Retiring soon? Our 6-step checklist if you're getting ready to retire

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As Americans live longer and healthier lives, they’re redefining what it means to be retired.

If you think you might start a new career, launch a business, or volunteer, you’re not alone. Those are some of the things baby boomers see themselves doing as they head into retirement, according to American Funds’ Wisdom of Experience survey.1

Before you enter this next phase, it’s important to make sure you’re emotionally and financially prepared. If you expect to retire within the next five years, consider following this pre-retirement checklist.

1. Step back and daydream

Think about the kind of life you want down the road. Do you see yourself living near your children? Do you want to go back to school? Is travel a priority? In short, what will keep you mentally and physically engaged for the next 20 or even 30 years? 

These aren’t such simple questions. You’re going to have a lot of time to fill, so it pays to give it some serious thought and start writing down ideas.

2. Run the numbers

Once you have your goals figured out, map out your projected retirement budget.

Start by listing your basic living expenses, like housing costs, insurance and taxes. Factor in any additional costs that could crop up over time, like potential long-term care expenses. Finally, add in discretionary spending, the fun or personally rewarding things you want to pursue to enrich your retirement years.

Remember, some of your current expenditures, such as the annual amounts you’ve been setting aside for your retirement, or commuting costs, might go down in retirement. Other expenses, like travel and entertainment, could go up.

With your projected budget mapped out, it’s time to see whether your assets and estimated retirement income will be enough to cover your anticipated costs. Make sure to account for the effect inflation will have on the future purchasing power of your retirement savings.

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Many experts recommend this quick rule of thumb: Figure that you’ll need about 70% to 85% of your pre-retirement income to maintain your current lifestyle in retirement. Social Security typically replaces about 40% of the average person’s income.2

If it looks like your nest egg may not be big enough to cover all your costs, you might want to adjust your financial plan, whether that means working longer or delaying your Social Security benefits.

3. Save more

Unfortunately, statistics show that many workers simply haven’t saved up enough for retirement. In a recent Gallup poll, not having enough money for retirement was the top listed concern for Americans.3

To help boost your retirement savings, people over the age of 50 can take advantage of catch-up contribution rules that let them save more in retirement accounts with tax advantages, like 401(k)s and IRAs. Visit the IRS website to learn more.

Another idea is to cut your household spending by, say, 10% and put those dollars into savings. This may help you practice living on less by saving more.

To help boost your retirement savings, people over the age of 50 can take advantage of catch-up contribution rules that let them save more in retirement accounts with tax advantages, like 401(k)s and IRAs.

4. Review your mix of investments

The mix of assets you have today may no longer be what you want as you head towards retirement.

When you’re retired, that nice steady paycheck will be gone, and you’ll be living off your savings. That means you’ll likely want to adjust your mix of investments to lower the overall risk in your portfolio and try to avoid big losses. To help preserve your savings, consider moving some money out of stock funds and into bond funds and cash equivalents.

While the opportunities for growth in your portfolio could be lowered, you might sleep better knowing your retirement dollars are in more stable investments.

5. Weigh your Social Security options

A key decision everyone has to make as he or she approaches retirement is when to claim Social Security benefits.

You can start drawing your retirement benefits at any point from age 62 up to age 70; the longer you wait the larger your monthly benefit check.

Helpful tools can be found on the Social Security Administration’s website, Visit the site to get a detailed comparison of your retirement benefits at various retirement ages.

6. Designate and update your beneficiaries

Look to specify exactly who should inherit the money in your investment accounts, including 401(k), IRA, and brokerage accounts. If there is no named beneficiary, your assets may default to your spouse or to your estate.

In addition to putting this on your pre-retirement checklist, it's a good idea to double-check your beneficiaries periodically, or at any time you or your family has a major life change such as the birth of a child, the death of a named beneficiary, marriage, or divorce.

The bottom line: You want to make the most of your retirement years. Planning ahead could help you enter your next phase with optimism, confidence and peace of mind.

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What to read next...

Social Security benefits are a key source of income for many Americans living in retirement. They provide a reliable amount of money every month that can increase with cost of living adjustments, and the benefits aren't directly affected by the ups and downs of the stock market.

Figuring out how much income you’ll need in retirement is a key step in creating a plan for retirement. You can start by analyzing what you’re likely to spend money on, including health care costs, as well as factoring in the effects of inflation.

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