A Pre-retirement Financial Checklist

AUGUST 21, 2014
James M. Dahle, MD, FACEP
Adequate insurance plan
Retirees need insurance, too, but it isn’t exactly the same as before retirement.
5. Can you cancel your term life insurance?
One great measure of truly being financially independent is that if you die, your loved ones don’t have to change their financial plans. Term life insurance should be kept in place until you reach that point. If you (and your loved one) are not comfortable cancelling your life insurance, you may not be financially ready to retire.
6. Can you cancel your disability insurance?
If you’re financially independent, you shouldn’t need it.
7. Do you have a plan for health insurance?
If your employer has been covering your health insurance premiums, will you have enough financial resources to do it on your own, at least until you qualify for Medicare at 65? Remember that Medicare does not cover everything.
While this is less of a big deal for a self-employed doctor who has been paying his own premiums for years, it prevents many people from retiring as early as they would like.
Income plan
Although it may seem obvious, I have been surprised at how many people come out of retirement because they were unable to match their retirement income to their spending needs.
A lifetime of budgeting may be the best preparation for this, but we all know how few of us really budget seriously.
8. Do you have a realistic assessment of how much you will spend in retirement?
Start with what you are spending now, subtract out everything you won’t have to spend due to not working (such as commuting costs, payroll taxes, and CME expenses), add in expenses you will have when you are not working (perhaps extra traveling or healthcare costs), and add a little extra as a fudge factor.
9. Add up your non-portfolio sources of income
If you qualify for Social Security or a pension, you can count that. If you have (or will) purchase an immediate annuity, you can count that, too. You may also wish to add in the net operating income of your rental properties (usually about 55% of your gross rents), but keep in mind that large expenses, such as a new roof or windows, will eat into that income significantly.
10. Understand what the 4% rule means
As a general rule, you can withdraw something like 4%, indexed to inflation each year, of a reasonable portfolio and expect it to have a very good chance of lasting 30 years. That means if you need your portfolio to provide $100,000 in income each year, you need a portfolio of $2.5 million.
11. Do you have a plan for Social Security?
Delaying Social Security claiming until age 70 provides an important inflation hedge and longevity insurance. But that obviously reduces your income if you retire well before 70, like many doctors wish, or are forced, to do.
Also keep in mind there are real advantages to having each member of a couple claim Social Security at a different age.
12. Go for a test drive
Live on your expected retirement income for 6 months prior to retirement. Is it reasonable or do you feel pinched all the time? Better to find out while you still have a job.

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