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Your Retirement-Readiness Checklist

Retirement Planning Checklist

Your Retirement-Readiness Checklist by Morningstar Investment Research

Here's a step-by-step guide to making sure your in-retirement financial plan is on track.

Whether you're putting together furniture from Ikea or planning a wedding, even the most daunting tasks are more manageable when you break them down into smaller pieces.

Crafting a financial plan for your retirement is no different. To be sure, retirement planning looks daunting from a few angles. Not only are you trying to create a plan despite some big unknowns--how long you'll live, how the markets will behave, and so on--but you're also likely to encounter a bewildering array of unfamiliar terminology, such as SWRs, RMDs, and SPIAs, to name but a few.

However, if you distill the process down into a series of tasks, crafting a sturdy retirement plan looks a lot more doable. For those who are starting to think about retirement and what their retirement plans should look like, we've created a checklist to help you make sure you're thinking through all of the important variables and tackling these tasks in a logical sequence. Each of the following tasks includes links to Morningstar.com articles that expound on these topics further.

Optimize Your Retirement Date

Not everyone gets to set their own retirement date: health issues or layoffs often force people out of the workforce earlier than they would consider ideal. But if you're able, it's worthwhile to optimize your retirement date based on factors such as the sustainability of your portfolio and your own quality-of-life considerations.

Assess Your In-Retirement Income Needs

One of the common rules of thumb for retirement planning is the 80% rule--that is, in retirement, you'll need to replace about 80% of your working income. But that's a blunt instrument, at best. Some frugal retirees spend a substantially smaller percentage of their working income, while other retirees spend just as much as they did while they were earning a paycheck. Because forecasting your anticipated income needs is such an important variable when crafting your retirement plan, make sure you right-size your number.

Quantify and Maximize Pension and Social Security Benefits

Guaranteed lifetime income is like gold in retirement: The more of your income you're able to replace with Social Security or a pension, the less you'll have to rely on your own portfolio to pay the bills. That means it's only wise to make sure you're getting the most out of any guaranteed income sources you have available to you.

Evaluate the Appropriateness of Annuities

Annuities can be another source of lifetime income, but they can also be devilishly complicated and, in some cases, quite costly. Before sinking a portion of your assets into an annuity, it's important to thoroughly understand what you're getting.

Determine Whether Your Planned Spending Rate Is Sustainable

Once you've determined your in-retirement income needs and how much of them will be covered by certain sources such as Social Security, the amount that's left over is going to have to be supplied by your portfolio. The annual dollar amount you plan to withdraw from your portfolio, divided by your portfolio's current value, is your withdrawal rate (or even better, your spending rate). It's crucial to make sure that your spending rate is sustainable as well as to revisit that rate periodically to make sure it's still viable.

Craft a Long-Term Portfolio Based on Your Anticipated Income Needs

Once you've determined your spending plan, the next step is to structure your portfolio to support it. Long gone are the days that retirees can subsist on the income from their cash and bonds; today's retirees also need the long-term growth potential from stocks. The bucket strategy for retirement income--essentially, segmenting your portfolio based on your anticipated income needs--can help you back into a sensible asset allocation.

Pay Attention to Tax Management

In addition to asset allocation and security selection, retirees also need to stay attuned to matters of tax management for their portfolios. That means taking required minimum distributions, or RMDs, from tax-sheltered accounts on time and maximizing the benefits of tax-sheltered wrappers, using strategies such as asset location and proper withdrawal sequencing. Such tax-management techniques can help you hold on to more of your portfolio's return.

Make Sure You're Adequately Insured

Even as investors are naturally attuned to growing their assets, it's also crucial to protect them. And the best way to do that is to make sure you're insured against unexpected--and potentially ruinous--expenses. Of course, nearly all of the coverage types that made sense while you were working--auto and homeowners insurance, for example--will still be necessary while you're retired. But Medicare adds a new wrinkle to health-care coverage for retirees. It's also worthwhile to consider other types of coverage, notably long-term care insurance, well before you're retired.

Attend to Your Estate, Portfolio Succession Plan

Another key aspect of retirement planning is to document your wishes in case you should die or become incapacitated. What do you want to happen to your financial assets? Who do you want to be able to make important financial and health-care decisions on your behalf? What instructions do you want to give your spouse or other loved ones about your portfolio? Retirees and pre-retirees should ask--and answer--all of these questions when they're of sound mind and body.

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