The transition to retirement is a big deal. Because of all the variables involved, it is worth spending time thinking about and planning for this transition years before it comes.
Below are ten questions anyone over age 50 (OK, probably 30) should ask themselves. Yes, we know many of the ten questions lead to more questions but sometimes the devil is in the details of the follow-up question.
1. Are you on track with your savings and investments?
- Your retirement Investments should equal your age times your annual income, divided by ten (age x annual income / 10). This is a good place to start if you don’t plan to retire early.
- Will your assets provide a sufficient income stream in retirement?
- Are you saving/investing enough? Target should be 15-20% of your income depending on your age and how much you’ve already saved. If your're behind, you may need to save more than 20% to get on track.
- Do you have an adequate emergency fund? A good target is 3-6 months of expenses.
2. What is your plan for any outstanding debt?
- What types? Interest rates? Terms?
- Plan for payoff?
3. Do you have tax diversification of your account types?
- 401k/IRA; Roth IRA; HSA; Taxable investments?
- Do you know why this is important?
4. Do you have appropriate life insurance coverage?
- Sufficient amount? Not too little, not too much?
- Is at least half of this insurance outside of your work plan?
- Term life insurance to get you to retirement?
- Do you have unnecessary or expensive (usually permanent) life insurance?
5. What is the overall risk/return profile of your investments?
- Are the risk characteristics sufficient/appropriate to get you to and through retirement?
- Are your investments diversified across holdings, sectors, and asset classes?
6. What is the fee structure of your investments?
- Are you paying commissions on overpriced products?
- Do you know the expense ratios of your 401k (or equivalent) holdings?
- Are you aware of all the hidden costs and fees in your portfolio?
7. Are you working with an advisor who is more salesperson than advisor, or one who is knowledgeable in investment management and financial and tax planning?
- Large national firms and banks primarily employ salespeople.
- Do you know the advantages of working with a fee-only RIA?
- What qualifications does your advisor have?
- Have they earned meaningful degrees and designations – CFA®, CFP®, CPA, EA, MBA, JD?
8. What is your distribution plan going to look like in retirement?
- From where and what order will you pull cash to create a retirement paycheck?
- Will this plan keep taxes to a minimum?
- Do you know the best time to start taking Social Security to maximize lifetime income? Do you know what factors could change this?
- Are you aware of the benefits and pitfalls of doing a Roth conversion?
9. What do you want to do in retirement?
- Being active in retirement is key to being happy and healthy.
- Part time work? Volunteering? New hobbies? Bucket list items?
- Being financially sound unlocks the freedom to pursue what makes you happy.
10. Have you done any estate/legacy planning?
- Will or Trust, Charitable Giving, Advance Directives, Power of Attorney, Letter of Last Instruction?
- Beneficiary designations/TODs up to date?
- These plans are not just for the wealthy.
Helpful links:
Active vs. Passive Investment Management
What is a Fiduciary and Why is it Important?
Where Should You Invest Your Hard-Earned Dollars?
