAA) is a surcharge added to your Medicare premium if your income goes beyond certain thresholds. Before selling assets that could increase your taxable income, it's important to understand these thresholds and how crossing them could impact your Medicare costs.
Additional Resources
Does NIIT apply?
The Net Investment Income Tax (NIIT) is an additional 3.8% tax that applies to individuals, estates, and trusts that have net investment income above certain threshold amounts. Before selling any investment, you should consider whether the sale might push your income above these thresholds and trigger the NIIT.
Additional Resources
If tax loss harvesting, avoid a wash sale
Tax loss harvesting involves selling a security that has experienced a loss and then buying a comparable one to replace it, allowing you to offset gains from other investments. However, you must avoid a "wash sale," which occurs when you sell a security at a loss and then buy the same or a "substantially identical" security within 30 days before or after the sale. The IRS disallows the deduction of losses from wash sales.
Tax Strategies
Tax strategies encompass the methods and measures you adopt to minimize your tax liability and optimize your after-tax returns. Just as each person's financial plan and investment strategy is distinct, so is their approach to tax planning. This section of the checklist presents key points to ponder and actions to take in order to effectively manage your tax obligations during retirement.
Evaluate a Roth IRA Conversion
A Roth IRA conversion is a process that involves transferring funds from a traditional IRA or similar retirement account into a Roth IRA, thereby turning pre-tax dollars into after-tax dollars. To evaluate if a Roth IRA conversion is right for you, consider factors like your current and future tax rates, your ability to pay taxes on the conversion with non-retirement funds, the time horizon until you need to access the funds, and your estate planning goals.
Additional Resources
Make sure your investments are in accounts that help you pay less taxes
Tax-efficient asset location is an investment strategy that involves placing investments in the most suitable types of accounts (taxable, tax-deferred, or tax-exempt) based on their tax characteristics. This can potentially increase your after-tax returns and help grow your savings more rapidly.
Additional Resources
Are you taking advantage of the 0% capital gains tax rate?
If your taxable income is low enough, you might qualify for the 0% long-term capital gains tax rate. This could be a great opportunity to sell some investments and not pay any federal taxes on the gains. This strategy, often called "capital gains harvesting," involves intentionally realizing capital gains to take advantage of lower tax rates.
If you inherited assets such as stocks, bonds, or real estate, update the cost basis
Inherited assets usually get a "step-up" in cost basis to their value at the date of the original owner's death. This can significantly reduce capital gains tax when you sell the assets. Make sure you adjust the cost basis of inherited assets correctly to take advantage of this tax benefit.
Can you contribute to a Roth IRA?
Roth IRAs and Roth 401(k)s offer tax-free growth and tax-free withdrawals in retirement, making them powerful tools for saving. Consider if you can benefit from contributing to a Roth account, particularly if you expect to be in a higher tax bracket in retirement or if you're a young investor with many years of potential tax-free growth ahead.
If you're not eligible due to income limitations, look into the Backdoor and Mega Backdoor Roth options to see if you can still contribute.
Can you convert taxable dollars into IRA dollars through a synthetic paycheck?
This is a more complex strategy that requires a large amount of taxable assets. The general idea is that you can increase your IRA contributions, Roth or Traditional, to the maximize possible level. If the maximize contributions make it hard to make ends meet, you can create a synthetic paycheck by systematically withdrawing funds from your taxable assets to create a regular "paycheck". This effectively converts your taxable accounts into IRA accounts, which is almost always a good idea.
Would you like to setup a Roth IRA for al oved one?
If you have a child or grandchild who has earned income, they may benefit from a Roth IRA. Contributions can grow tax-free for many years, and withdrawals are typically tax-free in retirement, making a Roth IRA an excellent way to help a loved one start saving for the future.
Draw from accounts in the right order
The order in which you withdraw from your accounts can have significant tax implications. Generally, it is beneficial to draw down taxable accounts first, then tax-deferred accounts like traditional IRAs and 401(k)s, and lastly, from tax-exempt accounts like Roth IRAs and Roth 401(k)s. However, this strategy could vary based on your individual circumstances, such as your current and future tax rates, your age, and your retirement goals.
Before making taxable distributions, check the IRMAA thresholds
Retirees generally pull funds from their investment accounts to pay for day-to-day expenses. This process creates a taxable distribution that increases your Adjusted Gross Income. One unforeseen consequence of this activity is crossing IRMAA thresholds that increase your Medicare premiums. The IRMAA thresholds are cliffs, meaning if you go over by $1, it can cost you thousands in a single year. Make sure you are aware of the IRMAA thresholds when deciding how much to draw from your accounts.
Check your eligibility for the Premium Tax Credit
If you are pre-Medicare age, you might be able to take advantage of the Premium Tax Credit. The Premium Tax Credit is a subsidy provided by the government to help eligible individuals and families afford health insurance through the Health Insurance Marketplace. Retirees are often able to control their income by deciding when to take capital gains, holding investments in the correct accounts, and timing their Social Security. Often times its possible to reduce your income and become eligibile for the Premium Tax Credit, which can be quite valuable.
Buy a Marketplace Insurance plan (pre-Medicare only)
A Marketplace Insurance plan, also known as an Exchange plan, is a type of health insurance policy that individuals and families can purchase through the Health Insurance Marketplace. These plans are regulated and offered by private insurance companies, but they must adhere to certain standards and regulations set by the Affordable Care Act (ACA). By purchasing a Marketplace Insurance plan, you may be eligible for the Premium Tax Credit. Without a Marketplace plan you will not be eligible.
Open and/or Front-load 529 Plans
If you or a loved one is planning for college, considering opening (and front loading) a 529 plan. Front loading a 529 plan refers to the practice of making a large contribution to a 529 college savings plan in a single year, typically in excess of the annual gift tax exclusion. This strategy allows the contributor to take advantage of the plan's tax benefits and potentially accelerate the growth of the funds invested, providing more funds for educational expenses in the future.
Check for Tax Loss Harvesting opportunities in taxable accounts
Tax loss harvesting is a strategy used by investors to offset capital gains by selling investments that have experienced a loss. By realizing these losses, investors can lower their overall tax liability. However, it's important to be on the lookout for wash sales, which occur when an investor repurchases the same or a substantially identical security within 30 days before or after the sale, as this can disallow the tax benefit of the loss.
When Tax Loss Harvesting, consider realizing at least $3,000 of losses
The first $3,000 in capital gains losses can be used to offset ordinary income, reducing the taxable income by that amount. The benefit of offsetting ordinary income with the first $3,000 in capital gains losses lies in the fact that ordinary income is typically subject to higher marginal tax rates compared to long-term capital gains. By reducing the taxable income through this offset, individuals can potentially lower their overall tax burden and keep more of their hard-earned money.
Can you make a backdoor Roth IRA contribution, or can a non-working spouse make one?
A backdoor Roth IRA is a strategy used by individuals who earn too much to contribute to a Roth IRA directly. It involves contributing to a traditional IRA, then converting that contribution to a Roth IRA. Before making a backdoor Roth IRA contribution, consider the potential tax implications and the "pro-rata rule", which can complicate the conversion if you have other, pre-tax dollars in IRAs.
A backdoor Roth IRA is a strategy used by individuals who earn too much to contribute to a Roth IRA directly. It involves contributing to a traditional IRA, then converting that contribution to a Roth IRA. Before making a backdoor Roth IRA contribution, consider the potential tax implications and the "pro-rata rule", which can complicate the conversion if you have other, pre-tax dollars in IRAs.
If 50 years or older, could you benefit from qualified catch-up contributions?
Catch-up contributions for IRAs are additional contributions that individuals who are age 50 or older can make to their Individual Retirement Accounts (IRAs) beyond the regular contribution limits. These catch-up contributions allow older individuals to save more for retirement and take advantage of potential tax benefits.
Catch-up contributions can apply to different types of retirement accounts, including Individual Retirement Accounts (IRAs) and employer-sponsored retirement plans such as 401(k) plans, 403(b) plans, and Thrift Savings Plans (TSP). The specific rules and limits for catch-up contributions may vary depending on the type of account.
Evaluate the impact of RMD requirements from IRA accounts
Required Minimum Distributions (RMDs) are the minimum amounts that individuals with traditional IRA accounts must withdraw annually once they reach a certain age, generally 73 years old. Additionally, for inherited IRA accounts, beneficiaries are generally required to take RMDs with a withdrawal schedule dependent on when they inherited the IRDA account.
Estate Planning
Estate planning refers to the process of arranging the distribution of your assets to ensure that your wealth is passed on according to your wishes after you die. It also includes planning for potential incapacity during your lifetime. A well-designed estate plan can also help minimize taxes, avoid probate, and protect assets from creditors and legal disputes.
Do all your investment accounts have the correct beneficiary information?
A beneficiary is an individual or entity designated to receive the assets held in an account upon the account holder's death. Beneficiary designations take precedence over a will and bypass the probate process, allowing for a faster and more efficient transfer of assets, while avoiding potential delays and costs associated with probate proceedings.
If your intended beneficiaries are minors, what plan do you have in place?
Having a trust or guardianship arrangement in place for beneficiaries who are minors may be useful to ensure their financial and personal well-being in the event of the account holder's death. A trust can manage and protect the assets for the minor, while a designated guardian can provide care, support, and make decisions on their behalf, ensuring their needs are met until they reach adulthood.
If you're married and likely to die first, consider titling assets in your name
When a married couple inherits assets from their spouse, they benefit from a step-up in cost basis, which means the value of the assets is adjusted to their current fair market value at the time of the spouse's death. For assets titled jointly, the step-up in cost basis is typically 50%, while for assets titled solely in the deceased spouse's name, the step-up is generally 100%, providing potential tax advantages when the assets are later sold.
Do your Will and beneficiary information match?
It is important to ensure that the information in a will and beneficiary designations match to avoid conflicting instructions and potential legal issues. Over time, it is common for changes to be made in beneficiary designations (such as updating life insurance policies or retirement accounts) that may not always be reflected in the will, leading to inconsistencies that can create confusion and unintended consequences for estate distribution. Regularly reviewing and updating both the will and beneficiary information can help keep them in sync and align with the account holder's intentions.
Are any heirs on Medicaid?
It is crucial to consider the impact of Medicaid spend-down rules when planning for the inheritance of heirs who rely on Medicaid benefits. Leaving a large inheritance to such heirs can inadvertently disqualify them from Medicaid assistance, as the inherited assets may need to be spent down before they can reapply for Medicaid coverage, potentially leading to a loss of critical healthcare benefits. It is essential to work with professionals knowledgeable in Medicaid rules and consider estate planning strategies that can help preserve both the inheritance and the beneficiaries' eligibility for Medicaid assistance.
Are there any anticipated assets that you will inherit?
Estate planning is not only relevant to individuals who want to plan for the distribution of their own assets but also to family members who intend to pass assets on to their loved ones. If your inline to inherit assets, engaging in estate planning discussions and decisions with family members can facilitate a smooth approach to asset transfer across generations.
Would you benefit from a Grantor Retained Annuity Trust (GRAT)?
A Grantor Retained Annuity Trust (GRAT) is a type of irrevocable trust that allows the grantor to transfer assets while retaining an annuity payment for a specified period. During this time, any appreciation in the trust's value passes to the trust beneficiaries, often family members, free of estate and gift taxes. GRATs are commonly utilized by individuals whose estate will exceed the exclusion thresholds and wish to transfer wealth to their beneficiaries while minimizing estate taxes.
Would you benefit from a Spousal Lifetime Access Trust (SLAT)?
A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust created by one spouse for the benefit of the other spouse, allowing the transferring spouse to make a tax-free gift while still providing access to trust assets. SLATs are beneficial as they can help minimize estate taxes, protect assets from creditors, and provide a stream of income or support for the non-transferring spouse. These arrangement became less common when the estate exclusion threshold was nearly doubled under the Tax Cuts and Jobs Act of 2017.
Would you benefit from an Irrevocable Life Insurance Trust (ILIT)?
An Irrevocable Life Insurance Trust (ILIT) is a trust specifically designed to hold and manage life insurance policies outside of the insured person's estate. They are beneficial for individuals who want to remove life insurance proceeds from their taxable estate, potentially reducing estate taxes and providing liquidity to cover estate settlement costs. ILITs may apply to individuals with significant life insurance policies and potential estate tax concerns, seeking to maximize the value of their estate for beneficiaries while minimizing tax liabilities.
Do you have any trusts in your current estate plan that are unnecessary?
Unnecessary trusts can introduce unnecessary complexity to estate planning. When proper beneficiaries and a will suffice to efficiently pass on assets, this approach is often superior as it can result in lower costs, faster distribution of assets, and a simplified process without the additional administrative burdens associated with maintaining a trust.
It's worth evaluating whether any existing trusts can be dissolved if they are unnecessary.
Would any heirs benefit from trustee training/materials?
Inheritances can be a create complexities for families that strain relationships or add undue stress. Training materials for trustees or heirs provide valuable knowledge and guidance, equipping them with the necessary skills to effectively manage assets and make informed decisions, ensuring the preservation and growth of wealth for future generations. These materials also foster a deeper understanding of fiduciary responsibilities and legal obligations, promoting responsible stewardship and minimizing the risks of mismanagement or disputes.
Consider generation skipping to minimize taxes
Generation skipping is a wealth transfer strategy that involves skipping a generation in the distribution of assets, passing them directly to the next generation. This can help mitigate taxes by avoiding estate taxes that would have been incurred if the assets were passed down to the intervening generation and then to the final beneficiaries, allowing for more efficient wealth transfer.
Do all your life insurance policies have the correct owners and beneficiaries?
Similar to investment accounts, life insurance policies should have the correct owners and beneficiaries. Ownership determines who has control over the policy and beneficiaries determines who will receive the benefits upon the insured's death. Failing to update or designate the appropriate owners and beneficiaries can lead to complications, delays, and potential disputes during the claims process, ultimately affecting the intended distribution of funds and causing unnecessary financial and emotional strain on the policyholder's loved ones.
Do you have power of attorney documents in place
A power of attorney document is a legal instrument that grants someone, known as the agent or attorney-in-fact, the authority to act on behalf of another person, known as the principal, in financial, legal, or healthcare matters. These documents are crucial as they ensure that an individual's affairs can be managed effectively and decisions can be made on their behalf if they become incapacitated, providing a trusted person with the legal authority to make important decisions and handle financial and legal matters in their best interest.
If you have disabled children, have you considered a tax-advantaged ABLE account?
An ABLE account is a specialized savings account designed for individuals with disabilities that allows them to save money without jeopardizing eligibility for certain government benefits. These accounts offer tax advantages, including tax-free growth of funds and tax-free withdrawals when used for qualified disability-related expenses, providing individuals with disabilities and their families a tool to save and plan for future expenses while maintaining access to crucial government benefits.
Do you need a Special Supplemental Care Trust to avoid disqualifying a beneficiary from public benefits?
A Special Supplemental Care Trust, also known as a special needs trust, is a legal arrangement created to hold and manage funds for the benefit of an individual with special needs or disabilities. The trust provides various benefits, such as preserving the individual's eligibility for government benefits, protecting their assets, and ensuring that the funds are used to enhance their quality of life by providing for supplemental needs not covered by public assistance programs.
Do you have an Advanced Medical Directive (AMD) in place?
An Advanced Medical Directive, also known as a living will or healthcare directive, is a legal document that outlines an individual's preferences and instructions regarding medical treatment and end-of-life care. It enables individuals to communicate their healthcare wishes in advance, ensuring that their medical decisions are respected and followed even if they become unable to communicate or make decisions themselves, providing peace of mind and relieving loved ones of the burden of making difficult healthcare choices on their behalf.
Would it be appropriate to have a "When I die" letter on file?
A "When I die" letter is a non-legal document that allows individuals to share their values, wisdom, and personal messages with loved ones before or after their death. It also can be used to provide clear instructions, such as password locations for accounts, directions on how to obtain policies, or directives on importance contacts to call.
Do you wish to pre-paid funeral and burial costs?
Pre-paying funeral costs can provide several potential benefits, such as alleviating the financial burden on loved ones by locking in current prices and avoiding future price increases. Additionally, it allows individuals to plan and customize their funeral arrangements according to their preferences, ensuring that their wishes are met and reducing the stress and decision-making burden on their family members during an emotional time.
Use the annual exclusion amounts for gifting to minimize your estate
Gifting to loved ones in amounts less than the annual exclusion amount can have dual benefits. Firs, it helps minimize potential estate taxes by gradually reducing the size of one's taxable estate over time. Second, it allows individuals to actively participate in the joy of gifting, sharing their wealth and creating meaningful experiences for their loved ones while they are still alive to witness and enjoy the impact of their generosity.
Insurance
Having proper insurance coverage during your retirement years is essential to protect yourself and your assets from unexpected financial burdens. There are some key decisions to make across home owners, life insurance, health insurance, long-term care, and more.
Do you have the right Homeowners insurance?
To determine if you have the right homeowners insurance, it is essential to review your policy coverage, limits, and deductibles to ensure they align with your needs and the value of your home and possessions.
Do you have the right Car insurance?
To determine if you have the right car insurance coverage and avoid being over insured, review your policy to ensure it aligns with your needs and circumstances. Consider factors such as the value of your vehicle, your driving habits, and your financial situation. It may be helpful to assess if you have appropriate coverage limits, deductibles, and optional coverages that suit your needs, while avoiding unnecessary add-ons that may lead to overpaying for coverage you don't require.
Get Medical insurance
Having adequate medical insurance is of utmost importance during retirement years. For individuals aged 65 and above, Medicare provides outstanding coverage, offering comprehensive benefits and access to a wide range of healthcare services. For those who have not reached age 65 yet, exploring private health insurance policies available through the Health Care Exchange can be beneficial as it may qualify them for the Premium Tax Credit, helping to lower their healthcare costs and ensuring access to essential medical services.
Apply for Medicare
To apply for Medicare, it is recommended to do so during the Initial Enrollment Period (IEP), which is a seven-month period starting three months before the month of your 65th birthday. You can apply for Medicare online through the Social Security Administration's website, by calling their toll-free number, or by visiting a local Social Security office. It's important to note that if you delay enrollment, there may be penalties and gaps in coverage, so it's best to apply during the IEP to ensure timely and seamless access to Medicare benefits.
If you use Medicare, would you benefit from a Medicare Supplement Plan?
A Medicare Supplement Plan, also known as Medigap, is a private health insurance policy designed to supplement and fill the gaps in coverage provided by Original Medicare (Part A and Part B). The primary advantage of a Medicare Supplement Plan is that it can help cover out-of-pocket expenses such as deductibles, copayments, and coinsurance, providing more comprehensive coverage. However, the drawback is that Medicare Supplement Plans typically come with additional monthly premiums, and not all services or prescription drugs are covered, so it's important to carefully evaluate the costs and benefits to determine if it aligns with your healthcare needs.
Manage your income to avoid IRMAA surcharges
IRMMA surcharges, or Income-Related Monthly Adjustment Amount surcharges, are additional costs imposed on high-income Medicare beneficiaries for their Medicare Part B and Part D premiums. These surcharges are based on an individual's modified adjusted gross income (MAGI). Managing your income through strategies like tax planning, charitable contributions, or strategic retirement account withdrawals can help reduce your MAGI and potentially avoid or minimize IRMMA surcharges, allowing you to maintain lower Medicare premiums.
Would you benefit from having Umbrella insurance?
Umbrella insurance is a type of liability insurance that provides additional coverage beyond the limits of your primary policies, such as homeowners or auto insurance. It offers broad protection against various liability risks, including personal injury, property damage, and legal expenses. For retirees, umbrella insurance is often highly recommended due to its relatively low cost and the higher net worth typically associated with retirement, offering an extra layer of financial protection that can help safeguard retirement savings and assets in the event of a significant liability claim or lawsuit.
Would you benefit from having Term Life insurance?
Term life insurance is a policy that provides coverage for a specified period, typically 10, 20, or 30 years. When considering term life insurance, it's crucial to weigh factors such as your current age, the financial needs of your dependents, and the affordability of premiums. Benefiting from this type of coverage depends on whether your financial responsibilities may decrease over time or if you anticipate having sufficient retirement savings at the end of the term.
Would you benefit from purchasing (or surrendering) Whole Life insurance?
Whole life insurance, a type of permanent life insurance, provides coverage for the entirety of the policyholder's life and includes a cash value component that grows over time. When contemplating purchasing or surrendering whole life insurance, think about your long-term financial needs, the premiums you can afford, and the potential return from the policy's cash value. Benefiting from this policy often means needing lifelong coverage or viewing it as a tax-advantaged savings vehicle, while surrendering it may be beneficial if it no longer suits your financial strategy or if other investments yield higher returns.
Would you benefit from having Long-Term Care insurance?
Long-term care insurance is designed to cover services that aren't covered by standard health insurance or Medicare, including assistance with daily activities such as bathing, dressing, or eating, typically due to chronic illness, disability, or old age. Before deciding on long-term care insurance, consider your personal health history, potential family support, and financial ability to pay for care out-of-pocket. Benefiting from this type of coverage usually depends on whether you have the financial resources to pay for potential long-term care costs yourself or would prefer to offset this risk through insurance premiums.
Would you benefit from having Disability insurance?
Disability insurance is a type of policy that provides income protection if you become unable to work due to an illness or injury. The decision to purchase it should consider factors like your savings, debt, and if your employer offers a group plan. It's crucial to understand your risk profile, the percentage of income it covers, and the waiting period before benefits start.
Do you know if you need a new Term Life insurance policy?
Term life insurance is a policy that covers the insured for a specified period, paying out to beneficiaries if the policyholder dies within that timeframe. When considering a new policy, factors such as the coverage amount, term length, your age, health, and financial obligations should be weighed. It's essential to ensure your policy aligns with your long-term financial goals and adequately provides for your dependents.
Are you paying for more insurance than you need?
Over-insurance is a situation where one pays for more coverage than they realistically need. To avoid over-insuring, evaluate your insurance policies annually to ensure they align with your current lifestyle, income, and family size. Regular review will help maintain an optimal balance between cost and coverage, as financial needs and circumstances can change over time.
Charitable Giving
For individuals who have a charitable inclination, there are numerous planning strategies available to amplify the impact of their giving. These strategies include options such as donor-advised funds, charitable trusts, and charitable gift annuities, allowing donors to optimize their philanthropic efforts by maximizing tax benefits, creating lasting legacies, and supporting causes they care about.
Evaluate whether you would benefit from Qualified Charitable Distributions (QCDs)
Qualified Charitable Distributions (QCDs) are direct transfers of funds from your IRA to a qualified charity, which can be counted toward satisfying your required minimum distributions (RMDs) for the year, while also excluding the amount donated from taxable income. Considering QCDs involves evaluating your philanthropic goals, your tax bracket, and the impact of RMDs on your taxable income. Benefiting from QCDs is often linked to whether you have a strong charitable intent and if reducing your taxable income while satisfying RMDs aligns with your financial strategy.
Evaluate gifting options
Gifting options can include direct cash gifts, contributing to a 529 plan for education expenses, or gifting appreciated securities. When considering these, you should assess your financial situation, the recipient's needs, and potential tax implications. Benefiting from gifting options often relates to your ability to provide financial support without jeopardizing your financial health and the potential for tax benefits, such as avoiding capital gains tax on gifted appreciated securities.
Evaluate the benefits of giving to charitable beneficiaries during your lifetime versus giving gifts at death
The decision to give to charitable beneficiaries during your lifetime or at death can have different benefits. When gifting during your lifetime, you can often see the impact of your donation and may qualify for an income tax deduction. In contrast, gifting at death, such as through bequests or naming charities as beneficiaries of retirement accounts, can reduce the size of your taxable estate. This decision often hinges on factors such as your current and future expected tax rates, the need for assets during your lifetime, and your desire to see the impact of your gifts.
Consider establishing 529 Plans for your family members or friends
Establishing 529 plans for family members or friends is a popular strategy for saving for future education expenses, as the earnings in these plans grow tax-free if used for qualified expenses. When considering this, it's important to weigh the potential tax advantages, the flexibility in changing beneficiaries if the original one doesn't need the funds, and the impact on a student's eligibility for financial aid. The decision to set up a 529 plan often rests on your ability to contribute and the importance you place on supporting a loved one's education.
Consider a Donor Advised Fund
A Donor Advised Fund (DAF) is a philanthropic vehicle where you contribute cash, securities, or other assets and receive an immediate tax deduction, with the funds then distributed to charities over time. When considering a DAF, reflect on your charitable giving goals, the potential tax benefits, and the fund's administrative fees. This tool often benefits those who wish to streamline their giving, secure immediate tax benefits, and influence how donations are used over a longer period.
Consider stacking charitable donations to maximize tax benefits
Stacking charitable donations, or bunching, involves making larger donations in one year to exceed the standard deduction and itemizing those deductions for tax purposes, then taking the standard deduction in subsequent years. This strategy requires evaluating your ability to make larger donations in a single year, your expected tax situation in the near future, and the timing and impact of your charitable goals. You may benefit from this approach if you have flexibility in your donation timing and if the tax savings would be substantial.
Consider donating highly appreciated securities
Donating highly appreciated securities, like stocks or mutual funds, can provide significant tax advantages, as you can avoid paying capital gains tax on the appreciation and may also qualify for a tax deduction based on the securities' fair market value. Consider your portfolio's appreciated assets, your tax situation, and the charitable organization's ability to accept such donations. This option typically benefits those with significant unrealized gains in their investment portfolio and a desire to contribute to charity.
Evaluate whether you would benefit from a Charitable Remainder Annuity Trust
A Charitable Remainder Annuity Trust (CRAT) is a planned giving vehicle that provides you a fixed income stream for life or a term of years, with the remainder going to a designated charity. When evaluating the benefits of a CRAT, consider your income needs during retirement, your charitable intentions, and the potential estate tax benefits. You might benefit from a CRAT if you have a highly appreciated asset that produces little to no income, seek additional income, and have a strong philanthropic desire.
When donating to charities as part of an estate plan, ensure you are bequeathing the correct account types to minimize taxes
When donating to charities as part of an estate plan, it's crucial to bequeath the correct account types to minimize taxes. For instance, donating retirement accounts, which are often subject to income tax when left to non-spousal heirs, can be a tax-efficient strategy as charities aren't subject to these taxes. When planning, consider the tax characteristics of your various assets, the potential tax impact on your heirs, and your charitable goals. Ensuring you leave the right type of assets to charities can preserve more of your estate for your heirs and maximize your philanthropic impact.
Other Things to Consider
In addition to these key areas, there are other important considerations when entering retirement.
What to do if you have a surplus
If your in the fortunate situation of having a surplus entering into retirement, you have some fun options to consider. You can explore a broader range of investment options, increase your spending during retirement, or consider starting your retirement journey ahead of schedule. Below are some things to consider when dealing with a retirement surplus.
Would you like to increase your spending?
Having a surplus presents an opportunity to up your spending. However, while this could elevate your lifestyle, it's important to remain cognizant of your long-term financial stability. Consider whether the increased spending will bring true value to your life and whether it's sustainable in the long run.
Would you like to make a dream purchase?
A dream purchase—be it a vacation home, a yacht, or a world trip—becomes achievable with surplus funds. When considering your dream purchase, always remember to factor in ongoing expenses such as maintenance, insurance, or travel costs. Always think about the total financial commitment your dream purchase implies before taking the plunge.
Would you like to increase your gifting?
Surplus money enables you to be more generous, maybe by supporting loved ones or contributing to charities. While generosity can be personally rewarding, be aware of potential tax implications or the impact on your retirement fund's longevity. Strike a balance between your desire to give and your need for financial security.
Would you like to invest in a risky project?
Risky investments, while they promise high returns, come with the potential for significant losses. With a surplus, you might feel emboldened to take on these riskier ventures. Just ensure that such a move aligns with your risk tolerance, and remember, never invest more than you can afford to lose.
Would you like to retire sooner?
Early retirement is an attractive prospect made viable with a financial surplus. When considering this option, it's crucial to calculate if your surplus will adequately cover the extra years of living expenses. Moreover, remember to account for healthcare costs, which may rise significantly as you age.
Would you like to take a sabbatical during your working years?
A sabbatical provides a chance to take an extended break from work, which a surplus can support financially. Keep in mind, though, that while a sabbatical may be refreshing, it may also impact your career trajectory and your retirement savings plan. Plan it wisely to ensure it won't disrupt your long-term financial stability.
Would you like to invest in relationally enriching experiences/assets?
Using surplus funds to create meaningful experiences, such as travel or spending quality time with loved ones, can be an enriching investment. However, it's important to plan these expenditures carefully to avoid jeopardizing your financial future. Always strike a balance between emotional and financial fulfillment.
Would you like to reduce higher volatility positions in your portfolio?
Lowering the volatility in your portfolio might be a good move, making it less susceptible to market fluctuations. By shedding higher-risk investments, your portfolio can become more stable. However, remember that reducing risk can also mean potentially lower returns, so consider this in the context of your overall investment strategy and retirement goals.
What to do if you don't have enough to retire
If you find yourself facing a shortfall as you approach retirement, don't be disheartened as you have avenues to navigate through this situation. It's time to review and possibly tighten your budget, consider extending your working years or find part-time work during retirement, and explore conservative investment strategies to safeguard your nest egg. The following are some strategies to consider when dealing with a retirement shortfall.
Considered alternative retirement dates
Pushing back retirement involves delaying the age at which you stop working full time. This can be beneficial as it provides more time for your savings to grow and may increase your Social Security benefits, depending on your age. Often times delaying retirement is one of the most powerful methods of overcoming a retirement savings shortfall.
Considered working part-time
Working part-time in retirement is a method to supplement your retirement income and remain active in the workforce. Keep in mind that while it can boost your income and social interaction, it can also impact your retirement benefits depending on how much you earn. It's vital to understand these implications and ensure that part-time work aligns with your overall retirement plan.
Considered reducing spending in retirement
Reducing spending in retirement is another way to ensure your retirement savings last as long as possible. This strategy may involve cutting back on non-essential expenses, budgeting more carefully, and being mindful of healthcare costs. It's important to consider what trade-offs you're willing to make to ensure financial security in retirement.
Considered downsizing your primary residence
Downsizing your primary residence refers to moving to a smaller home or a less expensive area during retirement. This approach can free up cash from the sale of your current home and potentially reduce ongoing costs like utilities, taxes, and maintenance. However, it's crucial to consider relocation costs, potential loss of familiar social connections, and the emotional impact of leaving your home.
Considered selling other non-liquid assets to replenish your portfolio
Selling non-liquid assets refers to converting assets such as real estate, collectibles, cars, or boats into cash. This strategy can boost your retirement savings significantly but also comes with tax implications and potential market uncertainties. Always consider the value of these assets, your emotional attachment, and the current market conditions before making a decision.
Considered increasing investment contributions (if working)
Increasing investment contributions means putting more money into retirement accounts such as 401(k)s or IRAs while you're still working. This approach can accelerate your savings growth and potentially offer tax benefits. This method is most effective when you have many working years remaining.
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Final Thoughts
In conclusion, preparing for retirement requires a multifaceted approach that spans several key areas of wealth management. This comprehensive retirement checklist offers valuable guidance, whether you're planning independently or seeking the expertise of a financial advisor. Remember, achieving a secure and fulfilling retirement is not a one-time event, but a continual process that requires careful consideration, regular reviews, and necessary adjustments. Take charge of your future today with this checklist, and set the stage for a rewarding retirement that mirrors your financial goals and personal aspirations.