How to Prepare Your Finances for Retirement in 7 Steps

Senior couple in cafe
Photo by Monkey Business Images / Shutterstock.com

After years of dreaming, it’s finally almost here: Sometime soon, you plan to retire.

Perhaps you intend to quit working a decade from now — or this summer. Either way, you still have time to get your finances in shape before beginning what could be the happiest period of your life.

Following are seven key steps to ready your nest egg for retirement.

1. Consider talking to a pro

During retirement, you must be extra careful to squeeze the most out of every dollar you have saved.

Withdraw the money too quickly — especially during a bear market — and it might not last the rest of your life. Foolishly make withdrawals without thinking about the tax implications, and you could end up wasting a lot of cash.

So, even if you have a DIY mind, it might make sense to sit down with a fee-only financial adviser and get some expert guidance.

One fast and free way to find a vetted fiduciary adviser — meaning a professional who will put your best interests before his or her own wallet — is by using a service like Wealthramp.

2. Establish a monthly budget

How much will life’s wants and needs cost you each month during retirement? It’s crucial to know. So, sit down and crunch the numbers.

Total up your bills — mortgage, insurance, gas money, groceries. Then, figure out how much you spend on discretionary items and having fun.

Lastly, add all those figures together so you have a realistic sense of how much money you need to survive and thrive.

If you need help budgeting or tracking your spending, consider a software program like YNAB, aka You Need a Budget.

3. Decide on a withdrawal amount

A common nugget of retirement advice is that if you withdraw 4% of your savings every year — and not more than that amount — from a well-diversified investment portfolio, you can do so without a significant risk that you will run out of money before you run out of life.

At a 4% withdrawal rate, a $500,000 nest egg will provide $20,000 in annual income, for example. A $1 million nest egg will double that to $40,000.

Is that enough money for you? If not, you might want to work longer to give your nest egg more time to grow.

But if the figure is close to what you need, Social Security benefits might get you over the hump. Retirement benefit payments averaged $1,471 per month in 2019, according to the Social Security Administration.

4. Figure out how to cut unnecessary costs

If you reach the unsettling conclusion that your income won’t be adequate to cover expenses, look for ways to trim costs.

Fortunately, a handful of important costs are likely to simply disappear during retirement. And if you are clever, you can think of plenty of other places to cut back.

Start by checking out “15 Painless Ways You Can Cut Costs in 2020.”

5. Weigh whether to dial down your risk

Most experts suggest reducing the risk associated with your portfolio once you reach retirement. A younger person still has paychecks coming in, and plenty of time to recover from stock market downturns. That’s not so true in your golden years.

Money Talks News founder Stacy Johnson has a standard formula that can serve as a solid guideline for determining the right portfolio mix. As he explains it in “5 Mistakes That Will Ruin Your Investment Returns“:

“Because the stock market is risky, it’s not the basket for all your eggs. Here’s the formula I’ve suggested countless times over the years: Start by subtracting your age from 100, then put no more than the resulting figure as a percentage of your long-term savings into stocks.”

However, he emphasizes that this is just a “rule of thumb” that may or may not be right for you. Once again, consulting with a financial adviser can help you figure out what makes sense for your situation.

6. Estimate health care costs

Many expenses fall during retirement. You might drive less and buy fewer clothes now that you don’t have a job. As you grow older, you are likely to stay at home more and consume less overall.

But one cost probably will grow: health care expenses. In fact, Fidelity Investments estimates that a man who retired in 2019 at age 65 would need $135,000 for health care expenses throughout retirement. A woman in the same situation would need $150,000, primarily because women tend to live longer than men.

One way to help pay for such expenses is to tap into a health savings account. This wonderful tool is one of the most tax-friendly vehicles for saving. If you already have a health savings account, keep contributing to it.

If you haven’t opened an HSA yet — and if you qualify — consider doing so and making it a crucial part of your nest egg.

For more on HSAs, check out “5 Reasons to Use a Health Savings Account as a Retirement Fund.”

If you decide an HSA is right for you, check out a platform like Lively, which seeks to simplify the process of managing your HSA.

7. Get rid of remaining debt

Carrying debts into retirement is a recipe for disaster. It’s probably OK to have mortgage debt, but every other type of obligation has the power to capsize your boat should seas turn stormy in either the overall economy or your own personal financial life.

So, pay down as many debts as you can before walking away from work. If you need help, stop by our Solutions Center and look for experts who can help you overcome obstacles such as credit card debt.

For a more DIY approach, check out “Resolutions 2020: Crush Your Debt in 3 Simple Steps.”

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
8 Things You Should Rent Instead of Buying
8 Things You Should Rent Instead of Buying

You may think you’re looking at a must-have purchase. But do the numbers and think twice.

9 Free Things That Used to Cost Us Money
9 Free Things That Used to Cost Us Money

Not everything is getting more expensive.

7 Ways to Save Even More at Dollar Stores
7 Ways to Save Even More at Dollar Stores

Yes, it’s possible to pay less than a buck for items from a dollar store. Here’s how.

15 of the Fastest-Growing Jobs Today
15 of the Fastest-Growing Jobs Today

Times are tough, but these career fields are thriving.

5 Ways Anyone Can Save on Out-of-Pocket Health Care Costs
5 Ways Anyone Can Save on Out-of-Pocket Health Care Costs

Here’s how to lower your health care costs without skimping on care.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
Social Security Checks Likely to Grow This Much in 2021
Social Security Checks Likely to Grow This Much in 2021

The federal government recently released a key statistic that gives clear insight into what next year’s COLA will be.

This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on both everyday and occasional purchases.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

7 Unusual Ways to Declutter Your Home
7 Unusual Ways to Declutter Your Home

Tired of possessions weighing you down? Here are seven ways to declutter painlessly and effectively.

This Is the Most Popular Age for Claiming Social Security
This Is the Most Popular Age for Claiming Social Security

Both men and women are most likely to start receiving Social Security benefits at this age.

6 Things You Should Never Buy at Trader Joe’s
6 Things You Should Never Buy at Trader Joe’s

We love Trader Joe’s for plenty of reasons. But think twice about this handful of products.

Don’t Toss These 7 Household Items — Sell Them
Don’t Toss These 7 Household Items — Sell Them

Here’s how to earn cash as you give new life to these unwanted items.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have these documents that are crucial to their golden years — especially during a pandemic.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

5 Awesome Places You Can Retire Overseas on $2,000 a Month or Less
5 Awesome Places You Can Retire Overseas on $2,000 a Month or Less

In this week’s podcast: tips on retiring overseas — from someone who’s been helping American expats for decades.

Eat This Food If You Want to Avoid Alzheimer’s Disease
Eat This Food If You Want to Avoid Alzheimer’s Disease

One type of food associated with the Mediterranean diet offers especially large benefits.

11 Expenses That Quietly Drain Your Wallet
11 Expenses That Quietly Drain Your Wallet

It’s scandalously easy to overspend in these areas of your life.

Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?
Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?

You could save more than $30,000 by setting aside these costly expenses for just one year.

10 Deep Discounts Available on Amazon This Friday
10 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

18 Amazon Purchases That We Are Loving Right Now
18 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

9 Dumb Ways You Are Ruining Your Home Value
9 Dumb Ways You Are Ruining Your Home Value

Homeowners, beware these mistakes that can drive away potential buyers.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.