Retirement provides a chance to enjoy the fruits of one’s labor. However, a pleasurable retirement requires proactive and thorough planning. With this in mind, we’re going to go through five questions everyone should ask as they approach the end of their life as a working stiff (full time, that is). Answering these questions for yourself should help guide your ongoing retirement plans.

Key Takeaways

  • You should calculate the amount of money you will need to achieve your goals.
  • If you live in a major urban area, you should consider moving to a less expensive place.
  • Your house may be your most valuable asset, so selling it and downsizing your living arrangements could make sense.
  • You should make an estate plan, so that you have peace of mind during retirement that your heirs—and you yourself, if needed—will be properly looked after.

1. Retirement: What’s the Grand Plan?

Some people dream of buying a boat when they retire, while others are content spending their days on the golf course. Still others want to travel the world. Before you get too far ahead of yourself in thinking about how you will save for retirement, you need a goal. Therefore, it’s crucial to first decide what you’ll want to do in retirement. Once you know what your dream is, then you can begin making it happen.

For example, if your dream is to wake up in the morning and play golf all day, it makes sense to determine what it entails to join a club (some require substantial up-front fees) and whether the area you live in—or want to live in—has adequate courses.

Similarly, if your dream is to travel the world, you are going to want to live in close proximity to an airport (or seaport if you prefer to cruise). You’ll also want to make sure that there are no other obstacles that will affect your plans. By deciding what your dream life after retirement would look like, you can shape the rest of your plans to make it work.

You can’t plan a retirement without knowing what you want to do in it.

2. Do I Have the Cash?

It’s great to have goals, dreams, and ambitions, but, frankly, they don’t mean a thing if you lack the financial means to fulfill them. Rather than living on hope, it’s best to do some soul-searching to determine what your future expenses will be and whether you will have enough money to live comfortably and actually enjoy your retirement years.

Financial planners have been arguing for decades over how much money the average person or couple needs upon retirement. Some say that in order to maintain your lifestyle, you’ll need 60% to 80% of your preretirement income annually. However, many of those estimates are just that—estimates.

The point is that if your goal is to travel the world upon retirement, do some research. Figure out how much it will cost, and then make sure that you’ll have enough money to live your dreams (and pay your bills) for the rest of your life. It’s possible that you may need to change your dreams or cut back on your expenses in other areas to make it work.

3. Should I Move?

When people are young and employed they tend to live in more urban areas. However, it is often prohibitively expensive for seniors to live in, or on the outskirts of, major cities. Therefore, people who are expecting to retire within the next few years should consider making a move to a more affordable location. There are many choices out there, but how do you evaluate all of the possibilities?

There are a number of factors that should be considered when picking a new place to live. For example:

  • Proximity to family members
  • The cost of housing (and owning versus renting)
  • Access to healthcare facilities
  • Access to entertainment (such as shows and sporting events)
  • Proximity to a major airport
  • Year-round weather conditions
  • Taxes (state income, property, and estate taxes)

It is almost impossible to find a location that fits every need. Therefore, the best strategy is to settle on an area that meets the bulk of your needs, particularly those related to long-term health and well-being. For example, although cold weather might not bother you now, when you are 85 it could have a debilitating effect on your body or your ability to keep active for some part of the year. If you think this will be the case for you, perhaps you might want to consider joining the flock and moving to a warmer climate, even if it doesn’t address some of the other factors mentioned above.

4. Should I Sell My Home?

Most retirement planners focus on the individual’s investment portfolio. The portfolio is important, but it’s often not the average person’s most valuable asset or largest potential source of liquidity. The bulk of many people's wealth is tied up in their homes. As people approach retirement age, they should consider selling their residences, particularly if the mortgage has been satisfied and the property has increased significantly in value.

Why sell? First of all, you’ll generally need less space, and a smaller home is easier to maintain. However, that’s not the primary reason. The main reason to sell is to gain liquidity and make sure that you have enough cash to live on and establish an emergency fund. After all, what good does sitting on a $1 million home do if you don’t have the money to buy adequate health insurance or do the things you enjoy?

Ideally, people approaching retirement should try to “game” the real estate market. That is, they should try to figure out if it makes sense to sell the family home now and rent a home for a couple of years until retiring, or if it makes better sense to hold onto the home until the date they actually bid the workplace adieu. The decision can be crucial. Just think about what happened to those who waited to sell their homes until after the housing bubble burst in 2008.

So what is the best way to go about gaming the market? Very simply, pay close attention to trends in your region by reading the local newspapers, perusing neighborhoods for open houses, and inquiring with a local real estate agent as to whether home prices are rising or declining.

Here’s an example. Suppose that you are 10 years from retirement and the real estate market is currently running hot.

  • You secure an extra $100,000 from the sale of your home, thanks to favorable market timing.
  • You then invest that money in a vehicle that yields an 8% return per year.
  • Over a 10-year period it will grow into more than $215,000. That is a lot of money!
  • Before you get too excited, remember you’ll also need to subtract the cost of renting an apartment for those 10 years.
  • Let’s say your new rent is $1,000 per month (not cheap but certainly nothing extravagant). Over a 10-year span this will add up to $120,000.
  • Now do the math: $215,000 - $120,000 = $95,000. That’s still a considerable net gain from selling into a hot market.

5. Have I Made an Estate Plan?

In order to ensure that your assets are properly transferred to your heirs—and in order to minimize estate taxes—it makes sense to do some estate planning. As unpleasant (and dull) as the thought might be, it’s important to sit down with your attorney and accountant to determine the most cost-effective way for your estate to get delivered to beneficiaries upon your death.

For starters, you need a will. But that might be just the beginning. The best approach might also entail setting up a trust and/or custodial accounts for children or grandchildren.

It is important to consider estate planning now, because there is a three-year “look back” with regard to assets previously removed from your estate. In other words, if you have a trust buy a life insurance policy on your life and then you die within a three-year period after the contract was signed, the amount of the insurance could be included in your estate for estate tax purposes. Advanced planning is the key to estate planning and, if you think about it, your overall happiness in retirement.

6. Do I Have a Personal Plan—And Needed Documents?

Also take some time to plan for your own care—and that of your spouse, if you're married—as you get closer to the risks of advanced age. Set up healthcare proxies, powers of attorney and other documents well before you need them, when you can thoughtfully consider your needs and preferences.

Don't leave these crucial decisions until there is an emergency when your energy and abilities may be compromised. Others could end up make choices that would not have been your preferences. Get there first and arrange your own life.

The Bottom Line

If you are in the home stretch, don’t hold back now. Retirement planning can be overwhelming at first, but if you can answer these five questions, you’ll be well on your way to generating a solid retirement plan, and you’ll be happy you did.