
Retirement is a life-changing event. And like many things in life, preparing for retirement requires a lot of planning. You do not want to be one of those people who want to retire, but when that day finally arrives, they just let it happen. You want to be smart and invest time in planning and preparing for a big day.
Getting closer to retirement can be both exciting and stressful. You need to know if you are financially ready. And you need to understand how you will spend your days when you stop working.
Retiring without a plan can be disadvantageous. The better you are prepared and see what you are retiring to, the more successful you will be at this transition. Sometimes a step-by-step guide or “to do” list can help. I have created this post with all the things you need to know before you retire.
1. Know your financial situation and retirement needs.
The first step is to evaluate your finances. I read that new retirees have some financial anxiety related to the fact that they no longer earning a regular paycheck. The Baby Boomer generation is redefining what senior living and ‘retirement’ means.
The Boomers want more out of their retirement lifestyle – more activities, more wellness, and sometimes more of everything. But all these luxuries cost money. Not to mention ordinary bills for food, transportation, utilities, medical insurance, and taxes that must be paid every month.
Calculate what you need financially to support your retirement lifestyle.
You should have enough saved to live on 80 percent of your annual pre-retirement income. This number is a good rule of thumb if you do not plan on making any major budget changes.
When you retire you do not need a lot of things that you did when you were working. The costs of commute, take-out lunches, and business clothes will go down. But you will start spending more money on travel, hobbies, and activities. And your medical expenses will increase with time.
You might have a general idea of what you spend now. But you will be better prepared if you get a clear picture of your current cost of living and how that might change in the future.
The best advice is to create an estimated retirement budget based on your current and future expenses.
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Get a clear picture of your retirement income.

When you are working, you probably have a single employer and a single source of income – your salary. In retirement, everyone has different sources of income. As a retiree, you receive income from multiple sources: Social Security, pension, part-time job, or rentals.
Another source of income will come from your nest egg – investments and retirement savings:
- Tax-deferred accounts – 401(k), IRA
- Tax-free – Roth IRA, Roth 401(k)
- Taxable investment accounts
- Taxable bank checking and savings accounts
You need your nest egg to last through the next 20 or 30 years. Therefore, it is recommended to withdraw a safe 4 percent from your retirement portfolio.
For example, if you have $500,000 in your retirement funds, you can spend roughly $20,000 ($500,000 x 0.04) per year when you retire. Add this number to your Social Security, and calculate if it is enough to cover all your retirement expenses.
According to the stats, the average Social Security benefit in 2020 was about $ 1,514 a month, or about $18,170 a year.
To calculate the retirement income based on the numbers above:
$20,000 + $18,170 = $38,170 a year or $3,180 a month.
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Know your withdrawal strategy.
Do you know how much income you can pull from your nest egg? A good starting point for many retirees will be a well-known rule of thumb – the “4% rule”.
The 4 percent rule refers to your withdrawal rate. If you have a well-balanced retirement portfolio (60 percent stocks and 40 percent bonds), you can withdraw 4 percent of your account balance.
For example, if you have $500,000 saved in retirement funds you can withdraw 4 percent of that amount – $20,000 in the first year of your retirement. Then, you should adjust that number every year for inflation. But following this rule should help you not to run out of money for at least 30 years.
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Think about your tax strategies.
We still need to pay taxes in retirement, but not all sources of income are taxed the same. Withdrawals from tax-deferred accounts such as 401(k) plan and traditional IRA will be taxed as an ordinary income.
Withdrawals from Roth IRA and Roth 401(k) plan will be tax-free. If you want to withdraw money from taxable investment accounts, you will have to pay capital gains taxes.
In addition to taxes, you need to remember about required minimum distributions (RMD). You will face this requirement when you reach the age of 72.
By the US tax law, you are required to start taking withdrawals from your retirement accounts such as 401(k) and IRA. The amount you must withdraw will be determined by the IRS. If you have more than one retirement account, you need to withdraw money from each account.
You need to remember that RMD withdrawals might push you into a higher tax bracket and you need to plan how to pay for additional taxes.
Know your medical expenses and long-term care coverage.
You will become eligible for Medicare at the age of 65. If you plan to retire before age 65 you will need to find a separate plan to cover your medical expenses.
Many baby boomers who are close to retirement still believe in free Medicare. I assume people do not do enough research to understand that Medicare does not cover all your medical expenses.
Medicare does not cover premiums, deductibles, co-pays for doctor visits, dental and vision care, long-term care, personal care, and other expenses. It is important to remember that healthcare is the second biggest expense in retirement after housing and you need to plan for it.
We all know that the healthcare cost is rising. According to recent data from Fidelity, the average out of pocket healthcare cost for a 65-year-old couple will be close to $285,000 instead of $265,000 as it was a few years ago. And that number does not even include long-term care costs.
2. Expect to go through the emotional stages in retirement.

Most people go through an emotional process when adjusting to retirement. In the beginning, there is a feeling of freedom and being like on a vacation that is going to last forever. Then, after a few years of fun and enthusiasm, you might start feeling bored.
You will learn that retirement is not a constant vacation. Eventually, you will realize that you have to fill up your days with something more meaningful than just traveling or playing golf.
It is good to be mentally ready for your new phase of life. You do not want to realize that most days you have nothing special to look forward to when you wake up in the morning. Or you do not have any reason to leave your house during the day. Or deep inside you wish you were not retired.
Like many other life transitions, retirement comes with emotional and mental adjustments. If you learn more about the emotional stages of retirement you will know what to expect. That knowledge will help you to better navigate the transition to retirement.
Related Post: 5 Most Common Emotional Stages of Retirement
3. Structure your days in retirement.
Before retirement, your life has a predictable routine. The alarm goes off, you take shower, have breakfast, pack your lunch, and head out the door. Your job gives you focus and discipline and forces you to get up every morning. Work takes priority and everything else in life is scheduled around it.
But when you retire, there is nothing but time. Thus, you need to replace the established routine with something new. Waking up and trying to figure out what to do each day can be depressing.
You need to create a new routine that helps you plan your days otherwise you have no reason to get up every morning. It could be a hobby, a sport, a new skill, a part-time job, or volunteer work. Do not go to retirement without having a plan about what you are going to do to stay busy.
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4. Stay socially active and grow your friendship.
After many years of meeting people at work and seeing them every day, it might not be possible to keep up with them when you retire. You might feel isolated from your friends. You might start drifting through the days without much to do if you do not get socially connected with other people.
You can stay connected with your old friends by planning social events. If you are friends with other couples, invite them over for dinner or board games once a month. For many people, their social life relates to their work. However, you can do many things to improve your social life in retirement.
Take advantage of your free time in life to make new friends. It is not hard to find a volunteer job, join a group in the local community, or start taking a class at a senior center. Another thing you can do is to start a new club or join the club. It could be a reading club, a walking club, or a gardening club.
Staying socially active will restructure your daily routine. It will help you to feel that you are doing something meaningful beyond watching Netflix, doing crosswords puzzles, or reorganizing the house.
Putting It All Together
I am sure you have thought a lot about how you will enjoy your life in retirement. But there is a good chance you never thought much about how to transition from the workplace to retirement.
The key to a happy and comfortable retirement is in planning and preparing for it. It includes not just financial planning but envisioning your life in retirement. The more time you spend to know your retirement lifestyle goals, hobbies, and activities, the more successful you will be at this transition.
And If you do it right it might be the best time of your life!
Are you ready to retire? Do you have a clear picture of your retirement? Share your thoughts in the comments below.
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