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New Year’s resolutions are made to be broken. If there was an ETF tracking unused gym memberships and digital scales gathering dust, it would easily beat the S&P SPX, +0.01%.
Yet the new year is a good time to take stock of where you stand financially and otherwise. It was a great year for equities. But retirees and near-retirees can’t rest on their laurels; they need to be prepared for everything. So, here are three basic New Year’s resolutions you should try to keep.
Read: How to create steady retirement income
1. Do a retirement budget. Track your actual or projected spending in retirement. I’m not talking about an extensive budgeting exercise—that should be part of a full-blown financial plan. Just go through your credit card receipts and online check register and sketch out how much you are spending in retirement or expect to spend once you’re fully retired.
There are a lot of hypotheticals here. Depending on your family situation—whether you have children, how old they are, etc.— some expenses change dramatically in retirement, while others don’t. When will you finish paying for your kids’ college or grad school? When will the mortgage on your house or condo be paid off? Costs of work clothes and commuting will drop, but travel expenses may go up, especially if you have kids or grandchildren who live far away.
Your taxes may change, too, along with your income, but for this exercise there’s no need to get so granular. Just put some numbers down on the page to see roughly where you stand. Don’t forget to throw in medical expenses, because Medicare doesn’t cover everything your employer-sponsored plan may have.
Then, calculate your projected income. Start with your estimated Social Security benefits, which are on those paper statements the government sends you (if you still get them) or by opening an account at ssa.gov. Then, take 4% of your total traditional IRA or 401(k) assets to roughly figure out required minimum distributions (RMDs) and add in expected income from any annuities you’ve purchased. Throw in any other obvious income streams (if you own a rental property or collect dividends on nonretirement assets) and voilà! You now have a general picture of your annual income and spending. Look it over and start thinking about how you might address any big discrepancies.
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2. Check your beneficiaries. Nobody wants to think about dying, but everybody does and not thinking about how you might want your assets distributed won’t change that. That’s why a brief review of your beneficiaries on your retirement plans is a good idea. Every few years you should review your larger estate plan, which covers nonretirement assets, but that goes beyond simple New Year’s resolutions.
Chances are, you set up your beneficiaries when you signed up for a workplace plan or rolled over a 401(k) into your IRA or started a new Roth IRA. But things change. You might have kids now or gotten divorced or soured on that charity you liked so much 15 years ago. This is the time to review it and maybe start the paperwork (which you can mostly do online now) to change your designations.
A quick rule of thumb: The least complicated, most efficient way to allocate your assets is to use traditional IRA and 401(k) accounts to leave money to your spouse or charities while leaving your kids or other nonspouses money from your nonretirement assets or Roth IRA accounts. (We’ll get into all this in a future column.) And think about setting up a living trust, with an accompanying will, for your nonretirement assets, but for that you should use a qualified attorney specializing in trusts and estates.
Read: Numbers that older workers and retirees need to know in 2020
3. Write a ‘mission statement’ for your retirement. It doesn’t have to be long—two or three paragraphs is fine—but it should give you a vision of what you want to accomplish in this next stage. According to the great social psychologist Erik Erikson, retirement is the time when ideally you come to accept the life you’ve lived, forgive yourself for your mistakes, and define your legacy and pass it on to the next generation.
What do you want this stage to be about? Your religious beliefs and practice? Community service? Artistic expression you couldn’t do while you were working and raising a family? The value of close personal and family relationships? The joy of finally living in the moment? Or maybe you just don’t want to be a burden on your children.
All of these are worthy, even noble goals. Pick the ones that resonate most with you and write it all down. Then, try to live it, as best as your retirement budget will allow. Have a happy, healthy and prosperous 2020.
