7 Essential Steps for Smart Retirement Planning | Financial Checklist

Whether you're at retirement, in retirement or near retirement, there are some essential steps that you can take this year to improve your retirement and give you even more financial confidence. Hey, this is Casey Weade, CEO and founder here at Howard Bailey, and we're here to discuss essential retirement steps for you to take in 2025. We're talking about seven essential retirement steps for 2025.

And we're going to kick it off with one that you might find a little boring. And that is your emergency fund. And you go, yeah, I know I need emergency fund in retirement. I get it. Dave Ramsey, he's been telling me about this for years. We're supposed to have three months of our expenses set aside in a safe place we can easily access, in case we need some extra cash for whatever might arise, whether we have a car break down, whether we have a kid that's in need, a grandkid that's in need, we need to put a new roof on the house.

Yeah, we know we need to have an emergency fund. Well, in retirement it's a little bit different in your working years. Yes. Three months. There's a bare minimum of your monthly expenses you should have set aside in case of emergency. So if you're spending $10,000 a month, you need a $30,000 emergency fund, because, hey, things happen. And what happens when you have an emergency during that period of time is quite a bit different than what can happen in your retirement years.

When you get into retirement, you don't have the same luxuries that you have in you're working years. You don't have the ability to slap it on a line of credit, slap it on a credit card, and just put in a little overtime and work and pay it off. You're now on a fixed income. You may not even have the ability to go back to work.

We would strongly encourage you to double that emergency fund. If you haven't done it yet, this is the year to do it. We know the market's been really good to us over the last couple of years. It might be the perfect time for you to go ahead and carve out a section of your portfolio and say, the purpose for these funds is emergencies.

I'm going to set it aside and give myself just a little bit more of a buffer and a little bit more confidence. I want to see a minimum of six months spending 10,000 a month. We need a $60,000 emergency fund. If you're really conservative, and I would strongly encourage you to do this - stretch it out to 12 months.

There's nothing wrong with having a 12 month emergency fund, especially in this interest rate environment where you might be making 4 or 5% on a high yield savings account today. So if that's the case, this is a good time to take advantage of it. Maybe you were squeezed in the past. You didn't want to earn 0% when we were in a 0% interest rate environment.

Well, we're not anymore. It may be the perfect time for you to beef up that emergency fund.

Number two, do you have a war chest for retirement? Now, here's one of the analogies I love when it comes to retirement planning. When it comes retirement planning, it's like planning for a hurricane versus a tornado. I'm from the Midwest here and we are in tornado alley when a tornado comes through, we have seconds, minutes, and we're lucky if we have any time to prep whatsoever for that tornado.

If you're living alongside the coast, which I have as well, you have time to prepare. When that hurricane comes, you know that you have ample warning prior to that hurricane to get out of the state, to prepare food, to get your rations in place, to board up the windows and prepare for the worst. When it comes to your retirement, we have a hurricane scenario.

We know throughout a ten, 20, 30 year retirement, you're going to have multiple hurricanes hit your portfolio. We're going to have down markets, and we need to prepare for those down markets. When it comes to your income planning and retirement, you need to make sure that you have a place that you can go so that you can endure those inevitable storms that the markets are going to throw at us throughout retirement.

And what we're trying to avoid by setting cash aside and maybe not cash, but having some dollars that are safe in retirement, you may even allocate those to fixed income. But someplace that you know, you don't have to worry about the 30, 40, 50% losses that the stock market can make. And it's okay when you get to retirement to continue to take some risk with your dollars, but not with everything, because you have some needs today that you need to meet, and that is your monthly income.

What we're trying to avoid is violating the number one rule of investments. What's the number one rule of investments? That is buy low and sell high. And what we're seeing is that over the last 15 years, people have become very confident. You have some may be recency bias because over the last 15 years the markets have been so good.

Well, they're not going to be like that forever I can promise you that. I don't know what the market's going to do next year, but it will go up or down or stay the same. It'll do one of those three things that eventually we're going to get the worst. If we have a period of time, are you prepared to satisfy your income needs while you stop drawing on those assets that are depressed?

You let those equities go through those market fluctuations, much like you did during your working life. Have you built up yourself a war chest? Maybe it's time that you start carving out a section of that portfolio to meet 12 months, 24 months, maybe even 5 to 10 years of your income needs. This is different than planning for an emergency fund.

An emergency fund is there for your day to day emergencies that may arise. The unusual emergencies that may arise, not the ones that we can plan for. Having a down market is not an emergency. This is something that we knew was going to come, and so we need to have a war chest set aside to defend ourselves when that war shows up at your doorstep.

And so start planning for that today.

Now, we've talked about creating that emergency fund, setting aside the war chest. Let's start talking about our investments. And what we're doing is kind of following a sequential order of priorities that you should have for 2025.

Do you have your emergency fund? Do you have your income war chest? Without income, well, we don't have retirement.

So we can see how important these things are. Now we get to number three which is rebalancing. This is a great time to rebalance. If you haven't done it over the last couple of years, it's vital that you do it today. And that's not just because what we're seeing when we look at the research, we're seeing more and more retirees take on more and more risk as they have seen the equity portion of their portfolio outperform the fixed income portion.

So your stocks have grown faster than your bonds. And now you may have a portfolio that was 60, 40. That's now 7030. And you need to realign that with your own risk tolerance goals that you have. It's time to rebalance across stocks and bonds. You may also want to reconsider your allocation to different US equity sectors. One of those that I'm pointing out here is the Magnificent Seven.