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How to Retire: Step-by-Step

You’ve been working toward this for decades: the day you get to walk away from work and into a new season of life. The problem is, you may not know how to retire. You can’t just pack up your office one day and start spending your retirement cash the next.

The good news is that preparing for retirement isn’t hard, but you do need to take some steps to have everything in place so you can make the most of these years.

Let me show you how to retire—step by step.

Before You Start: Know Your Number

Planning for retirement doesn’t start at age 67. That’s because retirement isn’t an age—it’s a financial number. It’s the amount of money you need in order to live out your retirement dreams. You definitely need to figure out what that number is—because you don’t want to retire until you hit it.

I’ve created a tool to help you find your retirement number. It’s the Retire Inspired Quotient, an online retirement calculator. Answer a few questions and the tool will work the math for you! It will tell you how much you need to invest every month now, so you can retire with confidence and security later. If you don’t know the amount you’re aiming for, I guarantee you’ll never reach it!

Do a Financial Checkup

When you think you’re getting close to your retirement dream, you need to do a financial checkup. Think of it as taking your finances into the shop before you take them on a road trip that could last a long time! Here are the areas that might need attention:

1. Retirement budget.

Have you created one yet? If not, get on it! If you already have one sketched out, finalize it now. Guessing won’t cut it, people! With this new chapter looming ahead, you need to know if your budget is realistic.

For example, your medical needs will increase over time. Most other items will too. We can thank inflation for that! Also, make sure your retirement budget includes infrequent expenses like property taxes and insurance premiums.

You may even have to pay for things in retirement that are free for you right now. For example, some companies provide a gym membership. If you want to keep up that discipline, you’ll have to write that into your budget. Lots of gyms offer discounts for retirees, so check around to get the best price. Want to travel more in retirement? Be sure to factor that in too!

2. Current expenses.

You may be leaking money that you could use to beef up your savings. For example, how often are you eating out? Hands down, that’s one of the most common areas where people can trim the fat, so to speak. If you’re five years away from retirement and your net worth isn’t where you’d like it to be, right now is a perfect time to tune up your budget to maximize the time and income you have now.

3. Remaining debt.

Do not carry debt with you into retirement—not even your mortgage. It’s like having an anchor chained around your neck. Cut back on expenses and take a second job for a while. Even consider selling your home and buying something smaller if it means paying off all your debt. I can’t emphasize this enough—get rid of your debt before you retire!

How to Retire: Step-by-Step

4. Housing situation.

Do you want to stay in your current home? Do you want something smaller? Do you want to live in a more affordable area of the country? You need to answer these questions before you retire so you can be in the right place when you’re ready to say goodbye to your job.

Taking a look at your current finances is an important step to take as you get close to retirement. You’ll also need to give your finances a tune-up periodically after you retire. Otherwise, you’ll burn through your money too quickly to sustain you over the next few decades.

Talk with Your Financial Advisor

If you think you’re ready to retire, it’s time to sit down and have a long talk with your financial advisor. You need to cover a lot of ground. Here are some of the topics you’ll cover.

1. Your Portfolio

Your investing portfolio will play a big role in funding your retirement years, so you need to make sure it’s in good shape. It may need some rebalancing, especially if you have more than one account, like a Roth IRA in addition to a 401(k).

How to Retire: Step-by-Step

2. Other Income Streams

If you own real estate or make money from a hobby or even royalties, that money will factor into your retirement planning. You’ll need to identify which streams will remain in retirement and how much they’ll provide.

3. Withdrawal Plan

You and your advisor need to talk about your plan for taking money out of different accounts—and how much you’ll take from each one. Remember, all retirement accounts are not created equal. Taking money from the wrong account could cost you interest you could have earned—and you could get hit with penalties from the IRS.

With traditional 401(k)s, 403(b)s, IRAs and other similar accounts, you got a tax break up front when you put the money into the account. The IRS requires a required minimum distribution (RMD) from those accounts beginning at age 70 ½. You’ll tap those first because it’s required.

The amount you must take out (and pay taxes on) is based on how much money is in your retirement accounts and your life expectancy. Work with your advisor to make sure you’re taking out enough money each year, or you’ll get slapped with a penalty.

4. Social Security Options

You can apply for Social Security benefits at any point from age 62 to 70 (full retirement age for most people is 66 or 67). Your benefit will be higher the longer you wait to file.

For example, if you start taking Social Security at age 62, you could have your benefits reduced by about 30%.(1) At age 70, though, your benefit would be 124% of their full benefit amount.(2) You get rewarded for delaying payment.

How much you receive in Social Security benefits is based on a complex formula that the best minds at NASA don’t even understand. But the maximum amount in 2018 is $2,788 per month or $33,456 a year—and that’s if you were making the big bucks. Most people get around $1,400 each month.(3) So what you receive from Social Security is the icing on the cake, not the cake. Don’t ever make it the foundation of your retirement fund.

Believe me, meeting with an advisor will give you peace of mind. And they’ll be a trusted team member to make the most of those retirement years you’ve been waiting for! If you need to get serious about investing but don’t have an advisor, let me offer our SmartVestor program. Enter some basic information and you’ll get a list of financial advisors in your area who are ready to work with you to reach your goals.

Sign Up for Medicare—Even If You’re Still Working

One big picture of your health care in retirement is Medicare. And you should take advantage of it. You paid into it for decades, after all! But you can only sign up for Medicare during certain times—generally around your sixty-fifth birthday—so before that happens, find out when you need to enroll.

Now, you can keep your current workplace insurance until you retire, but once you do retire, you have eight months to enroll in Medicare without penalty.(4) If you sign up for Medicare while you’re still working (which you have the option to do), Medicare will become either the primary or secondary insurance, depending on how big your employer is.(5)

Medicare is divided up into “Parts.” Part A covers hospital stays and Part B covers doctors and outpatient needs. Part D relates to prescription drugs.

Part C (also called Medicare Advantage) offers plans through private insurance companies that have been approved by Medicare. In effect, Part C provides what Part A and Part B would cover (and sometimes Part D). The benefit of Part C is extra coverage, such as vision, hearing and dental. The drawback is possible higher out-of-pocket costs.

There are a lot of rules around Medicare—and exceptions to those rules—so you need make sure you understand your responsibilities. And before you enroll, do your homework to decide which part of Medicare you want to sign up for. Your health care is too important to leave to a last-minute decision.

Knowing how to retire is just as important as when you retire. Completing these tasks will save you a lot of heartache—and potentially a lot of money. Play it smart, do your homework, and take the steps to put yourself in the best position as you enter these years. After all, you want to live the retirement of your dreams!

How to Retire: Step-by-Step

If you need to kick-start your wealth building, preorder my new book Everyday Millionaires: How Ordinary People Built Extraordinary Wealth—And How You Can Too. We surveyed 10,000 millionaires and found out the habits and traits that led to their success. The good news is, you can follow in their footsteps!

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