Are you planning on taking the leap into retirement in the New Year?  Choosing to retire is a big step, and you want to be sure that you are setting yourself up well for a secure retirement.  If you haven’t already, now is a good time to get your financial house in order so that you are fully prepared for the exciting journey ahead of you.  Getting your financial house in order involves preparing your retirement budget, knowing your sources of retirement income, understanding where your investment accounts are located, and how they are invested.  In addition, this is also a good time to think about how you are going to spend your time in retirement.  Now that you do not have to deal with the daily commute and a busy work schedule, how are you going to fill the hours of your day in retirement? Below you will find five important tasks you should complete over the next few months as you head into retirement.

1. Prepare your retirement budget – Setting a budget is one of the most important things you can do leading up to and in retirement.  When reviewing your budget, it is important to separate your expenses into two categories: (1) essential expenses and (2) discretionary expenses.  Essential expenses are those that must be paid.  These include things like rent, mortgage, utilities, and groceries.  Discretionary expenses represent voluntary spending.  These are items that you would like to purchase, but they are not mandatory.  Discretionary spending is drawn from the money that is left over after paying your essential expenses.  

1. Understand your retirement income – Once you have completed your budget, you will then want to understand where your income is going to come from.  The main source of retirement income for many Americans is Social Security, but it could also include a monthly pension payment or a stream of income from an annuity.  Once you know your income sources, you will then want to compare them to your expenses.  If you are like most people, once you retire, your expenses will likely be higher than your income.  In this situation, you will need to supplement your income from your savings and investments. Understanding how much income your portfolio needs to provide will help in determining how your portfolio should be invested.  

1. Review your risk tolerance and asset allocation – When you retire, you will be transitioning from the accumulation stage of life to the decumulation stage.  The accumulation stage involves saving as much as you can and investing those savings at a level of risk you are willing to accept.  However, upon retirement, you will begin to draw from your portfolio to help supplement your income.  Therefore, the way you invest in retirement is very different than how you invest prior to retirement.  By reviewing your risk tolerance and asset allocation before heading into retirement, you can assure that your portfolio is positioned in such a way that it can provide the income you need, and reduce volatility.  

1. Contemplate where you want to live – Have you given any consideration to where you would like to live in retirement?  Some of the reasons people move in retirement include: to be in a more favorable climate, to be closer to other family members, to be closer to people their own age, or to reduce their cost of living.  Whatever the reason, moving can have a significant impact on your finances and your quality of life.  If you are thinking about moving and you have narrowed down your search to a few areas, it may be a good idea to spend a few weeks or even a few months in each location.  This way you can get a feel of the local community and activities that are available. 

1. Maintain an active and social lifestyle – Upon retirement, many people lose their sense of self-worth and often feel isolated.  Since they are no longer working, they feel like they are no longer contributing to society.  In addition, they lose the daily interactions with colleagues and co-workers that they have become accustomed to.  As a result, it is not uncommon for new retirees to slip into depression.  Studies have shown that an active retirement lifestyle leads to better mental and physical health.  Therefore, you should start thinking about how you will stay active in retirement.  Perhaps you can join a gym, a social club, find a hobby, or work part-time.  All of these will go a long way to ensure a long and happy retirement.