April 12


Kennon Financial: Pre Retirement Checklists and Tips

Dave Kennon, Kennon Financial

I am often asked about steps one should take as they approach retirement. Whether you’re a few years out from retirement, or just a few months, there are certain steps you should take to ensure you’re ready — financially and emotionally — to make the leap from working life to retired life.

I’ve put together a few retirement checklists to help.

Pre-Retirement Checklist: 5 Years Before You Retire

___ Adjust your investment allocation inside your 401k, IRA, etc. In your 20s50s it generally makes sense to put a majority of your retirement savings into stocks. Why? Because stocks have had the best long-term returns of any investment vehicle. But once you get within five years of retirement, you need to start exploring more defensive strategies. Generally speaking, that mean utilizing more bonds inside your portfolio. But, regardless of age, make sure you keep at least half of your money in a diversified portfolio of stocks.

___ If you have a traditional pension, take time to learn the rules. Every pension is a little different but most of the time you need to figure out:

  • How much you will get each month.
  • Which survivor benefit to take (do you want a larger benefit that ends when you die or do want to take a reduced benefit and have the benefit continue to your spouse?)

___ Figure out if you are on track with your savings. Do you need to save more? Do you need to really push hard to the finish line to build up some wealth? Generally speaking, 401k plans are awesome vehicles to take advantage of near the end of your career. Most people are in a much higher tax bracket while working than when retired. Any money saved into a 401k is tax deductible now (big tax savings) and taxable when you take it out (lower rate than while working).

Pre-Retirement Checklist: 1 Year Before You Retire

___ Create a Budget. How much are you spending each month? I generally suggest that you try to forecast into the future and estimate what your retirement budget will be. If your mortgage will be paid off in 5 years, do not include the mortgage payment. Add in Medicare premiums if you will be 65 when you retire, etc. Here is the budget worksheet that I use with my clients: Click here.

___ Figure out your social security strategy. Make sure you have a strategy in place whereby you get the most possible from the social security system. It is not as simple as picking an age. You need to determine the best age at which to begin benefits, as well as understand all of the nuances of the system that could get you more money. There are over 1300 social security benefits claiming strategies — so this one takes some planning!

I teach free, open-to-the-public social security classes every two weeks if you are ready to learn more.

___ Plan your retired life. Start to think about what you want your retired life to look like. Don’t wait until your first day of no-work. Major changes, like retirement, cause stress in most people’s lives. Go into it prepared. I discussed some of these ideas in a previous blog.

Read: What Does a Great Retirement Look Like?

Pre-Retirement Checklist: 6 Months Before You Retire

___ Recalculate your budget. Have things changed?

___ Determine when you will start to withdraw money from your retirement accounts. This is a part of the process that trips most people up. Remember that once you retire, for many people, it is absolutely okay to start spending a sustainable amount of money from your retirement accounts. I subscribe to the 5% rule, which I’ve written about previously. Many retirees can safely withdraw 5% of their account balance each year as soon as they retire.

Read: Are You Ready to Join the 5% Club?

___ Re-evaluate your investment portfolio. This is when things get serious! Once you are no longer working, and making money and saving money, the gravity of investment decisions goes up dramatically. I’ve seen perfectly rational, intelligent, thoughtful professionals make knee-jerk emotional reactions with their portfolio once retired. Don’t let fear dominate your financial decisions.

___ If applicable, start sending yourself 5% of your retirement savings each year. I recommend having the money automatically sent to your bank account each month. If you have $500,000 in your IRA, send yourself about $2000 a month. Have it hit your bank account on the first of the month, just like a pension check.

___ If 65, make sure you have signed up for Medicare and chosen a suitable Medicare supplement. If you need help with these decisions I have a team member here at Kennon Financial that specializes in these kinds of issues. His name is Adam. You’ll see him on our Contact Us page. He’s a really nice guy.

___ Make sure your legal documents are up to date. Most retirees need to have a will, power of attorney, and health care proxy. The power of attorney might be the most important component. If you were ever to get ill, without assigning someone power of attorney, you cannot have someone else help you with your financial affairs. I find that many people have outdated legal documents.

___ Determine whether or not to continue the life insurance provided by your employer. Many times the cost of continuing coverage is very high. Many people in their 60s no longer have a huge need for life insurance, unless they are receiving a pension that would stop if they were to die. Or perhaps if there is still a large mortgage on the house.

___ Get busy living! By now you should have a good idea of what you want your retired days to look like. Start looking seriously into opportunities: volunteering, service, travel, babysitting grandkids, starting a small business, etc.

I hope these retirement checklists have helped. Be sure to check out my YouTube channel for helpful videos, and subscribe to my newsletter to get a weekly digest of all my new content.


Be Blessed,

Dave Kennon, Kennon Financial

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