Retirement checklists are pretty common in the articles we read each week as we do our research for the AgingOptions Blog. Most of these checklist-oriented articles contain a good amount of common sense. This one, published by Kiplinger and written by Los Angeles investment adviser Cory Chapman, provides a simple and thought-provoking list of five things you need to do before you retire. We couldn’t help noticing that four of the five must-do items have to do with money, which is a common shortcoming of articles like this, in our view.

But we do like Chapman’s first point: Step 1 for pre-retirees is to get specific and figure out just what it is that you’re moving towards. What is retirement, anyway? Your answer to that simple but profound question will help guide you through most of the other decisions you’ll make. So, with that as a preamble, let’s consider Chapman’s list and see whether he hits the high points or misses the mark. Here’s a preview: Rajiv Nagaich says this list doesn’t go nearly far enough.

The Concept of Retirement is Nebulous, Vague

Chapman opens his article with the thought-provoking truth that most people don’t really think about what retirement is, at least for them. “For many people,” he writes, “retirement planning is a rather nebulous concept. They stash money away – sometimes thoughtfully, sometimes without true goals in mind – all with a vague idea that someday they will reach retirement, whatever that might mean. But just letting retirement happen isn’t wise because, once it sneaks up on you, it’s too late, and you’ll wish you had given it more attention. A lot more.”

Here are Chapman’s five steps to nailing down a more detailed view of your retirement dreams and goals. Let’s take a look.

Step 1: Envision What Retirement Is – For You

As stated above, retirement is a bit of a fuzzy concept for many people who are busy with life, work, and family and haven’t given their retirement years much thought. You don’t want to reach retirement and only then decide what it should look like to you. Is retirement merely a freed-up schedule? More time and money for travel? Hobbies? Family time? Once you have that extra time, what will you do with it?

Chapman suggests, “If you’re in that situation, try to envision what retirement looks like to you. Write it down and make it as vivid as possible. Putting it on paper helps make it seem more concrete, and it will be easier to turn your dream into reality.” We would add the simple advice that the more specific you are as you think about your possible future, the better.

Step 2: Build a Budget That Reflects Day-to-Day Expenses

Chapman challenges us with the statement that most people can’t answer the simple question of what they spend each month. “In many homes,” he writes, “people are so accustomed to the regular paycheck coming in that they don’t bother to budget. They just pay the bills and live off what’s left. But retirement comes with too many unknowns to leave expenses to chance that way.”

When the regular paychecks stop, where will your income come from, and how much of your expenses will that money cover? What about your savings? Chapman urges, “It’s important to understand your overall expenses now, so you can better plan for what’s coming in retirement.” As a related exercise, think through what cuts you could make if circumstances required it. This is where a financial dashboard is an essential tool – a topic we’ll cover in a bit.

Step 3: Thoroughly Review Your Assets

It’s time to really nail down what your income will look like in retirement. Chapman explains, “Social Security will provide some income, and perhaps you have a pension, though that’s less common with each passing year. But are there other assets you can turn into income? Possibly you have a 401(k), and you figure you can withdraw 3 percent or 4 percent a year from that to add to your income. But that strategy doesn’t always work because in a down market, the balance in that account can drop quickly, especially if you are withdrawing money at the same time the market caused the value to drop.”

Chapman suggests that purchasing an index annuity may be one option for creating a regular income stream. Talking with an adviser is best before making any moves. We would add – again – that you need to make sure the adviser you talk with gives objective advice, and that (as we said above) a financial dashboard is part of your essential tool kit.

Step 4: Understand Your Tax Situation

The tax burden after retirement can be a real stumbling block for folks who haven’t done their research. Between the deferred taxes in their 401(k) and the (sometimes incorrect) expectation of a lower tax bracket, some people enter retirement with an incomplete picture of what their tax situation will truly look like, and the truth can be a wakeup call.

Chapman writes, “It’s even possible that you could be in a higher tax bracket in retirement because several factors could come into play. For example, your other income affects how much of your Social Security is taxable. Also, when you turn 72, the required minimum distribution (RMD) kicks in on any tax-deferred accounts, meaning the government requires you to withdraw a certain amount each year, whether you want to or not. Depending on the rest of your income, that could bump you into a higher bracket.”

All of this means that it’s really ideal to sit down with a financial planner as soon as possible, especially someone who understands the intricacies of taxes.

Chapman adds this tip: “If you are 62, the RMD doesn’t start for another 10 years. You could use that decade to begin converting your tax-deferred account to a Roth account, where the money can grow tax-free, and withdrawals won’t be taxed. Get a tax analysis to help strategize the right solutions for your current retirement plan.”

Step 5: Review Your Portfolio to Determine Level of Risk

I think most of us agree that “risk” is not something we want associated with our retirement years. But in financial terms, risk is different for everyone.

Chapman writes, “Often, when people review their portfolios, they discover they have more risk than they realized, and they shift some of their investments into more stable funds. A rule of thumb that’s often used is to subtract your age from 100 to determine how much to invest in equities. If you are 60, then you would put 40 percent of your portfolio in the market and keep the other 60 percent in something less volatile. Of course, general rules don’t work for everyone.”

The trick is, if you’ve planned ahead up until this point, reducing risk might be ideal. But if you are playing any sort of catch-up in your financial planning, you might need to increase your risk. “Otherwise, you could face another risk – living longer than your money lasts,” Chapman quips.

While an unpleasant task, Chapman urges that this is crucial work to do, and you’ll be glad you did it. “And remember,” he adds, “you don’t have to do it alone. A financial professional can help you tackle the more daunting parts, providing advice to improve the odds that retirement will be everything you want it to be. Even if you don’t know what that is yet.”

Rajiv Responds: An Incomplete List

As we often do, we asked Rajiv Nagaich for his take-away on this Kiplinger article. His response: “It’s okay as common-sense financial advice, but it doesn’t tell the whole story by a long shot. In my view, it’s just plain inadequate.”

Rajiv does like the idea of thinking ahead about the kind of retirement you want. “That’s a good first step,” he says, “and it’s one that many people overlook. But,” he goes on, “after that this writer talks about nothing but money. I’ve said it a thousand times: a financial plan and a retirement plan are simply not the same thing at all.” 

When it comes to creating a strategy for your spending, saving, and investing, Rajiv highly recommends meeting with a fee-for-service financial planner who will prepare a financial dashboard – an instrument that lets you see at a glance both the short-term and long-term impact of your decisions and assumptions. Without it, we believe, you’re like a pilot in the fog without instruments, flying blind. (We’ll be happy to recommend a planner to you if you’ll contact us at AgingOptions.)

As Rajiv explains, true retirement planning means thinking and planning so that your finances, housing plans, medical coverage, legal preparation and family communication all blend together seamlessly. “For that,” he states, “you need a LifePlan. There’s simply no substitute.”

My Life, My Plan, My Way: Get Started on the Path to Retirement Success

At AgingOptions we believe the key to a secure retirement is the right retirement plan – yet statistics show that 70 percent of retirement plans fail. That’s why for nearly two decades we’ve been dedicated to the proposition that a carefully-crafted, fully comprehensive retirement plan is the best answer to virtually any contingency life may throw your way as you age.  Our slogan says it all: My Life, My Plan, My Way.

When it comes to retirement planning, most people focus on one fairly narrow issue: money. Financial planning is an important component of retirement planning. However, people heading towards retirement often make the mistake of thinking that a little financial planning is all that’s required, when in fact most financial plans are woefully inadequate. What about your medical coverage? What if you have to make a change in your housing status – will that knock your financial plan off course? Are you adequately prepared legally for the realities of retirement and estate planning? And is your family equipped to support your plans for the future as you age?

The best way we know of to successfully blend all these elements together – finance, medical, housing, legal and family – is with a LifePlan from AgingOptions. Thousands of people have discovered the power of LifePlanning and we encourage you to the same. Simply visit our website and discover a world of retirement planning resources.  Make certain your retirement planning is truly comprehensive and complete with an AgingOptions LifePlan.  Age on!

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(originally reported at www.kiplinger.com)