Step 2: Clarify Goals

You’re never too young to start a bucket list. That’s because some things (such as bungee jumping) you probably want to knock out in your twenties. Women may want to have children before their forties – that sort of thing. A bucket list is comprised of all the things you want to do before you “kick the bucket.” It should be a running list that you add to and check off throughout your lifetime.

If you haven’t started a bucket list yet, a good time to do this is during your pre-retirement planning. It might be better to complete some items, such as expensive travel or home renovations, while you’re still working. That way, you can pay for them with your current income rather than take on debt or withdraw excess funds during retirement.

Another reason to develop your bucket list with your pre-retirement plan is to give life after work a greater purpose. Many people don’t think past the joy of simply not having to get up every morning and go to work. For some, the appeal of retirement is to no longer have to deal with exhausting corporate politics. However, if these are the only reasons you’re looking forward to retirement, they will not likely be as fulfilling a couple of years into it.

In fact, many retirees find they miss both the structure of the workday as well as the responsibilities and intellectual stimulation of a job. If you don’t establish additional and specific goals for your retirement years, you may end up bored, watching television most of the day, short on social stimulation, and wondering where the years went.

Some common goals set by retirees include:

• Volunteering
• Home renovation/redecoration
• Gardening
• Reading/book club
• Babysitting/spending time with grandchildren
• Traveling
• Writing a book/memoir
• Learning another language
• Painting/arts & crafts
• Learning to play an instrument
• Carpentry
• Regular socializing with friends/game night
• Culture (theatre, symphony)
• Regular exercise routine
• Mentoring
• Taking classes

Aim For Local

Not everyone wants to see springtime in Paris, so recognize that your bucket list is unique to you. If you’re running low on bucket list items, think locally and personally. For example, there might be places nearby you haven’t visited in years (or ever), such as a museum, art gallery, zoo, symphony, or opera. Even if you do attend regularly, consider taking your grandchildren with you during retirement to expose them to your passions and develop memories they will hold onto for life.

As you develop your bucket list, think about how activities could achieve additional goals, such as fitness and socialization. Some of the risks of growing older are increased health problems and potential isolation – particularly if you lose a partner or outlive your friends. Constantly expand your social network to include younger folks, particularly neighbors. Helping them out with occasional babysitting or taking care of pets while they are out of town help “pay it forward” for those elder years when you could use a bit of help yourself.

Achieving a successful retirement is all about good planning and preparation. You want to have money to enjoy your life, good health to keep staying active, and friends and loved ones to spend time with. These are the core elements that contribute to a long life, so start planning today by developing goals and seeing them through.

Step 1: Develop a Budget

Once you are truly good and retired – no phase-out, no gig jobs, no income-earning hobbies – most people end up living on a “fixed income.” While that income may fluctuate somewhat based on cost-of-living increases and investment gains, those increases may be few and far between. What you really need to work on before you retire is a “fixed budget.”

A fixed budget is a line-item record of your living expenses, from housing and insurance to food and utilities to transportation and healthcare. Bear in mind that those are not exactly “fixed expenses” either. Seasonal changes and inflation can swell prices on household goods and insurance rates, while higher interest rates impact auto purchases and credit card debt. These are all factors a pre-retiree needs to consider when developing a post-retirement budget.

Retirement Income

However, the first step in developing a budget isn’t to add up your expenses, it’s to figure out how much money your retirement income sources will provide. Many folks pull from three basic sources of retirement income: Social Security, a pension, and personal savings – comprised of savings accounts, employer-sponsored retirement plans, and an investment portfolio. Bear in mind that with a few exceptions (e.g., savings accounts, Roth IRA), you’ll need to factor in paying taxes on distributions from these accounts during retirement. Add up how much post-tax income you will likely receive each month/year in retirement.

Retirement Budget

Depending on your retirement goals, you may need less or even more income than you earned while still working. One way to break down anticipated retirement expenses is to categorize them as essential (e.g., food, housing, transportation) and discretionary expenses (e.g., travel, entertainment). Calculate a monthly total with considerations for other outlying expenses, like paying for auto or home insurance and property taxes once a year to take advantage of discount savings.

Also factor in periodic expenses for home and auto maintenance. In addition to your monthly budget, consider how much you should retain in a liquid savings account for emergencies, such as the deductible for a major auto repair to replace the roof on your home or the occasional big-ticket appliance.

Reconcile Income with Expenses

Next, compare the total of your income sources with your total budgetary needs. Bear in mind that if your income comes up short, you have a few options. You can create a plan to reduce your essential expenses, perhaps by selling your home and moving into a smaller, cheaper-to-maintain home. You may want to take another look at your discretionary expenses and decide to cut out country club fees or travel abroad. It is possible to enjoy retirement while playing golf or tennis at public facilities and vacationing at the extraordinary locations that America has to offer.

One retirement strategy is to ensure that all of your essential living expenses in retirement will be covered by guaranteed income sources, such as Social Security, an employer pension, and an annuity. For discretionary expenses, plan to pay for them via an allocation of your retirement assets to other investments that are not guaranteed, but offer growth potential. In fact, you may be more inclined to invest these other retirement assets more aggressively when confident that your essentials are covered through guaranteed income sources.

Income Strategies

One of the more common ways retirees draw income is to simply spend down their assets. This basically means withdrawing however much you need each month above and beyond what you receive in Social Security and pension benefits. Bear in mind that if the amount you withdraw each year is too high, you risk running out of money in the later stages of retirement.

Some investors cap how much they withdraw each year at about 3 percent to 5 percent and adjust their budget to meet this limit. In doing so, they can ensure the rest of their investment portfolio has the opportunity to continue growing. To keep up with annual increases in the cost of living, you may want to allocate an equity component in your portfolio to allow for income growth opportunities throughout retirement. However, be aware that stocks can have down years, so that 3 percent to 5 percent distribution might deliver less income when the market is volatile.

You also may consider ways to increase your retirement income. Developing a retirement plan a decade or so before you actually retire will give you time to max out your annual retirement account contributions and perhaps even create some form of passive income to help supplement retirement expenses. Many pre-retirees plan ahead by creating passive income sources, such as rental property or royalty payments on writing, music, or a patent on intellectual property.

The Social Security Caveat

Currently, the trust fund that supplements Social Security benefits is projected to fund 100 percent of total scheduled benefits until 2033. Thereafter, the fund will be able to supplement only 79 percent of scheduled benefits. The upcoming election is important for a lot of reasons, but what is currently under the radar is the need to reform how benefits are funded. The options include reducing benefits, increasing the retirement age, allowing people to invest their account funds privately, and increasing or removing the Social Security tax cap on individual wages ($168,600 in 2024).

Because the direction of Social Security reform is unknown, pre-retirees need to work harder to create their own income sources. While the federal government has the authority to make changes to shore up Social Security solvency, individuals, by contrast, have less flexibility to plug holes in their retirement income plans.