Checklist for Retirement Planning | Retirement Income and Savings | Ent Credit Union (2024)

Before retiring, create a budget plan that outlines how you will transition from your working life to retirement. This includes considering when you want to retire, where you want to live, and what you want to do during your retirement years. Based on your desired lifestyle, estimate your living expenses. According to the U.S. Bureau of Labor Statistics (BLS) Consumer Expenditures Survey, American households spent an average of $66,928 in 2021. This figure can vary based on location, health status, and lifestyle preferences, but it is a reliable reference.

Once you have decided on your retirement lifestyle, develop a retirement budget that aligns with your income. It should include an emergency fund to cover unexpected expenses, such as healthcare costs or home repairs.

Review your retirement savings, including your pension, employer-sponsored retirement plans such as 403(b) and 401 (k) plans, individual retirement accounts (IRAs) and other investments. A financial professional can help you determine how much you'll need for retirement, considering expenses, inflation, taxes and life expectancy. A review should determine whether your retirement savings are on track or have a retirement savings gap—the difference between your retirement income needs and your projected retirement income from your current accumulated savings.

If you have a shortfall, you can take specific actions to close it, including:

• Increasing your contributions: If you're not already contributing the maximum amount to your employer-sponsored retirement plan, consider increasing your contributions. The 2023 annual contribution limit for a 401(k) or 403(b) is $20,500 for individuals under age 50. For IRAs, the contribution limit is $6,500 for individuals under 50.

• Catch-up contributions: If you're over 50 and behind on your retirement savings, you can make catch-up contributions to your employer-sponsored retirement plan. In 2023, you can contribute an additional $7,500 to your 401(k) or 403(b) and an additional $1,000 to your IRA.

How will you generate income in retirement? Review your retirement income sources, including how you will withdraw funds from your retirement accounts and other investments. A sustainable withdrawal rate, the percentage of your retirement savings that you can withdraw annually without exhausting your savings, can help you maintain your retirement income while preserving your savings.

It is advisable to have a retirement income plan that includes a mix of guaranteed income sources, such as Social Security benefits and annuities, and flexible income sources, such as your retirement accounts and other investments. You can also explore the benefits of tax-efficient withdrawal strategies, such as Roth conversions and tax-loss harvesting.

A key retirement planning checklist item is your social security. Check your eligibility for retirement, disability or survivor benefits on the Social Security Administration (SSA) website. You can use the SSA's online benefits calculator to estimate your future retirement, disability or survivor benefits based on your earnings history and other factors. According to the Social Security Administration (SSA), the average retirement benefit in February 2023 was $1,693 monthly. Confirm that you have earned credits for each year worked by signing into your social security account and reviewing your statement.

When you start claiming benefits also affects your social security income. You can begin claiming social security benefits as early as age 62. However, your monthly benefits will be lower if you start claiming before your full retirement age (which varies based on the year you were born). On the other hand, delaying your Social Security benefits past your full retirement age makes you eligible for delayed retirement credits that increase your benefits by up to 8% annually until age 70.

Healthcare costs can be a significant expense as your age with long-term care costs a considerable proportion in the long run. It helps if you estimate your healthcare expenses in retirement by considering your expected healthcare costs, such as premiums, deductibles, copayments for Medicare and any out-of-pocket expenses for supplemental insurance or long-term care.

Start exploring Medicare Advantage or Medicare Supplement plans, which you will qualify for at 65, which can help reduce your out-of-pocket expenses for healthcare. If you're eligible to contribute to a Health Savings Account (HSA), it can be a great way to save for healthcare costs in retirement. An HSA is a tax-advantaged savings account that you can use to pay for qualified medical expenses. Also, since Medicare doesn't cover long-term care, purchasing long-term care insurance to cover your long-term care costs should be a priority.

Medicare coverage starts at age 65, and you can sign up 3 months prior to your 65^th birthday. If you retire earlier, consider the following options for healthcare coverage:

• Withdrawal from retirement accounts: After age 59 ½, you can use funds from your retirement accounts like a 401(k) or IRA to pay for healthcare expenses in retirement without incurring early withdrawal penalties. However, keep in mind that withdrawals from a 401(k) or are subject to income tax.

• COBRA: If an employer-sponsored health plan previously covered you, you can continue your coverage for a limited period through COBRA (Consolidated Omnibus Budget Reconciliation Act). It allows you to continue your existing coverage for up to 18 months (or longer in certain circ*mstances) after leaving your job, but you will have to pay the full cost of the premiums yourself.

• Marketplace plans: You can enroll through the Public Health Insurance Marketplace (also known as the exchange) if you don't have access to employer-sponsored coverage. You may be eligible for financial assistance based on your income to help you pay for your monthly premiums and other costs.

• Private health insurance: You can purchase private health insurance directly from an insurance company. Premiums for individual coverage can be more expensive than group coverage, but the policies may offer more options and flexibility.

• Spouse's coverage: If you have a spouse that will still be working and has access to employer-sponsored coverage, you can enroll in their plan.

• Medicaid: Medicaid provides healthcare coverage to individuals and families with low incomes. Eligibility requirements vary by state, but you can enroll in Medicaid if you meet the income requirements.

Finally, your retirement plan checklist must include your estate plan. You should set up and review your estate plan, including your will, trust and beneficiary designations, to ensure your assets are distributed according to your wishes. You can also consider the benefits of gifting assets to your loved ones or charities, which can help reduce your estate tax liability.

Retirement planning requires careful consideration and planning due to the assumptions, intricacies, and tax considerations involved. A financial coach can help you develop a comprehensive retirement plan that considers all the above items.