5. You don’t have a monthly financial plan
“Once you retire, paychecks stop arriving, but bills keep showing up,” Walters says. You need to write down your monthly cash flow before you retire, he adds.
Planning where your cash will go every month means taking into consideration when you will start drawing Social Security benefits and how much you’ll get, as well as how much you’ll withdraw from your personal retirement accounts and, of course, in what order.
For example, if you have both a traditional IRA and a Roth IRA, you should think about the taxes and required minimum distributions (RMDs) on your traditional IRA withdrawals and how that affects your Roth IRA withdrawals, which won’t be taxed and aren’t subject to RMDs.
Following a monthly plan also translates to a solid knowledge of your all expenses, says certified financial planner Kevin Smith, executive vice president of wealth management for Smith, Mayer & Liddle (a division of Janney) in York, Pa.
If we had lived in a Utopian society, we should have 2 to 3 years of spending history summarized by category. But who does that? However, keep in mind that “some expenses may go down in retirement, such as debts that may soon be repaid, while others, such as healthcare costs or travel and recreation expenses, may go up,” Smith says.
So, to sum things up, knowing your expenses by heart means knowing how much income you’ll need. Once you’re aware of how much money you need each month, you can assess whether your nest egg is large enough to allow you to retire, or whether you need to keep working for a couple of years.
