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10 Steps to Take as You Get Ready to Retire

By Donna Fuscaldo, AARP, December 2022

Start planning now for the lifestyle you want and what you’ll need financially to get there.

A happy and fulfilling retirement means different things to different people.

For you, it may mean transitioning from a full-time career into meaningful part-time work. Or perhaps you envision yourself spending more time with family, starting a garden or making regular visits to the golf course.

Once you determine what will give you peace of mind in retirement, it’s important to know how you can get there financially. We’ll help you get started with some simple steps.

Step 1: Define your retirement

You probably have some idea of how you’d like to spend retirement. Here’s where you write your objectives down, listing the most important goals first.

For now, don’t focus on budget — focus on ideas, and be as specific as you can. For example, instead of “travel,” list things like “trips to the lake” or “walking tours abroad.” Instead of “stay involved in my community,” write down “volunteer with kids one day a week.”

Try to limit the list to five top goals. Keep a scrapbook or start a journal detailing how you envision your retirement. Be practical: Make sure all your financial needs are met as you brainstorm and rule out unnecessary expenses. The more descriptive you are, the more tangible your retirement will be. This will help keep you focused on a realistic set of goals, which will make each of them more attainable.

If your goals are still general or vague, that’s OK, too. You can simply start by outlining how you envision enjoying your retirement.

Step 2: Take stock of your ‘assets’

You know how much you bring home each month, how much you have in the bank and how much you have in your retirement account. But what about nontraditional assets that could help fund your retirement? Maybe you collect antiques or restore cars. Perhaps you’re an accomplished pianist or have a half-written novel you want to finish.

Many hobbies and skills can be turned into real income in your retirement years — trading antiques or giving piano lessons, for example. Take the time to list your passions and nontraditional assets, and start thinking about how you can morph those skills and hobbies into moneymaking endeavors.

Step 3: Evaluate your health — now

To get the most out of your retirement — and life in general — you want to be as healthy as possible. A little preventive medical attention can go a long way.

Schedule your checkups and preventive exams now, from an annual physical to teeth cleaning. At each appointment, work with your provider on a plan to improve or maintain your health. Commit (or recommit) to eating healthy, exercising and getting enough sleep.

Healthy living doesn’t have to be a chore. Many healthy foods are delicious and satisfying, and exercise can be fun. (Walk on the beach, anyone?) Commit to staying mentally sharp with brain games, puzzles and books.

Staying in close contact with family and friends will also help you maintain your health both physically and mentally and can aid in fighting off any blues that may arise once you are retired.

Step 4: Create a retirement budget

Your budget should include:

  • How much money is coming in.

  • How much it will cost to reach the goals you identified in step 1.

  • How much debt you have.

Start by tracking your income and expenses for a couple of months. Next, figure out how much money you’ll need to support your chosen lifestyle in retirement. (The AARP Retirement Calculator can help.)

You’ll also want to do a checkup on your investments (Is your portfolio diverse? Are you paying a ton in fees?) and make sure your budget accounts for paying down debt.

A general rule of thumb is you’ll need 80 percent of your working income in retirement to maintain your standard of living. Social Security is only intended to replace about 40 percent of the average retiree’s work earnings, so you’ll need to build income sources beyond your benefits. Think about ways you can drum up more money, such as getting a part-time job, selling some of your things or downsizing to a smaller home.

Keep in mind that the 80 percent threshold may not account for spending on extras like travel or hobbies, and that discretionary spending tends to be higher in the early years of retirement when you are more likely to be healthy and still raring to go.

Step 5: Determine when to start Social Security

For many older adults, this is the most important decision they’ll make about their retirement finances. About 1 in 3 Americans age 65 and older rely on Social Security for at least 75 percent of their income, according to a 2021 Social Security Administration study.

The age at which you choose to claim retirement benefits will have a direct impact on how much you’ll get each month. The longer you wait to start collecting Social Security (up to age 70), the bigger the benefit for you and your family.

How much bigger? You don’t qualify for 100 percent of the benefit calculated from your lifetime earnings history until you reach full retirement age (currently between 66 and 67, depending on year of birth). If you claim earlier — the minimum age is 62 — you get between 70 percent and 99 percent of your benefit amount.

If you can wait past full retirement age, you’ll be eligible for delayed retirement credits, which increase your benefit for each month until you reach age 70. Whether you are married, single, widowed or divorced, it usually pays to put off claiming.

Step 6: Decide if you want (or need) to work

People 65 and over are the fastest-growing age group in the labor force, according to the U.S. Bureau of Labor Statistics. For many older workers, it’s a classic cost-benefit equation: Unless you are financially set for life, you will have to either stretch limited money or stay in the workforce in some capacity to help pay for your retirement dreams.

So, as you work out your retirement goals, take into consideration whether, and how much, you’ll need to work.

Don’t wait until you retire to make the decision. Take time now to weigh pros and cons of continuing to work: Full-time, part-time or freelance? Stick with your career or try something new? The sooner you get comfortable with your choices and what they could mean financially, the more secure you will be in your retirement planning.

Step 7: Network through social media and other channels

You need to build and maintain your network even in retirement. Use opportunities, in person and online, to showcase your talents. It’s OK to brag about yourself to those who might help you fulfill your retirement dreams. The pandemic has made it much easier and more acceptable to network digitally. You might spend an hour a day on Twitter, LinkedIn or Facebook “conversing” with people who share your skills and interests or start a Zoom group to discuss ideas with other soon-to-be retirees. The more socially active you are, online and offline, the more opportunities you will likely create for yourself. As you network, be prepared to have clear, direct answers to questions like, “How can you use your talents and experience to contribute part-time to an organization or cause?”

Step 8: Find new ways to cut your expenses

Start saving now, whether your retirement is years away or right around the corner. It will always make you better prepared. That doesn’t mean all of your extra cash has to go into retirement accounts — but it’s never a bad time to cut your expenses and sock away some of the savings. List out your bills and look for ways to trim them. Maybe you don’t need to subscribe to four streaming services or eat out three nights a week. Even losing one movie night a month can bring you closer to your retirement goals. Don’t ignore your debt as a way to save more. Reducing debt now will mean less worry when you retire. One strategy that works for many people: Pay off your smallest debts first, regardless of interest rate. This gives you a sense of accomplishment and empowers you to go after the bigger debts, knowing you have the willpower to eliminate them.

Step 9: Plan for the unexpected

Few of us head into retirement expecting the worst. Who could have predicted a global pandemic that would bring a wave of early retirements and soaring inflation? But sometimes it happens. Prepare for the unexpected now and you won’t get caught off guard later. Take time to consider how you’d respond to, and pay for, everything from minor issues like a roof leak to serious ones like a grave illness. Discuss the big issues with those closest to you. How much would it cost to make major home repairs? What would you want or need done in case of a medical emergency? Do you have resources for caregiving? Next, take stock of your protection. Do you have enough homeowner’s insurance to cover a major calamity? Is your health insurance or long-term care insurance adequate? If your coverage is lacking, now is the time to increase it.

Step 10: Stick to the plan

We humans are creatures of habit and it’s common to revert to old ways even when seeking a new course. That can make sticking to your plan a challenge. But it’s definitely rewarding. Don’t be afraid to ask questions and seek advice, including from professionals. These days you don’t have to be a millionaire to work with a financial planner. They can help you stay the course when your emotions are telling you to run.

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