7 smart moves to prepare for retirement

About 40% of all U.S. households in which the head of household is between 35 and 64 years old are expected to run short of money in retirement, according to a 2019 report by the Employee Benefit Research Institute.

If that news is not alarming enough, remember we are also living longer than our ancestors. In 1940, the life expectancy of a 65-year-old was almost 14 years; today, it is just over 20 years.

To help you prepare for the transition into retirement, consider meeting with a financial advisor in advance of your target date to help you understand how retirement will impact your finances.

This analysis should be comprehensive, including a review of your assets, debts, and income sources. Additionally, you will want to analyze your insurance policies and estate planning documents. It’s a good idea to examine all your financial details before taking the final leap into retirement.

Identify goals, objectives

Identifying what you want is one of the keys to a successful retirement. Another key is understanding the long- and short-term financial impact of obtaining those goals. Retirement will be a time of transition with many details to consider. Should you purchase long-term care insurance? What are your options for Medicare? Will you be selling a home or business? How will the sale of an asset impact your taxes? Where are you planning to live? Will you be moving to a state with no or low-income tax but relatively high property taxes? What is your projected retirement income? Identifying what will change in your life as you move through your retirement—and how those changes will impact your finances–will help you align your financial plan with your life goals.

Establish a budget

A budget is a personal plan to manage your money. It provides the opportunity to identify and monitor your spending. Simple as it may be, it is the foundation to sound money management.

Budgeting begins with monitoring a specific period, such as a month. It requires that your income and all of your spending is tracked during this period. Budgeting records all fixed expenses, as well as the simple purchases we often forget, such as a quick bite to eat. At the end of a period, your budget provides a transparent snapshot of your income and where you spend your money.

Pay off debt

Ideally, you will have paid off all your debts—including your mortgage—before you retire. Taking on new debt in retirement can be a recipe for disaster, especially if you are living beyond your financial means. Spending more money than you have is a bright red flag and can have a detrimental effect on your retirement. To prevent this outcome, evaluate what you can do now and soon to eliminate and manage debt.

Save, save, save

How much will you need to save to transition to retirement without reducing your standard of living? Due to the inevitable volatility of the market, the best practice is to assess your investments every year and determine if your strategy is still appropriate to meet your future anticipated needs.

Conventional wisdom dictates that you should plan to withdraw 4% of your assets (adjusted annually for inflation) for roughly 30 years from a portfolio that is invested 60% in stocks and 40% in fixed income.

In reality, the amount you should withdraw will depend on many factors such as your age, net worth, portfolio allocation, and the current economic circumstances. Depending on your situation, the annual withdrawal rate could be lower than 4%.

Understand how inflation affects buying power

Inflation represents how much more expensive the relevant set of goods or services has become over a certain period, most commonly a year. It is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country. According to the U.S. Inflation Calculator, the annual inflation rate for 2021 was 7.0%—the highest since June 1982.

Inflation this year is over 8.0% higher than it was a year ago. To curb inflation, the Federal Government has raised the federal funds rate four times, and they may raise it again before the end of the year. Their objective is to reduce overall consumer demand to slow the economy. Consumers will eventually have less discretionary money to spend, due to the increased cost of mortgage loans, lines of credit, auto loans, and credit cards.

Another important piece to understand is that inflation affects the purchasing power of your cash. If your assets do not increase with inflation, your standard of living will eventually diminish due to the erosion of your purchasing power. That’s why it’s key to increase your assets over time.

Understand Social Security benefits

Even though the average Social Security income puts recipients well below the U.S. poverty line, many retirees rely on it as their primary source of income. Among elderly Social Security beneficiaries, about 45% of single adults and 21% of married couples rely on Social Security for 90% or more of their income. According to Social Security’s June 2021 beneficiary data, $1,555 is the average monthly benefit. That’s a yearly income of just $18,660 per year.

Before you sign up for Social Security benefits, make sure you understand the different options available. Taking an early retirement at age 62, full retirement at age 66 or 67, or delaying retirement until age 70 all have different outcomes. Your income will be higher the longer you delay receiving the benefit. In other words, the longer you wait, the higher your monthly income from Social Security. If you take early retirement at age 62, your benefits will be reduced by about 30% compared to waiting until full retirement age. If you delay taking your benefit and begin at age 70, it will be 24% to 32% higher than it would be at full retirement age.

Apply for Medicare

Medicare is the U.S. federal health insurance program for people aged 65 or older. The program helps with the cost of healthcare, but it does not cover all medical expenses or the cost of most long-term care. You have choices for how you get Medicare coverage. If you choose to have Original Medicare (Part A and Part B) coverage, you can buy a Medicare Supplement Insurance policy (Medigap) from a private insurance company or apply for Medicare Advantage.

If you are not receiving Social Security benefits, one to three months prior to your 65th birthday, you should complete the application for Medicare at If you are covered by a large group plan with 20 or more employees, you may need to enroll only in Part A and not Part B. If you do not enroll in Medicare Part B in the appropriate window, you will have to pay a penalty for as long as you have Part B insurance. Contact the Centers for Medicare & Medicaid Services at for more information.

In conclusion, before you retire, take the time to reflect on what you want and identify key question to address with your financial advisor so you can plan for a successful outcome. Being accountable, focused, and purposeful is the best you can do to prepare for retirement. Unfortunately, not planning for retirement or not living within your means can have negative consequences. The outcome may be downsizing, obtaining employment, or filing bankruptcy. Surely, this is not what you planned for nor dreamed about in retirement.

Your golden years should be a rewarding outcome for a lifetime of work. Be sure you have considered and implemented a solid plan for yours.

Teri Parker is a vice president for CAPTRUST Financial Advisors. She has practiced in the field of financial planning and investment management since 2000. Reach her via email at

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