In this post, I go over the 26 items I cover in every financial plan I create for retirees. If you haven’t made a retirement plan and don’t know where to start, this will be your comprehensive guide to getting started.
Retirement Income Strategy
• Withdrawal strategy from retirement accounts – The order and rate you withdraw from different account types (taxable, tax-deferred, tax-free) can significantly impact how long your money lasts and your tax burden. A 4-5% withdrawal rate is common, but the “safe” amount depends on your retirement timeline (ie, how long you’ll live), other income sources, and market returns. You’ll also need to plan for required minimum distributions that start at age 73, which can push you into higher tax brackets.
• Social Security claiming strategy – When you claim Social Security can make a huge difference in your lifetime benefits. Waiting until age 70 can increase your monthly payments by 76% compared to claiming at 62. But the downside is that’s 8 years that you don’t receive any social security benefit. The timing decision should coordinate with your other income sources and tax planning.
• Pension and annuity income (if applicable) – If you have a pension, you’ll need to decide between lump sum or monthly payments, and consider how this guaranteed income affects your other withdrawal strategies. Annuities can provide additional guaranteed income but come with trade-offs in flexibility and costs. I typically don’t love annuities but if you already have one we can evaluate whether to keep it or change it.
• “Is this enough?” income calculation – Start with a simple math exercise: add up your estimated Social Security benefits at your anticipated claiming age, plus your expected annual investment withdrawals (typically 4-5% of your portfolio), plus any pension or annuity income. Then subtract taxes to get your net retirement income. The remaining number is approximately what you’ll have to spend in retirement. Is it enough? This back-of-the-envelope calculation helps you quickly see if your projected income covers your expected expenses and whether delaying Social Security makes financial sense for your situation or if you need to make adjustments.
Investment Allocation & Risk Management
• Asset Allocation (mix of stocks, bonds, and cash) – A diversified portfolio helps smooth out the ups and downs, with stocks for growth, bonds for stability, and cash for immediate needs. The exact mix depends on your risk tolerance and how much guaranteed income you have from other sources. I worry quite a bit about retirees getting too conservative with their portfolio too quickly, because we need those stocks in there to provide for you in your later years in retirement.
• Inflation protection (e.g., TIPS, dividend growth stocks) – Over a 30-year retirement, inflation can cut your purchasing power in half, so you need investments that can grow with rising costs. Treasury Inflation-Protected Securities and dividend-growing companies can help maintain your standard of living.
• Asset Location – You should review your current asset location (mix of money in taxable, tax-deferred, tax-free accounts) and then think through if it makes sense to make strategic changes to the location of your money, both before and during your retirement.
• Portfolio rebalancing – Make a plan on how and when to rebalance your portfolio, which will reset back to your asset allocation, lower risk and potentially earn you higher returns.
Tax Planning
• Tax-efficient withdrawal strategies (Roth conversions, tax bracket management) – Converting traditional IRA money to a Roth IRA during low-income years can save on your lifetime tax bill, as well as lower your taxes when required distributions kick in. This could also help you save taxes if rates were to rise in the future. You do have to pay taxes when you make the conversion, however. The key is to map out how long this conversion strategy would last, what tax bracket it would put you in, and then debate whether it makes sense to move forward with that strategy. Note: I don’t always recommend Roth conversion, although I am generally a fan of them.
• Capital gains and loss harvesting – Selling losing investments to offset gains can reduce your tax bill, and in retirement you might have opportunities to realize gains at lower tax rates. If you have no or low income, you could also think about selling some of your winners from your taxable account and using that for income. If you do it right, there’s actually a 0% federal tax rate on this type of income. But, this strategy requires ongoing attention to your portfolio, your tax situation, and tax laws.
• Minimizing taxes on Social Security and RMDs – Up to 85% of your Social Security can be taxable depending on your other income, and required minimum distributions can push you into higher brackets. Strategic planning can help minimize this tax burden.
Healthcare & Long-Term Care Planning
• Medicare coverage and supplemental insurance – Medicare doesn’t cover everything, and the gaps can be expensive – you’ll need to understand Parts A, B, which is Original Medicare, as well as part D, which covers prescription drugs. Then there are options to fill the gaps that Original Medicare leaves, which is Medicare Advantage, as well as Medigap/Medicare Supplement. Dental, vision, can be included in Medicare Advantage plans, but typically are not available in Medicare Supplement plans.
• Long-term care insurance or alternative strategies – With average long-term care costs exceeding $100,000 annually, you need a plan. Whether it’s insurance, self-insurance (ie, pay for it all yourself), or hybrid life insurance products, that’s what you need to decide. Waiting until you need care is too late to get coverage. I typically recommend you get quotes on these insurance products, if you’re interested, in your late 50s or early 60s.
• Planning for future healthcare costs – Healthcare costs are typically the biggest downside that early retirees lament to me. And it can get expensive, without your employer helping you pay part of the bill anymore. Unless you think you can qualify for an ACA subsidy, which may or may not make sense for you (as it limits your options on capital gains strategy as well as Roth conversion), then you just need to plan to have an extra bill every month until you reach age 65 for Medicare.
Estate & Legacy Planning
• Creating or updating wills, trusts, and beneficiary designations – It depends on your state and your circumstances whether you need a trust or whether a will is sufficient, but you should definitely think about it and seek legal advice on that. Also, I think you should review your beneficiary designations on your retirement accounts every year or two, including primary beneficiary and contingent beneficiary.
• Power of attorney and healthcare directives – If you become incapacitated in a terrible car accident, someone needs legal authority to handle your finances and make medical decisions. You can also name what you want to happen to you in certain circumstances, and that’s the advanced healthcare directives. These documents can be created when you create your will and/or trust.
• Gifting strategies and charitable giving – Strategic gifting can reduce your taxable estate while helping family members when they need it most. Charitable giving can also provide tax benefits and create a meaningful legacy. You can contribute to a donor advised fund, donate your RMDs to charity, or batch your charitable contributions in one year (as opposed to 5) to maximize your itemized deduction.
Lifestyle & Budgeting
• Understand and embrace flexible spending plan – Retirement spending often follows a U-shape – higher early on for travel and hobbies in your 50s, 60s and early 70s, lower in the middle years of 70s and early 80s, then higher again for healthcare. Understanding this can give you some confidence to spend more earlier in your retirement, and accept that spending in retirement is not a straight line.
• Travel, hobbies, and activities spending – Budget for the experiences you want to enjoy in retirement. Don’t overcomplicate this – simply add your estimated annual total for travel and activities to your lifestyle expenses, and ensure it fits within your anticipated retirement income.
• Conduct a spending review session – This might be the most important one of the whole list! Analyze your last 3 to 6 months of expenses to determine what you’ll spend less on in retirement (commuting, work clothes, retirement contributions) and what you’ll spend more on (healthcare, travel, hobbies). It won’t be perfect, but it’ll give you a solid foundation for retirement budgeting. Have an approximate number that you think you and your spouse will be spending in retirement, as you’ll need this number when you’re evaluating your “is this enough” number from the first section.
Risk Management
• Emergency fund for unexpected expenses – I typically recommend 3-6 months of expense saved up for people still working, but when you retire and don’t have that paycheck coming in anymore, I actually recommend 12-24 months of expenses in something like a high yield savings account.
• Planning for widowhood or loss of income sources – What would happen if you lost your spouse early on in retirement? You typically can receive the higher of the two social security benefits, but you can’t receive both. If you have a pension, this is important to decide whether to chose joint & survivor pension option, or a single life option.
• Insurance review (life, liability, home, auto) – Insurance reviews are easier to forget as they aren’t as sexy or prominent as your asset allocation or money in your accounts or tax planning strategy. But I really think it’s worth reviewing your home and auto insurance as well as considering an umbrella liability policy. For life insurance, you may or may not need it if you’re retired but I do have some near retirees buying short 10 year policies for a variety of reasons.
Implementation & Monitoring
• Regular review schedule and progress tracking – Your retirement plan isn’t set-it-and-forget-it. I don’t want you thinking about this every day, but I don’t want you to forget to do things like rebalance your portfolio, do a Roth conversion, or forget to take into account the new tax law. I would at least do 2 reviews per year to get started.
• Annual tax planning review each fall – Schedule a comprehensive tax review every fall to evaluate potential Roth conversions, tax-loss harvesting opportunities, and required minimum distribution strategies before year-end. This timing allows you to make strategic moves that can impact your tax burden as well as avoid paying penalties on things like missed RMDs.
• Accountability systems for staying on track – Whether it’s working with a financial advisor or setting up systems with your spouse, having accountability helps ensure you follow through on your retirement plan.
A successful retirement plan integrates all these elements into a cohesive strategy that adapts to your changing needs over time. If you want to get your own retirement blueprint and see how these pieces fit together for your specific situation, please visit this page for a free consultation.