5 Things to Do Before Retirement

ChatGPT suggested five things to do before preparing for retirement: assess your financial situation, maximize retirement contributions, review Social Security and pension benefits, reduce and eliminate debt, and plan for healthcare costs. While the advice is generally solid, additional recommendations include adopting a flexible spending plan and living below your means to ensure financial stability in retirement.

Transcript:Austin, we asked AI, what are five things you should do before preparing for retirement? We've seen some good results asking AI about other topics, sometimes a little broad.So I want to hear what AI had to say. And then I want to see, you know, your added analysis on topic suggestions.Yeah. So all in all, typically good advice here. We asked for some specificity.The first thing that AI suggests is to assess your financial situation, specifically evaluating savings and investments.So what I recommend is having at least 10 to 12 times your final salary saved by retirement.So, for example, if your average salary is seventy five thousand dollars, you should aim to have seven hundred fifty thousand to nine hundred thousand dollars saved.And you can calculate your expenses using the 80 rule to estimate your average annual expenses.So if your pre-retirement income was $75,000, plan for annual retirement expenses of roughly $60,000.Fantastic advice here, really good specific advice. We have seen that roughly 80 rule hold true for many retirees and this 10 to 12 times final salary ratio is one that we would also recommend.So AI did great here. You want to aim for 10 to 12 times your salary. And if you want to estimate your expenses in retirement, you can take your current expense level and multiply it by about 0.8 to get what you should expect to spend each year after retirement.Number two, maximize retirement contributions. So if you're under age 50, you can contribute up to $22,500 into a 401k.And if you're age 50 and older, you can contribute a little extra, an additional $7,500 totaling $30,000.Great advice here. We have long encouraged everybody to maximize their retirement accounts, specifically taking advantage of any employer match, which we cannot say this anymore clearly, is free money.If your employer only matches some of your contributions to retirement, you should absolutely max out and take advantage of that employer match.So number two, maximize retirement contributions. Great advice from GPT here.Number three, review Social Security and pension benefits. This was a bit of a moving target, and we've talked about that a lot.One, there's a very personal decision that people have to make about when they take their Social Security benefits.But then also, what do you assume for Social Security benefits and payments in the future with funding looking like it's on somewhat tenuous ground?So GPT says delaying Social Security benefits from 62 to 70 can increase your monthly benefits. And that is true.We've talked about this in other videos as well. Simply reducing when you take Social Security can increase your payments by up to $4,000 per year.If you have options for a pension, you should compare, look at everything that's being offered from your employer there, including lump sum payouts instead of monthly payments.One of the nice things there is if you take a lump sum payout it might actually allow you to delay Social Security payments and therefore increase the benefits that you receive by taking them later.So these two things really do need to be considered in concert.So review Social Security and pension benefits and we would encourage you to look at them holistically.If you can take pensions today in order to take Social Security later, that's a good way to increase the payouts you expect.Number four, reduce and eliminate debt. So GPT says you should pay off high interest debt. We're talking interest rates of 15% to 25% here.So paying off a $10,000 balance on the low end of that range at 18% interest saves you $1,800 annually.That's a lot of money, and that can go really far in retirement.And also consider a mortgage payoff. This is strictly based on your own personal situation and what sort of debt you have.If you've taken on a mortgage at, let's say, 5%, 6%, 7% interest and you have the funds to pay it off, that might be a good decision.If you're hanging on to a mortgage at a lower interest rate, roughly in the two to three range from what was offered the last few years, it might be worth keeping.But consider paying off that mortgage if you're gearing up for retirement.The last one is to plan for healthcare costs. As we've talked about, healthcare is one of the largest expenses many retirees face, and there can be huge ranges.We've seen estimates that couples need $300,000 just to cover healthcare costs in retirement. These are estimates from Fidelity.Roughly, you should plan on either having $300,000 set aside or plan for annual healthcare expenses of $5,000 to $10,000 a year, depending on your health and coverage.All in all, hey, GPT did great here, these are excellent points of recommendation.Two things that we would probably add to this if you're considering retiring is to adopt a flexible 3% to 5% spending plan instead of the potentially dated and too rigid 4% safe withdrawal rate.That was based on numbers that came out of the early 90s. And based on the range of inflation and stock market price swings we've seen in the last few years, a flexible 3% to 5% safe withdrawal rate is probably the safer and more sustainable number.You can start experimenting with that one to two years before retirement to see how it works for you and make sure that you can adjust your spending up or down accordingly.And another is living below your means. I didn't see that here, but lifestyle creep is real.And hey, once you retire, you want to enjoy yourself, but you need to track your spending in the last few years and get an honest picture of what that 80% consumption level looks like, which we talked about earlier.People typically spend about 80% of their prior consumption in retirement. So continuing to live below your means and getting comfortable with what that 80% consumption looks like is a big factor of how long your wealth will last in retirement.Yeah, I think that's great advice, Austin.Talking about not sticking to the rigid 4%, because as you know, the past couple of years with inflation, a lot of people that had 4% are going to have a tough time sticking to that with increasing costs.Hopefully we see that moderate, but it shows the power of building in some flexibility to your plan.

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