How to Prepare Your Finances for Retirement


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Written by: Guest | Best Company Editorial Team

Last Updated: February 24th, 2020

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Getting ready for retirement isn't exactly an overnight event. It requires the foresight to start preparing as soon as possible, the development of a sound strategy, and the dedication to consistently contribute to your financial goal. Whether you want to take a well-deserved hiatus or pursue your dreams of traveling the world, we're sharing the industry's best approaches to help prepare for a financially stable, stress-free retirement.

Know your income and assets

Before you can develop a plan or set goals to guide you into retirement, you need to have a complete and thorough understanding of your current financial status. To do this, compile a list of all your assets, including your 401k, IRAs, individual stocks, bonds, and investments. Also consider any debts or loans in your name. Then, determine how much income will be coming in during retirement, factoring Social Security, pensions, annuities, etc. Together, these numbers should give you some sense of where you are and what retirement might look like.

You can also use a 401k calculator to give you an estimate of the amount you'll have in retirement if you continue at your current financial pace. You can also use it to calculate how much more money you'll need to save if you want to improve your retirement fund and live more comfortably. 

Start downsizing your living expenses

Scaling back on extraneous daily or monthly living costs might sound like a challenge, but the concept is pretty simple: the more you can reduce spending now, the more you can save for later. Plus, this approach is great practice for sustaining a fixed income once your retirement package kicks in. When you start downsizing before you need to, you have the flexibility to adjust your budget to accommodate your wants and needs post-retirement.

To cut down on costs, collect and thoroughly review the last three to six months of your credit and debit card statements. Our favorite approach is to load all applicable statements into an Excel file, categorize your expenses, and add up the totals to determine where your expenses are extraneous or disproportionate. Think about where you can cut costs. Consider bargain buying on groceries, canceling subscriptions you rarely use, and reviewing your insurance policies, service bills, and energy costs. Your future (retired) self will thank you for anything you can do now to lower your fixed overhead.

Pay off debts as soon as possible

While saving money is vital to achieving your retirement goals, you can’t get there without addressing any debt you might have. The more you can pay off now, the less you’ll have to worry about in retirement. Assess what you owe, how long it will take you to clear your debts based on your current payment contributions, and make a plan to pay off your debts by the time you retire. On any month that you have extra expendable income, use it to up-pay your monthly credit card, student or car loan, or mortgage payments so you can reduce long-term accumulated interest and enter retirement without any heavy financial burdens.

Evaluate your credit status

While many might think that a credit score is only important when applying for a new loan, be conscientious that your credit score and financial health determines your interest rates in retirement. If you still have loans in retirement, a healthy credit score can help you refinance when interest rates lower. Insurance premiums factor in your creditworthiness, as do potential post-retirement employers. Use free tools like’s free credit score report card to evaluate your current standing. Any adjustments you can make in the coming years to improve your finances will benefit you as you enter your retirement.

Decide how much you’ll work

Unless you’ve stocked up on a large life savings, many retirees decide to stay in the workforce in some capacity to supplement their living expenses. As you plan your retired life, take into account how much you’ll need to work. Your post-retirement work should align with your hobbies and interests, and should keep you occupied in your next chapter. As you’re income-planning, research potential jobs, wage or salary rates, and think about how many hours per week you’d want to work to reach your desired retirement lifestyle goals.

Consider your health care

Health care is one of your largest expenses in retirement. Fidelity Investments estimates that a 65-year-old couple who retired in 2018 would need $280,000 of their own savings to handle 20 years of out-of-pocket retirement health costs. Set reminders to sign up for Medicare during your seven month initiation period, which begins three months before you turn 65. Research and evaluate all your options, get complete health checks to determine your potential risk, and find the best coverage plan that fits your budget. Consider copay and premium costs or investigate if you can stay on your still-working spouse’s sponsored insurance.

For most retirees, Medicare doesn’t cover everything, but rather somewhere around 50-60 percent of your total medical expenses. Look into long-term care coverage plans to protect you and your spouse from debilitating illness later in life, and use a Medigap or private supplemental insurance to help cover copayments, coinsurance, deductibles, and more.

Think about getting a medical alert device

Part of having a safe retirement with a secure income is making sure you are doing everything in your power to remain physically safe as well. Many retirees are alone for long periods of time and experience a fall or another emergency with no way to call for help. This puts a stress on your body as well as your finances, especially if you are left with costly medical bills from the incident.

Having a medical alert device ensures you can live out your retirement with confidence that you can call for immediate help if an emergency occurs. Medical alert devices also give you more independence to go about your daily retired life without having to worry about your safety.

Set a timeline

As you approach retirement, you have big decisions to make: when to stop working, when to take social security, when to draw down retirement accounts, how to generate cash flow, and the list goes on. Creating a timeline might feel overwhelming, but it will save you a ton of stress when you’re finally ready to retire.

In some cases, withdrawing from your retirement account after you retire, but before you sign up for Social Security, might allow you to pay a lower tax rate on retirement account distributions and help you remain in a lower tax bracket. With Social Security benefits, the longer you wait until age 70, the more you can collect — but this assumes you’ll have the years to spend it. Take note that withdrawals from traditional retirement accounts are required after age 70. Weigh out potential alternatives with the interconnected retirement factors to set a loose timeline.

Create a cash reserve safety net

Build a retirement savings that accounts for emergencies or financial setbacks. If something happens regarding your job loss, employment, or otherwise, it’s important to have a cash reserve to tap into. Financial advisors typically recommend your savings should match about three to six months of expenses. If you’re the sole provider, consider saving up to nine months. To determine how much you should set aside for your emergency fund, think about factors such as how difficult it would be to replace your existing pre-retirement income (in the event of premature job loss), costs of common potential costs like home improvements or car accidents, and weigh the value of your liquid assets.

Stick to your plan

Among your other preparations, this step is most critical. As you determine the right action plan and start to adjust your lifestyle, slowly ease yourself into your retirement to effectively adjust your habits. Remember that you’re not alone and maintain a future-orientation — as these are measures that millions of Americans must take to ensure their golden years are happy, healthy, and stress-free.

The Top Medical Alert Systems Companies

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#1 Medical Guardian chevron_right
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#2 MobileHelp chevron_right
9.3 Overall Score
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#3 LifeStation chevron_right
8.3 Overall Score

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