How to Prepare for Retirement

Leah BuryNovember 5, 2021


Woman sitting in giant egg

Retirement is almost here–you’re counting down the days! But you might start to wonder: am I as financially prepared for retirement as I’d like to be? If not, how long will it take me to leap into retirement?

If you’re afraid of not quite meeting your retirement goals, it’s time to take a second look at your planning. There are always steps you can take to save more and prepare for success.

Creating a Retirement Budget

If you haven’t made a retirement budget already, this is your first step. We published a great article on budgeting that you can read here, but we’ve also outlined some basic steps below.

  1. Determine retirement income: To start, you must define your retirement income sources. This can include retirement account withdrawals, pension distributions, and social security payments. If you will have any other income sources, like rental income or earnings from a part-time job, factor that in too.
  2. Write down fixed expenses: Many of your expenses—like utilities, groceries, and any loan payments—will remain about the same in retirement. If you’re not working with an existing budget, start documenting your spending habits.
  3. Factor in extras, presents, and hobbies: Do you imagine your retirement including lots of travel, presents for grandkids, and extra hobbies you’d like to pick up? Try and estimate costs for all of these activities and expenses. These costs won’t go into your monthly budget but should be considered over the entire year.
  4. Take a second look at medical care: Healthcare costs are going to make up a good portion of your budget in retirement. When you’re retired, will you qualify for Medicaid or Medicare right away? Will you need a supplemental insurance plan to cover care beyond what those programs cover? Will your medical care be more or less expensive than your current plan?
  5. See how it balances out: Once you’ve determined what your monthly income and expenses will be in retirement, subtract the expenses from the income and see how much is left. If your expenses are more than your income, it’s time to find a way to increase your income in retirement, or plan for a more frugal retirement lifestyle.

Looking to bolster your retirement plan?

Schedule an Amplify Wealth Management appointment with our colleagues at CUSO Financial Services (CFS).

Prepare for Lifestyle Changes

One of the biggest factors in your retirement budget is going to be lifestyle. Ask yourself these questions:

  • Will you be relocating to an area with a higher or lower cost of living?
  • Are you keeping your current house, or moving into a retirement complex?
  • Will you travel once a year or more?
  • How expensive are your hobbies?
  • Do you plan to make any major purchases?

These questions have a big impact on how you experience your retirement. If your retirement income isn’t quite matching up with your budget, ask yourself this: are there adjustments you could make now, while you’re still working, to help you close the gap? For instance, you could put off retiring for a couple of years or contribute more to your retirement investments.

Once you enter retirement, your income becomes finite. Unlike during working years, you have a limited pool of resources, and you may not be able to increase your income. You’re not planning five years ahead—you’re planning for potentially decades.

After you’ve adjusted your budget for lifestyle changes, take a look at your current retirement investment strategy.

Risk Tolerance Adjustments

As you prepare for retirement, consider the retirement investment strategy you’re currently using for your investments, and how it might change after you retire. Your investment mix involves your investment goals, your time horizon, and your level of risk tolerance. If you’re using a managed retirement account, it may be set by your financial advisor. As you progress closer toward retirement, your portfolio needs to be adjusted over time. Typically, the closer you are to retirement, the more your portfolio should lean toward more stable investments.

  • Your investment goals: Are you planning on a luxurious retirement full of travel and expensive hobbies? You’ll probably need to save more and earlier. Planning on living a frugal retirement lifestyle? Your savings rate is probably going to be lower.
  • Your time horizon: When you’re younger, you have more opportunity to take risks—like investing in the stock market—because you have time to make up for any losses you might experience. As you reach retirement age, however, your portfolio needs to be adjusted to minimize risk.
  • Your risk tolerance: Not everyone is comfortable with riskier investments. They might come with a higher reward, but the lack of guarantee may also provoke some significant anxiety. Everyone’s risk tolerance is different, and it can change the way your retirement planning proceeds.

All of these factors work together to change the way you save and invest for your retirement. Talking to a financial advisor is a great way to make sure your investment goals, your time horizon, and your risk tolerance are working for you—not against you.

Do a Trial Run

After you’ve created your preliminary retirement budget, adjusted it for lifestyle changes, and considered your retirement investment strategy, it’s time for a “test drive”!

While you still have the cushion of your current income, take a few months to live within that budget. Ask yourself these questions:

  • Do I feel like I’m living comfortably?
  • Am I spending more than the budget allows for?
  • Are there any unexpected expenses that I should include?
  • Do I feel like my investment strategy supports this budget?

Pinpoint any areas that need adjustment. If the test drive goes well, you’re probably ready to retire according to plan.

Work with a Financial Advisor

Planning for retirement can be complicated. If you’re worried about your current retirement plan, now is a great time to consult a financial advisor, if you haven’t already. Everyone’s retirement looks different, and a professional can adjust your plan to reflect your unique financial situation and needs.

* Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer Member FINRA/SIPC and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

Before deciding whether to retain assets in an employer-sponsored plan or rollover to an IRA an investor should consider various factors including but not limited to: investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock. Before you elect to open an IRA account and engage your investment representative, please review all account statements and disclosure documents related to the IRA and services to be provided under a new relationship and consult with a qualified tax advisor as needed. If transferring an existing retirement plan into an IRA, you should be aware that (i) Those assets will no longer be subject to the protections of ERISA (if applicable) (ii) depending on the investments and services selected for the IRA, you may pay more or less in transaction costs than when the assets are in the Plan, (iii) if you are between the age of 55 and 59 ½, you would lose the ability to potentially take penalty-free withdrawals from the plan, (iv) if you continue working past age 70 ½ and transferred your plan assets to a new employer’s plan, you would not be subject to required minimum distribution and (v) withdrawing assets directly would be subject to federal and applicable state and local taxes and possibly be subject to the IRS penalty of 10% if under age 59 ½.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.

Talk to a CFS Financial Advisor

Want to take your retirement plans to the next level? Schedule an Amplify Wealth Management appointment with our colleagues at CUSO Financial Services (CFS).

Leah Bury

Leah is a financial writer based in Austin, Texas. Her articles include advice on investing in real estate, starting small businesses, and optimizing savings. Leah also does some freelance graphic social media work for local creatives.