How Can You Build Your Pre-Retirement Checklist?

MARK RIEPE: I'm a fan of the Winter Olympics, and one aspect about it that I enjoy are the sliding events. By that I mean bobsled, luge, and skeleton.

It's astonishing to me that after four runs down a track, the gap between the competitors is so tiny. That tiny gap means the margin of error is extraordinarily small, and that ramps up the pressure on the competitors. Screw up even just a little and you may be waiting another four years for your chance at Olympic glory.

There are many ways to gain an edge, but one that's especially relevant for this podcast is visualization.

I'm Mark Riepe, and this is Financial Decoder, an original podcast from Charles Schwab. It's a show about financial decision-making and the cognitive and emotional biases that can cloud our judgment.

Visualization—or imagery training,[2] which is the preferred term—is a valuable and effective tool elite athletes have used for decades.

Al Oerter, a four-time Olympic discus champion and tennis star Billie Jean King were using it in the 1960s.[1] More recently, some sliding athletes have used it as well.

On TV you can sometimes see them before their events with their eyes closed, subtly moving their bodies to replicate the steering that they need to do to get down the track as fast as possible.

One of the reasons these athletes have adopted it is because training runs on the tracks are limited. To make up for the lack of actual runs, some athletes prepare by mentally traveling the ice track hundreds of times. Think of it as a simulator.

Some competitors in another Olympic event, aerial freestyle skiing, use imagery as well. These athletes ski down a slope, launch off a ramp, and perform twists and flips in the air.

They use imagery training by envisioning their run using all their senses. For example, they imagine how the wind feels as they wait to begin, what the crowd sounds like, etc.  Then they imagine they're on the slope, gaining speed. They move their arms and bodies as they would for that jump, but without moving their feet.²

There are studies that suggest if athletes do imagery training regularly, it can improve performance as much as a similar amount of actual physical practice, but without any of the risk of injury or physical strain.[2]

Now Winter Olympians have a goal in mind and imagery training is intended to help achieve that goal. It seems to me that when it comes to our financial goals imagery training would help as well.

Take retirement for instance. Most people look forward to retirement—after all, most of us save money during our working lives to fund our golden years. No more work schedule, meetings, business travel, or commuting. We'll have more time to do what we enjoy.

But it's hard to do detailed planning if we haven't pinpointed, at least approximately, what we want to achieve in retirement. In other words, the first step for retirement planning is to imagine what you want your retirement to look like. Without a vision or goal, you can't make an effective plan. Once we take this first step of visualization, we can start to take more concrete steps to make it happen. 

Today we're going to talk about a series of concrete steps that are included on what we call the pre-retirement checklist. In other words, what do you need to take care of in the handful of years, months, and days before you retire?

If done right, a pre-retirement checklist can help reduce the stress of retiring. You can be more confident that you'll remember to fill out every form, hit every deadline, and register for every program that makes for a smoother retirement.

To help us, I'd like to welcome Patrick Means to the podcast. Patrick is a vice president and branch manager at Schwab with over 20 years of experience helping clients with financial plans, investing guidance, and retirement. He's also a Certified Wealth Strategist.

Patrick, thanks for being here today.

PATRICK MEANS: Mark, thanks for having me. Big fan of your podcast that you do for Schwab.

MARK: Oh, great. Thank you. Thank you very much. Hey, before we get into some of the details about, you know, planning for retirement or retirement checklist, maybe let's start off … just tell me a little bit about how you got into this business.

What's your background? Have you always been interested in kind of the world of, you know, kind of finance and investing? Or is this something that you kind of stumbled into?

PATRICK: I would say it's the latter. I did not grow up thinking about getting into finance, but what I did know is that I was good at math and I liked helping people. So a little more than 20 years ago when I finished at Rutgers University, I was approached by someone about considering a career as a financial advisor.

So here I am. I love doing what I do. I work as an advisor, working directly with clients for 12 years, half of that time with Schwab.

And then for the last eight years, I've worked at Schwab in a number of leadership capacities and currently right now as a branch manager, leading a team of investment professionals who really, really try to understand their client situations as best as they can so they can offer them ideas and solutions that are best for them and their family.

MARK: Patrick, we're here talking about having a pre-retirement checklist because for many people, let's face it, that's one of the biggest decisions they're ever going to make.

By the same token, though, it's hard to have a checklist if you don't know … if you really don't have any idea of where you're going or what you're trying to accomplish. So how do you get people to paint a picture of what retirement will look like for them?

PATRICK: Great question. So I try to start with the painting of the picture of what it is that they're looking forward to doing before we get to the checklist.

Earlier in my career, I would lead with the checklist, and it wasn't that successful, Mark, in inspiring people to do 10 pages of homework. But what I found is if we spent quite a bit of time talking about all the things that they wanted to do in this new phase, then that got them much more excited about the checklist.

Because it was, "OK, let me figure out where I'm at, what I need to do. Are my ducks in a row so that I can just go and do what I've explained to Patrick that I want?" So I think when we focus on that transition and how we want that to look like for us in that next journey of our life, that is where you really want to spend a lot of time initially.

MARK: Yeah, it's hard to be successful if you're going to lead with the vegetables all the time, right?

PATRICK: Yes, very true.

MARK: Part of that process is just to get a good inventory of assets and how they're going to be, at least at a broad level, how they're going to be spending that money going down the road. So what are some of the ways that they can kind of make a plan and, more importantly, track their progress?

PATRICK: Yeah, so at the end of the day, it does require some capital and assets to do this. And one of the things I also realized early in my career as I was having these conversations, and I still do it to this day, is we changed the word of "retirement" to "financial independence," meaning, hey, let's think about a time where working is optional, but not necessary, right, to meet the lifestyle that you want.

And so what is that going to take, right? There's going to need to be some income sources, whether that's Social Security or pension. But a majority of that's going to need to be money that you've saved up over a period of time.

And so can we sit down together to have a conversation and create a roadmap of how well we've done, what's our probability of success today if we were to start this new journey, whether we're on track or not, and if so, what should we continue to do? But if not, what do we need to start doing or potentially stop doing to increase that confidence level?

Then if you have that visual that shows you, "OK, here's the hard work that I've put in, the money I've saved, and then here's how it's going to get distributed over my retirement lifetime" or "Here's this nest egg and how it might potentially grow or deplete," that really, I think, cements the importance of it and creates an action for us to really get to where we want to be.

MARK: Patrick, you mentioned a roadmap, and part of that is creating a series of specific steps that people can take as they get closer to that intended retirement date. So let's just pick a date, like pick an age, 65. So let's say you're working with someone, they expect to retire, they'd like to retire when they're 65.

What are some of the things they need to start doing at around their 64th birthday, in other words, one year before D-Day? What are some of the things on that list?

PATRICK: Yeah, absolutely. So first, I would go back to what I said before—think about your goals, write them down, and of course, communicate that. If there's a significant other, that would be number one.

Number two is—if you have a retirement plan at your job, like a 401(k), great time to fund that, get that catch-up contribution if you can.

And then third—I would think about healthcare, right? So most folks are aware if they're one year from retirement about that seven-month enrollment window for Medicare. So that would be an idea or a topic I would focus on. If you've got employer health insurance that you're considering, that might also dictate when you enroll in the Medicare, and also you're probably thinking about extra care if needed.

So those would be the three things I think at that one-year timeframe, you really want to, you know, highlight and focus in on.

MARK: I like the fact that you limited it to three because if that list gets too long, it's just kind of a demotivator. But yeah, healthcare in particular, that's a huge thing. We'll get back to that later.

OK, so the year progresses. Now let's say they're six months out from that retirement date. What else has kind of been triggered once they reach that date that they should be thinking about?

PATRICK: So I'm going to stick with the theme of three. Again, it's how our mind works. We can't handle much more than that.

So I would say a common and very important one is—know what your income sources are. This is the time to focus on that, whether that's your investment portfolio, pensions, Social Security, royalty payments, part-time income, whatever. And then how is that aligned with what your expenses are going to be, both your fixed expenses and discretionary expenses?

Second thing—great time to start setting aside, if you haven't already, a cash fund of 12 months of expenses. That's critically important.

The reason is, is during this long period of time where you're going to be financially independent during your retirement, there may be a spot where either A—your portfolio goes down in value, and you do not want to be selling those securities while they're down. Quickest way to try to deplete your investment capital. Or B—you might have an unexpected expense that was outside of what your plan is. So you want to be able to draw from that and not again liquidate some of your portfolio.

And then I think third is—recalibrate your investments. Fancy way of saying, hey, if I was in an investment portfolio that was, let's call it somewhat aggressive, meaning I was really shooting to try to get some greater return. Usually you're not going to want to be that same investment profile, right, when you're looking for more steady Eddie income, drawdown, still want to outpace inflation, but do not want so much variability in your portfolio.

That is often a common mistake that we see. So you want to be thinking about, "Should I be changing how my current investments are allocated?"

MARK: Makes a lot of sense. So that was the six-month mark. Now, let's say three-month mark or two-month mark. Sort of we're getting down to this is becoming very real. So what are the items on the list there?

PATRICK: Yes, getting very real, just a couple months away, but you got to stay focused because there's still much to do. I would say you want to make sure you talk to your HR, if applicable, about any benefits that are still due to you, potentially accrued time off, and of course your 401(k) options. Sometimes folks might want to keep the money in the plan or even roll that over.

I will tell you I remember meeting with the client years ago who was going through this process, and I asked them, "Hey, have you ever looked at your summary plan description?" No. Who loves those documents that are 120 pages long? But they told me that in their 30 years at working at that company, they had never looked at it.

And unknowingly to them, there was quite a few benefits that they could utilize, both pre-retirement and after retirement, that they were not aware of. So had we not taken that time, they would have missed out on that. So that's one I like to throw a plug in for.

Of course, you're going to be thinking about Social Security and what date you want that to start. Is it going to be your full retirement age? Are you going to get it early or delay?

And then third and last, probably the most important—you've got to have fun to celebrate yourself. You have to. You've worked so hard for it. You've planned for it. And I'll share another example, Mark, and this hits home just talking about my dad and how meaningful it was for him to have his family and 20 of his coworkers celebrate him before he retired for the state of North Carolina.

And so I think if you did those three things, a month or two out, you're probably doing really good, and you're going to be really excited about this next journey.

MARK: So for your dad, presumably you had some conversations with him. How well did he do on the checklist?

PATRICK: He did good. He planned pretty well. Of course, he had a cheat sheet in me, so I'll give him credit for leveraging that. But no, he was on top of it. He made sure for his pension, he knew what choices he had for that. He was very much up to tune on what his benefits were that he could maintain as a state employee.

We had conversations about Social Security as well during that checklist time. And of course he came to me about how he should create an income stream with his investments. So yeah, I give him an A. He was solid.

MARK: You've mentioned Social Security and Medicare. So for people who obviously are preparing to retire, those are two huge government programs. Maybe go into a little bit more detail for each one. What are some of the things they've got to decide?

PATRICK: Yes, Mark, you're right. Huge programs and where a lot of individuals, and an example you gave, spend a lot of their time. So for Social Security, it typically comes down to, “When do I take it? Do I take it early? Do I take it at my full retirement age, or do I try to delay it up until age 70?”

We often find that that decision is generally around the cash flow needs of the individual and how long they might think they're living. Because what we talk about is, "All right, if the cash flow isn't the issue, depending on your life expectancy, there might be a date that you win in this game, right? Where you're going to get more funds than if you took it at this age."

So that's something to think about. And then if you're going to take the Social Security early, you need to be aware that if you're going to continue to work, there could be some taxation on those benefits. So that's where we've spent a lot of focus for Social Security.

For Medicare, similar to Social Security, it is about timing, right? There's that seven-month window. In addition, you want to enroll in original Medicare. It's your parts A and B. That's your basic doctor, hospital benefits. But there's additional coverage, right Mark, that you're going to need outside of that.

And so, getting an understanding of that, knowing what's out there for you, what you can afford, again, what you might have through your employer, all things that I would be spending a lot of time encouraging folks to know and understand. And this isn't a static review.

I mean, Social Security, once you take it, you take it. But with the Medicare, we've had to go back and readjust that for people too. So we remind folks that with the Medicare decision, that might be one that is more dynamic, that you might change depending on your situation.

MARK: So this period of life—retirement, work optional, being financially independent—it can last for a long time. I mean, the average 65-year-old has a life expectancy of like 20 years. And a lot can happen during that time period.

So how do you help people prepare for the unexpected? What kind of unexpected expenses do you see cropping up that people weren't really prepared to deal with?

PATRICK: So there's always the, you know, "Something happened at my house that I wasn't expecting," or "I had a major appliance or vehicle that I needed to replace that I wasn't expecting." And those are, you know, every-once-in-a-while events.

And if you had that cash fund set aside, it usually isn't too detrimental. Where I've seen folks really have a challenge is the ongoing discretionary expenses that they didn't plan for. For instance, dining out.

I cannot tell you, Mark, how many retirees I talk to who they come back to me, again, taking care of, doing great, they say, "Patrick, you know, I did think about how much time I have on my hands to go out. I'm a foodie, I should have known better, right? I want to go have a cup of coffee at Starbucks in the morning, and then I want to go and have a lunch with my golf buddies on the golf course for lunch. And then me and my significant other, we're going to go out for a nice dinner, right?"

And so, you know, factoring that into your plan just because you have more time to do it and you liked it is something that we encourage folks to consider.

The other thing—traveling to see loved ones, right? So you probably think in your mind, "OK, I'm going to go on this many vacations. I'm going to see the family on these holidays."

But what happens when they want you to come see them to babysit or to visit because someone's not well? And those are the things that, again, we've seen folks, they didn't take that into account. And that can happen on a regular basis.

So you never want to be in a situation where you're trying to decide, "Can I go and go to the wedding of my nephew?" Or "Such and Such has passed, and I want to be there to comfort that person," and you're worrying about the funds for it because we didn't map that into the plan of these discretionary expenses. So that would be my advice on that one, Mark.

MARK: Yeah, I mean, I think it's impossible to anticipate everything. So you've got to be prepared for the unexpected, even though you don't quite know what that will be. You know, this is a big change—to kind of exit the workforce, either in part or in whole. That's got to have some kind of emotional impact. So how do you check in on people, and what should they be looking for to make sure everything that's been put in the plan that it's working OK, either, I guess, both on the emotional side and the financial side?

PATRICK: So glad you asked me that. So emotional, let me talk about that one and then I'm going to share about some clients who I think did this the right way.

So I said earlier, just the importance of really thinking through how you want to spend that time, because you're right—when you leave work, for many of us, it played such a huge role in our day-to-day lives of having some purpose.

For some of us, maybe it gave us some additional scope and responsibility that we were super proud of us. For some of us, it might be the work relationships that we've had. So transitioning away from that after doing that 10, 20, 30, 40 years is a major shift. So when you've thought about how you're going to spend that time to try to not replace it, but do that differently, that's really the model I think works best.

And I'll never forget, I work with a client, couple. And they did a tremendous job together of really thinking through what this was going to be for them. And one of their goals was to tour the country, Mark, in an RV when they retired. First year, that's all they're going to do is spend one year in an RV and just travel the country and live in that. And so I said, "OK, let's plan for that."

And Mark, when I got that phone call when they were a month into the trip, and to hear how excited they were, it's like, OK, this is why I got into this industry, because they were living out what they had planned, and they did not miss work at all, because they were enjoying doing the things that they had thought about doing.

So in addition to the emotional part, what they did well, you asked me about the practical part was, hey, they made sure that in those first few weeks, that all the bank accounts that they needed to receive that money was set up.

I know that sounds like something that's a given, but it happens where that is not taken care of properly. So I'd make sure that again, for insurance or bank accounts to receive funds, that that's working properly.

MARK: You know as well as I do that, at least when it comes to investing, it's typically—not always, of course—but typically it's one partner is paying more attention than the other partner. So how do you work with people to get both parties involved with this process?

PATRICK: So I think it's important to write it down and then share it with each other, compare or contrast. I can't tell you how many times, Mark, I've seen folks just have such different ideas.

And so having that dialogue, coming to that compromise, learning about each other is a valuable experience. I've been given advice, now that retirees have come back to me, that they had that conversation over date night. They just kind of made sure that the mood and scene was positive and not a checklist of a meeting.

So I think those are some of the best practices to be able to have that success.

MARK: You know, listening to you talk about these things, I'm struck by how often the answers for some of these issues that are raised, you know, there's an emotional component, there's a practical financial component, and there's a sweet spot there where things have got to balance out.

We can want all the things we want. We can have all sorts of desires. But at the end of the day, some of those things cost money. And there may not be enough money, and priorities are going to have to happen. So what are your thoughts on finding that sweet spot and dealing with the trade-offs?

PATRICK: Yeah, so it goes back to the benefit of having the plan in place, because I think it gives you some guidance on where that sweet spot is.

The plan may guide us in a direction of saying, "Hey, your roadmap tells us that we need to actually work because we need that additional income for a few years, because what we're trying to do is not touch that investment capital for another three to four years. Let it grow a little bit more, or maybe potentially delay Social Security.

So if you want to have that lifestyle that's super important to you, let's think about that option." But I think going through that conversation, having that roadmap, allows you to really balance that emotional and practical standpoint really well.

MARK: All right, last question. And that really has to deal with the portfolio side of things. We talked earlier a little bit about asset allocation. And you talked about it was important to make sure your portfolio reflected your tolerance for risk, particularly in this kind of new phase of life.

Another issue that people have got to decide is—how do they get money out of their portfolio? Because to a certain extent, they don't have a paycheck anymore. Their portfolio is going to be providing something like a paycheck. And some people prefer just to live off dividends and interest.

Other people prefer more of what we call a total return approach, where they're willing to accumulate capital gains and then sell some of their portfolio from time to time to fund their spending needs. So what's best for people? And how do people make that decision?

PATRICK: Yeah, great question. So this is going to differ per person. I think ideally, Mark, all of us want to just live off dividends and interest because that means that we're not taking principal. But that may not always be the reality. And depending on your tax situation too, it may make sense to do something different.

But I'll tell you this, and I said, I've been in the industry for 20 years. When I got into the industry, Mark, there was this 4% withdrawal rule, and I feel like that's archaic now. And I don't know if investors really understood what that meant anyway, but it was this idea that every year you withdrew 4% if fully on this total return approach.

And so I think where we've shifted to now and what you and your team and SCFR do a really good job of communicating as well is it's probably just as important to think about the buckets that I mentioned before, right? Having 12 months of cash reserves set aside so that if you have that large nest egg that's generating the interest and dividends, if that value goes down for a period of time, I'm going to that bucket instead of selling some of those securities, or if I have that unforeseen expense.

Bucket number two is a pool of money, let's call it three to four years' worth of annual expenses, that are in the very safe stable investments that are paying you a consistent income to hopefully cover all if not a majority of your fixed income expenses—your light bill, your car payment if you have one, your house, your taxes, all those things.

So that way your growth portfolio, what you're investing in the market, right, that's outpacing inflation for you. Yes, it's creating some dividend income for you potentially that you're flowing back into those other buckets to pay your bills.

There could be some capital gains, right, where you sell some of those positions to then fund those accounts. But we find that that is equally as important if you have that process in place than just focusing on, "Should I do the dividends and interest versus the total return?" Right? Some combination of the two following that approach is really what we've seen as most successful for investors who are in retirement.

MARK: Patrick Means is a vice president and branch manager here at Schwab. He's also one of the contributors to Schwab's new platform for personal finance education that we call Money Talk. Patrick, it's great having you here.

PATRICK: Thank you so much for having me. Thank you.

MARK: Checklists have improved processes and results in a variety of industries, including construction, emergency response, and more.[3] In fact there's an entire book on their power just in the field of medicine.[4]

Our sister podcast, Choiceology, looks at some of these instances in more detail.[5] The title of the episode is "A Successful Failure," which refers to the Apollo 13 mission, and it aired on September 13, 2020. We'll link to it in the show notes.

I'm not sure who invented the checklist, but the catalyst for using standardized checklists to perform complicated, often high-risk tasks is generally attributed to a 1935 aviation disaster.

It was the failed test flight of a new Boeing bomber, the Model 299. The plane crashed, which led to the deaths of two of the crew.

Pilot error was blamed because, although the pilot was exceptionally qualified and experienced, the plane was the first of its kind and complicated to operate.

The pilot had forgotten a step during takeoff, and chances are, if he'd had a checklist to complete, the tragedy would have been averted.

Most of our financial decisions aren't quite so dramatic, and financial services is most certainly not rocket science. But that doesn't mean a good checklist won't help with the many tasks that need to be completed in order for your financial life remain in good shape.

I've got one more item on the checklist for this episode and that is to go over the What's New? segment. This is where I give you a snapshot of a recent finding about behavioral finance.

And this is from a July 2023 study entitled “Differentiating Passive from Active Risk Taking: The Role of Self-Control and Time Perspective.”[6] I like this study because making choices—even seemingly easy choices—involves risk of some kind. And there are a lot of choices to make when it comes to retirement. We can take those risks and divide them into two buckets: passive risks and active risks.

A passive risk happens because of inaction. In other words, we didn't do a thing, and because we didn't do it, we created risk. Here's an example from retirement planning: "I don't save for retirement because I figure that Social Security, plus the money I get from an expected inheritance, will be enough."

Active risks, as the name implies, are actions you take that create risk. One example is that I see a hot stock tip on a social media platform, and without doing any further research, I act upon it and use a big chunk of my portfolio to buy the stock immediately.

The authors find in their experiments that our willingness to take active and passive risks depends in part on our level of self-control and our time perspective. In other words, are we thinking about the future or about immediate gratification?

When it comes to retirement planning, it's easy not to be proactive and just take a passive approach and hope that it will all work out OK. The way to reduce this type of thinking is to think about the future. Create that detailed plan of what you want your retirement to look like.

Visualize what retirement means to you. Keep in mind that you're doing this for your future self. That's the time perspective piece. Then add to it some self-control mechanisms to make sure you follow through and don't backslide. If you want to learn more, there's a link to this study in the show notes.

That's it for this episode. If you're thinking about your own pre-retirement checklist, check out "The Pre-Retirement Playbook" at workplace.schwab.com. Or call us and talk to a professional at 1-877-279-4476.

To hear more from me, you can follow me on my LinkedIn page or X, formerly known as Twitter, at Mark Riepe: M-A-R-K-R-I-E-P-E.

And if you know someone who might like the show, please tell them about it and how they can follow us for free in their favorite podcasting app.

If you like the show, consider leaving us a rating or review on Apple Podcasts. It really helps us out.

For important disclosures, see the show notes and Schwab.com/FinancialDecoder.

[1] Clarey, Christopher, "Olympians Use Imagery as Mental Training," The New York Times, February 22, 2014, https://www.nytimes.com/2014/02/23/sports/olympics/olympians-use-imagery-as-mental-training.html

[2] Svoboda, Elizabeth, "An Athletic Coach for the Mind?" New York Times, published August 5, 2021, updated August 9, 2021, nytimes.com/2021/08/05/well/move/mental-skills-coaching-olympics.html

[3] Minter, Steve, "The Amazing power of Checklists," Industry Week newsletter, April 26, 2011, https://www.industryweek.com/the-economy/article/22010925/the-amazing-power-of-checklists

[4] Atul Gawande, The Checklist Manifesto.

[5] "A Successful Failure: With Guests Cass Sustein, Kirabo Jackson & Andrew Chaikin," Choiceology podcast, September 13, 2020, https://www.schwab.com/learn/story/successful-failure-with-guests-cass-sunstein-kirabo-jackson-andrew-chaikin

[6] Idan-Tzach, Tali et al, "Differentiating passive from active risk taking: the role of self-control and time perspective," Journal of Behavioral Decision Making, first published July 31, 2023, https://onlinelibrary.wiley.com/doi/10.1002/bdm.2344