Congrats on your impending retirement! I retired in 2012 and have generally experienced a wonderful time since leaving my investment banking job of 13 years.
In the beginning, you might not know what to do with yourself given you'll have so much free time. But you'll naturally find new things you enjoy to occupy your time.
Before retiring for good, it's important to go through a retirement planning checklist, much the same way you should go through a packing checklist before jetting off to some far away land.
Here are the main things every pre-retiree should plan on before leaving.
Retirement Planning Checklist
1) Adjust your risk exposure down.
As with any classic retiree in their 60s or 70s, it's important to take down risk exposure because you no longer have the ability or the desire to work any longer.
Measure your risk tolerance in terms of the Financial SEER ratio. In other words, how many months are you willing to work to make up for a potential loss in retirement.
Once you've retired, you don't want to be forced to go back to work. Giving up precious time for money is one thing, but so is the embarrassment of having to go back to work because of poor financial planning.
Debt should be completely eliminated or reduced to a level that will never be able to sink your finances.
2) Calculate your various income streams.
If after taxes, your income streams can sustain your desired retirement lifestyle, you're golden. If not, keep working or build more side hustle income. To be conservative, it's best to have at least a 20% cushion above your living expenses.
Plan out a tax-efficient safe withdrawal strategy based on a combination of your pre-tax and post-tax retirement accounts.
Those who want to stay conservative should try to only live off their after-tax passive income and never touch principal. Only when Required Minimum Distributions are in effect should you start drawing down principal.
Below are the best passive income investments using a five factor model. You can read more if you click the link above.
3) Make sure you've accomplished all your goals.
When you leave your profession, you want to leave with as few regrets as possible. The best way to leave with few regrets is by fulfilling your stretch goals.
One of the reasons why professional athletes retire after winning the Super Bowl, a Major, or the NBA Championship is because there is no greater glory. During the rare times when such a champ tries to make a comeback, it's often a sad affair filled with struggle.
If you cannot reach the pinnacle of your profession, one thing you must ask yourself is whether you'll be leaving the place better than when you first started. If the answer is no, then you must take measures to rectify or continue working.
Retiring when your fund or company burned to the ground will make you feel like an unsettled ghost, unable to rest in peace. You want to go out on your own terms, which is why negotiating a severance can be incredibly powerful to your mental well-being.
4) Ensure your legacy will be left in good hands.
The longer you've worked, often the harder it is to walk away. The transition is made easier if you have someone you've trained or trust to take over once you're gone.
The last thing you want is to have all your good work get undone by someone with a completely different philosophy. If this happens, you will feel as if you wasted many years of your life. Find an excellent successor and don't leave until you do.
5) Have a next purpose.
You don't want to retire into nothingness. Going from working 12 hours a day to having all the free time in the world can be very disconcerting. After being so used to structure for so long, you might start wondering what else is there to life. Some of you might even get depressed if you don't have purpose.
Instead, diligently map out your retirement goals months or even years before you retire. You want to retire to something, not from something.
Start talking to people in the fields that interest you when you still have a job. Once you retire, it may be tougher to build relationships because society tends to look down on those who no longer work.
Having a clear purpose in retirement will make your remaining days at work even more meaningful. You'll also experience a much more joyful retirement life.
Retirement Doesn't Have To Be Forever
There's no law that says that once you retire, you must stay retired for good. If you happen to get bored or feel like you lack purpose, you can always try and go back to work doing something you love.
The great thing about being able to retire is that by definition, you no longer need the money. As a result, you are free to take interesting, lower paying jobs you otherwise would not have taken.
After I retired in 2012, I decided to take a break the entire year and start writing regularly on Financial Samurai in 2013. It's been a fun journey to build this site to over 1 million organic pageviews a month.
Thanks to my writing hobby, I now make an extra unanticipated income stream from this site to supplement my various passive income investments.
With all the time in the world, you will find something to do. Just make sure to live your life with purpose. Follow your own rules and nobody else's.
To ensure you stay retired for as long as possible, I suggest you diligently track your net worth with a free financial app like Personal Capital. Not only does the app give you a holistic overview of your finances, it makes sure your risk tolerance and cash flow needs are on point.
The last thing you want to do after you retire is go back to work because you have to. Enjoy your freedom!
About the Author: Sam worked in investing banking for 13 years at GS and CS. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income, most recently helped by real estate crowdfunding. He spends most of his time playing tennis and taking care of his family. Financial Samurai was started in 2009 and is one of the most trusted personal finance sites on the web with over 1.5 million pageviews a month.