Retirement might be right around the corner or years away, but that doesn’t mean it’s too early to begin thinking about it. Preparing for retirement means more than replacing your paycheck — it requires adjusting your lifestyle, taxes, and spending habits.
Anticipating these financial and personal shifts now may help you prepare for a more informed and comfortable transition into retirement.
Key Takeaways
• Estimate your target retirement budget
• Explore what debts and home expenses to consider
• Review liquidity and whether you have enough liquid assets for a few years of expenses
• Evaluate your portfolio and the risk your investments might pose
• Map a dynamic spending plan for long-term income sustainability
1. Do you have a budget or know what to spend each month?
To determine your retirement readiness, you should assess your current lifestyle and how it might fit into a post-career budget.
First begin with your baseline expenses – housing, healthcare, insurance, and utilities, as well as spending – dining out, shopping, and hobbies. Be sure to factor in vehicle expenses and how much that might cost you every few years.
Then consider how your expenses might change post-retirement. You might spend less on commuting, payroll taxes, and retirement contributions, but more on healthcare, leisure expenses, and bills.
Finally, create a tracking system that works for you. Whether it’s using a budgeting software or monthly spreadsheet, ensure you’re tracking your budget and spending to plan ahead.
At Midwest Capital Advisors, our team works with clients to develop personalized financial strategies designed to help them pursue their long-term financial goals. Whether we are analyzing your monthly spending or fine-tuning your plan to sustain your lifestyle, we are here to support you.
2. Are there any large ticket items like home expenses, travel, or debt that need to be paid off?
Before retirement, it’s important to review any large debt or expenses that might impact your savings and investments.
Start with eliminating any debt you can. Prioritize paying off high-interest debt and paying on your mortgage to drop the monthly payment.
Take a look at the assets and items around you. For things like your vehicle, roof, HVAC system, and major appliances, audit the lifespan on each and budget any replacements or repairs that might occur after retirement.
If you plan to frequently travel in the first decade of your retirement, ensure these costs are separate from your overall budget.
3. Liquidity: Do you have a sufficient amount of expenses in liquid assets?
Maintaining liquid assets for two to three years’ worth of living expenses might help provide flexibility in managing future market volatility. These can live in high-yield savings accounts, short-term CDs, or money market funds.
4. Portfolio risk: Have you assessed the level of risk in your investments?
While an aggressive growth portfolio might have worked for years of wealth accumulation, it might not be the best option post-retirement. It’s important to evaluate your portfolio and the risk it might pose.
To assess the risk, see how your current portfolio would handle a 30% drop in equities. If the drop would delay your retirement or cause severe emotional distress, your risk exposure might be too high.
5. Do you have a spending plan that details where income comes from and how that income affects taxes?
Having a set budget isn’t the only concern when entering retirement, taxes are too. How you withdraw money is important, as different accounts face different tax treatments.
Before retiring, map out your assets across pre-tax, post-tax, and taxable accounts. This means your traditional 401(k), Roth 401(k), Roth IRA, IRA, and standard brokerage accounts.
It’s crucial to keep watch on your Modified Adjusted Gross Income (MAGI), as crossing certain thresholds can trigger high Medicare premiums (IRMAA) and cause a larger percentage of your Social Security benefits to become taxable.
Start Planning Today
At the end of the day, preparing for retirement is about so much more than just a savings number — it is about building a roadmap for your peace of mind. By taking the time now to understand your future budget, clear away heavy debt, and set aside a comfortable cash cushion, you are protecting your future self. Balancing your investments and planning your withdrawals around taxes will allow you to enjoy your hard-earned freedom without worry. Whether you are retiring next month or in ten years, focusing on these steps today ensures you can step into your next chapter with total confidence.
If you need assistance planning your retirement, our team at Midwest Capital Advisors is here to help.
Contact us to get started.
FAQs
• What kind of post-retirement budget should I have?
Your budget should include housing, healthcare, insurance, and utilities, as well as spending. It should also consider how expenses change after retirement, some like commuting might go down but others like healthcare, leisure costs, and bills could increase. To organize your spending, it’s helpful to use a budgeting software or a tracking spreadsheet.
• What large expenses and debt should I prioritize before retirement?
Focus on paying off any high-interest debt and your mortgage to lower the monthly payment. Review large appliances and items in your home that might need repairs or replacements in the future, and consider budgeting for those. For travel in the first decade of retirement, ensure those expenses are kept separate from your overall budget.
• How much liquidity should I have before I retire?
Aim for two to three years of liquid assets to cover living expenses. These can live in high-yield savings accounts, short-term CDs, or money market funds.
• What portfolio risks should I consider before retirement?
A switch from pure growth to a mix of growth and steady income might be the best move to minimize the risk of your portfolio. To measure your portfolio’s risk, see how it would handle a 30% drop in equities. If the drop delays your retirement or causes severe emotional distress, your risk exposure might be too high.
• What should my retirement spending plan look like?
A spending plan should include all projected expenses as well as a map of all your assets. These assets should include your pre-tax, post-tax, and taxable accounts, like your traditional 401(k), Roth 401(k), Roth IRA, IRA, and standard brokerage accounts.
This content is intended to be educational in nature and is not intended to be taken as a recommendation.
The subject matter in this communication is educational only and provided with the understanding that Midwest Capital Advisors is not rendering legal, accounting, investment, or tax advice. You should consult with appropriate counsel, financial professionals, and other advisors on all matters pertaining to legal, tax, investment, or accounting obligations and requirements.
Emma Dale is the Marketing and Communications Associate at Midwest Capital Advisors.