Pre-Retirement Financial Checklist: Get Your Financial House in Order
Are you within a few years of retirement? Now is the perfect time to get your financial house in order. Here’s what to include on your pre-retirement financial checklist:
401(k) Plans
Decide what to do with your current 401(k). You generally have three options:
- Leave the assets with your soon-to-be-former employer.
- Roll them into an Individual Retirement Account (IRA).
- Take a distribution (note: this last option can result in a hefty tax bill).
If you hold company stock in your 401(k), check for special rules regarding Net Unrealized Appreciation (NUA). You may have more options than you think, especially if the stock has appreciated significantly.
Company Stock Options
Do you have stock options you haven’t yet exercised? Review the terms and expiration dates, and explore your choices. Company stock often involves complex tax implications—especially if held within your retirement plan—so consider consulting a tax advisor.
Other Employer Benefits
Your 401(k) might be your most significant benefit, but it’s not the only one worth evaluating:
- Does your employer offer retiree medical coverage?
- Can you continue other benefits, such as life or dental insurance, at group rates?
Review what’s available and factor it into your retirement plan.
Pensions
If you’re fortunate enough to have a pension, several critical decisions await:
- Should you start collecting at retirement or delay?
- Should you take a lump sum and roll it into an IRA, or opt for a monthly annuity payout?
- If choosing annuity payments, which option fits your needs best?
These decisions should align with your broader financial situation and your ability to manage a lump-sum payout effectively. Unless you need immediate income, rolling a lump sum into a tax-deferred account like an IRA is often the most tax-efficient route.
If you earned a pension from a former employer, contact them to confirm your benefit details and ensure your contact information is current to avoid delays when you begin distributions.
Social Security
You can begin taking Social Security at age 62—but doing so reduces your monthly benefit. Waiting until your full retirement age (67 for those born after 1960) or even delaying until age 70 will increase your benefit.
If you’re married, coordinate your strategy with your spouse’s benefit for maximum advantage.
Review Your Financial Resources
Over your working life, you’ve likely accumulated a wide range of assets. Take inventory:
- Employer retirement plans (401(k), 403(b), etc.)
- Traditional and Roth IRAs
- Pensions
- Stock options or restricted stock units (RSUs)
- Social Security
- Taxable investment accounts
- Cash, savings, CDs
- Annuities
- Cash value in life insurance policies
- Inheritances
- Business interests
- Real estate holdings
- Potential income from part-time work in retirement
Now’s the time to review these resources and develop a strategy to use them effectively to support your desired lifestyle.
Determine Your Income Needs
Build a realistic retirement budget:
- Will you stay in your current home or downsize?
- What hobbies or travel plans do you have?
- What are your essential living expenses?
Compare your projected expenses to your expected income from the sources above. This analysis will help you understand whether your current assets are enough—or if you need to adjust your plans.
Also, map out a plan for which assets to draw on first and how to coordinate withdrawals throughout retirement.
Food for Thought
The golden years can be some of the best of your life—but reaching them comfortably takes smart, proactive planning. Start preparing today to build the retirement you envision.
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