Putting the “Plan” In Retirement Planning

Retirement Planning

Retirement will be one of, if not the most, life-altering phases of your life. Going from earning to spending, working to leisure/volunteerism, an identity tied to work to a self-defined identity, coming to terms with the inevitable… These are all huge changes with far-reaching ramifications. Yet most of us give less thought to retiring than we did to choosing a college major. Most of us just hit an age where we’re tired of work, or our friends are all retiring and say, “Welp, guess I’ll pack it in.” We have vague notions of travel or something to soak up our time, but nothing concrete. Maybe we have a general idea of how much we have in the bank, or how much we’ll get from a pension/Social Security, but no firm numbers. This type of hand-waving and wishful thinking is not sound retirement planning. 

Retirement planning is a big deal, and it needs to go beyond money. Yes, money is important because without it you can’t even begin to think about retirement and all the other things that go along with it. But there is so much more to think about and plan for. You need to plan and research to cover all aspects of your retirement lifestyle, and it needs to start when you’re young-ish so you can adjust your plans as events warrant. If you wake up one day and realize you’re about to retire (or are already retired), it’s too late for meaningful planning. And trust me: Spitballing your retirement plans or winging it year to year might be fun for about six months. After that, you’re going to start regretting all the things you didn’t plan for as the unpleasant surpsrises and “gotcha’s” begin to mount. 

So when you’re planning your retirement, what are some of the things (financial and otherwise) that you should think about? Here’s a sampling:

How much money will you need?

Before you can do anything else, you need to figure out how much you will be spending in retirement. What are your monthly/annual expenses? How much travel will you do? Will you need a new car, computers, phones, a roof, appliances, or other major budget busting purchases? Health care? What about a buffer for emergencies? Will you be supporting family members, or donating to charities? Figure out how much you will be spending before you retire. 

Where, exactly, is the money coming from?

Once you know what you’ll be spending, you need to know where the money will cover from to cover that spending. Do you have enough saved? Where is it, what is it invested in, and do you have a drawdown strategy that minimizes your tax burden, or your need to draw on investments in down markets? What will your social security or pension payments be? (Don’t guess. Go to the social security website or your pension administrator and get exact numbers.) Do you plan to sell your home and downsize to free up cash? While inheritances are nice, you can’t count on them so don’t factor them into your calculations. 

How long do you need that money to last?

While we can never know the date that the Grim Reaper will come for us, we can make educated guesses. How long did your parents and grandparents live? Siblings? Do you have health issues that are likely to take you out early? Can you modify your health for extra longevity? Do you engage in risky behaviors? Do you plan to retire at 50 or 70? Are you likely to get forced out of your job early, or does your occupation favor older workers? (If you wait to retire, you won’t need your saved money to last as long.)

What will your tax situation be? 

What tax bracket do you expect to be in? Is most of your money saved in pre-tax accounts that will trigger a tax bomb when you begin withdrawing money? Do you have cash or Roth products that will allow for tax-free withdrawals? Will you trigger big capital gains taxes on your investments or home sale? What will happen when you have to start taking required minimum distributions? Do you plan to use charitable contributions to reduce your taxes? Taxes are complicated and highly individual, so you’ll need to do the work here to figure out your tax burden and take steps to reduce it before you retire. 

What if you are forced to retire sooner than you want?

What happens if illness, injury, family issues, or ageism (it may be illegal to discriminate, but there’s no denying that older workers are often the first to go) force you out of the workforce before you’re ready? Do you have a backup plan for alternate work, or part-time employment? Can you lower your projected retirement spending to compensate? Can you save more now to hedge against the possibility?

Do you have a plan for collecting your Social Security/pension?

Social security and pensions are great, but they are sometimes complicated when it comes to actually collecting the money. Will you take it as soon as you’re eligible, or wait? If you have a spouse, how will you coordinate your benefits so you get the most out of them? What’s the plan when one of you dies? Does the pension pass to the survivor, or is the remaining social security check enough? 

What benefits might your employer provide? Any hiccups in accessing benefits?

If you’re retiring before Medicare age, does your employer offer healthcare for retirees, or an option to buy in? Will any life, disability, or long term care insurance continue if you retire? If so, do the rates go up? What are the restrictions on any 401k plans and withdrawals if you leave before retirement age? How big will the penalties be? Will you get any severance or accrued vacation pay? What happens to your pension if you leave a bit early? Is it prorated or terminated? These are all things you need to know when you’re setting your retirement date and number. 

Where will you live?

Are you going to stay in your current home? Have a second home at the beach? Move to a different location altogether? Will it be high or low cost of living? Become a snowbird and split your residency? Are you moving to a retirement village or continuing care community? Whatever you choose has implications for your spending and your tax situation so don’t retire without a plan. 

What will you do?

What do you plan to do with your free time? Hobbies? Part time work? Travel? Education? Volunteer? Visit family and grandkids? Retiring without a plan leads to plonking on the couch watching TV which is bad for your mind and body. You need to retire to something and make sure you have the money to pay for your activities. 

And what’s Plan B? Nothing in life ever works out exactly how we plan, so you need a Plan B for your time. If travel becomes impossible (thank you, pandemic), what will you do? What happens if you get hurt and can’t play golf or do other physical activities? If the economy tanks and your expensive hobby is no longer wise, what happens then? If you’re setting your hopes on “all or nothing,” you might end up on the couch after all. 

Are you emotionally ready to walk away from work?

It’s tough to walk away from work that’s defined your identity for decades. It’s also tough to lose your work friends, or to face the fact that retirement means you’re entering the final stage of your life. Retirement carries emotional baggage and you need to make sure you’re ready to deal with it. That’s doubly true if you find yourself retiring unexpectedly. If you can’t deal with it, where will you go for support? Therapist? Support group? Friends? 

How will you maintain/develop social relationships?

It’s hard to make friends out in the world away from shared obligations like school or work. Even harder to keep friendships going if you are no longer working but your friends are. What’s your plan for finding and maintaining social connections? Will you move closer to family? Join groups to meet people? Make a special effort to see your work friends? Social connections are important as you age because they keep your brain healthy and give you a support network, should you need it. 

What home changes/accommodations do you need to make while you’re still earning money?

Large expenses are better handled while the money’s still coming in. Think about any upgrades you need to make to your home so you can age there, any additions you want to build for hobby space, or any toys like boats or RV’s you want. Also, the time to buy a second home is before you leave the workforce, particularly if you’re going to need a mortgage. And if your home needs big repairs or replacements like a roof, big appliances, or heat/AC, it’s much easier to cash flow these things while you’re working. 

What does your partner/spouse want, and are your wishes compatible?

While you’re thinking all this stuff over, don’t forget to ask your spouse, partner, or any other invested individual what they want. Do they envision working till death while you want to quit at 60? Are they planning to couch surf for their retirement while you want to travel? Are they onboard with your plan to buy an RV and travel the country? If your plans are drastically different, the time to find compromise is while you’re still working, not on the day you retire. 

What will your medical/healthcare situation be like?

Do you understand Medicare and all its different plans, and do you know when to sign up? Do you have doctors you like, and will they take Medicare when you make that transition? (Some won’t, so you’ll have to find new doctors if that’s the case.) If you’re retiring to the middle of nowhere (or an unfamiliar location), do you have a plan for getting care if you need it? Are the hospitals decent where you’re going? Is there even one within a respectable distance? What about any specialists you need? 

Are you physically prepared for retirement?

Are your health issues currently under control? Have you had all of your routine screenings and are aware of any issues? Enough health problems will crop up later, you don’t want to start retirement with an unwelcome discovery. Are you in shape enough to do the things you envision like travel or hiking the Pacific Trail? If you’re not, you need to work on that before you retire. 

How will you move through life as you go from independence to needing care?

Your needs and spending will not be the same at eighty as they were at sixty. How will your spending adjust? Will you spend less on travel or other hobbies and more on healthcare? What sort of care plan do you have if you can’t be independent? Will you have long term care insurance, or are you depending on family to help you? (Are they willing?) Will you move to a nursing home or care community? Set up a Golden Girls-esque living arrangement? Are you planning to spend down assets and go on Medicaid at the end? Few people who live to old age are fortunate enough to die before they need some sort of assistance so you need to plan for this. 

You can’t just spitball this stuff and have it all work out. Retirement planning requires thought and care and it needs to start while you’re still working. This list isn’t exhaustive, but you can see how much more there is to think about beyond, “I’m outta here, Jack!”

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