5 Things You Must Do Before You Retire


The word “retirement” means different things for different people. For some, being retired means spending the rest of their lives on a beach in Mexico. For others, retiring means spending more time with family and friends and for others it may mean spending 10 hours a day playing World of Warcraft. I’m not here to tell you what to do with your post-work years but what I can tell you is that your desired retirement life may never come if you fail to attend to certain financial demands, five of which I will get into right now!

Number 1: Set your retirement target

Asking people how much they need to retire is like asking people what the meaning of life is. Simply put, most have no idea and while I don’t blame them for lacking a response to the latter question, this is an inexcusable answer for that pertaining to retirement. As I already mentioned, just about everyone has aspirations of retiring. For some, they would be happy quitting their jobs tomorrow while others look forward to completing their working career and moving into the next chapter of their life sometime down the road. Either path is fine, that is if you actually have a path to follow. Well, the first step in forming this path is to determine how much you’ll need to make your retirement dreams become a reality and we do this by calculating your retirement target.

So, first off, what is a retirement target? Simply put, it is the second most important number in your life, after your girlfriend’s phone number of course and due to its importance, you must have it locked down. Now, I won’t lie, getting to this financial figure is easier said than done but here’s an approach that you can use to get as close to this golden figure as you can.

To begin determining your retirement target, you must first ask yourself what you plan to spend per year during retirement. I know this is like asking what the weather will be exactly 6 months from now but it’s important to know what this figure could look like en route to actually amassing it. For instance, if you think that your lifestyle will remain the same then your retirement budget, when adjusted for inflation, will look similar to what it does now.


Alternatively, if you plan to jet set in your golden years then you’re either going to have to become a pilot in retirement or make sure you stash away a ton of money to support this dream. Overall, I think you get the point that you will have to consider how you want to live later on in life and what that will look like from a cost perspective.

Let’s say that you intend on living a similar lifestyle to the one you have right now. Your first step would be to review your expenses for the past year and tally them up. As you add up your monthly totals, also identify any major outlier expenses such as replacing your roof, getting a new furnace and the like. These are for the most part once in a lifetime expenses and can be factored out of your retirement target calculation. After this review, let’s say that you conclude that your annual living costs are $50,000.

The next step is to extrapolate your retirement needs using the 4% rule. This rule assumes you have your money invested 50% in stocks and 50% in bonds and that you will be retired for 30 years. With these assumptions, withdrawing at 4% annually will allow your portfolio to replenish itself every time you make a withdrawal which allows you to sustain your retirement fund over the course of the rule’s stated three decade timeline.

So, using our $50,000 a year example, this means that you would need $1.25 million to retire or 25 times your annual cost of living. I know for some this amount will probably seem astronomical but don’t worry because in a minute I will share with you how manageable investing towards a million dollar portfolio can be. But first, one important note I must share is that the 4% rule has been scrutinized in the past as not being a realistic withdrawal rate.


Many people feel as though expecting to live off of 4% is too optimistic especially when markets go into a slump and all of a sudden your portfolio can’t outpace this level of withdrawals. This is a legitimate concern and one that I have a foolproof solution for.

What you need to do to mitigate this risk is to over-save. Kind of like how you oversleep on weekends or over-study for tests, being in an excess position, especially when it comes to your retirement savings, definitely isn’t a bad thing. This is why I often recommend saving anywhere from 30 to 35 times your annual expense figure. By doing this, you can not only somewhat mitigate the effects of market conditions on your withdrawal amounts but can more easily manage any changes in living expenses that arise later on in life.

As such, with a lifestyle cost of $50,000 a year, you may instead consider saving up anywhere from $1.5–1.75 million dollars which can be done by investing $600 a month for the next 40 years.


Number 2: Determine your retirement income sources

We all know that being able to retire means doing like Lil Wayne and making it rain but the key is to know well in advance which clouds will give you the rain that you need. Now, as I just alluded to, one path many people take en route to retiring is amassing enough of a nest egg to take them through their golden years. This is actually the most common path but it’s certainly not the only one available.

For some, the entirety of their retirement income will come through an employer pension. While they are disappearing by the day, there are still employers who offer defined benefit pensions where you can exchange your working years for a defined income after you retire. This is not to be confused with a defined contribution pension where your employer has the obligation to contribute a certain amount to their employee’s retirement. This distinction is important because the latter option does not guarantee that you will be paid a sufficient amount to meet the annual cost of living you’ve now set for yourself.

The final option you have for keeping yourself financially afloat during your retirement years is through the acquisition of cash-producing assets. For most people, this comes in the form of real estate or dividend stocks as they both produce regular cash flow for their owners. Real estate typically does this through the rental payments they produce while dividend stocks distribute a portion of their profits on a monthly, quarterly or annual basis. Having a hands off business is also another option and with the current state of the internet and the possibilities as time goes on, this is another viable option to consider.

Now, you may be asking yourself which is the best path to rely on to ensure your golden years are nothing but golden so let me save you the trouble and give you my take on the best system to have in place.

In my opinion, relying on the employer pension path is by far the least desirable option to choose. This is for two reasons. First, chances are you are not going to stick with that employer for the entirety of your career and just because one employer will offer a defined benefit plan doesn’t mean others will so this approach can fall flat pretty easily. Second, if your company succumbs to major financial issues, then you may end up having this pension plan being compromised so again this is far from a risk free approach to retirement.

This is why, I believe that your best bet is to combine the three approaches of regular investing, asset acquisition and building a hands-off business. Like I mentioned earlier, there’s no reason you can’t be investing $500 a month in a broad market index fund and when you combine that with a property that produces a bit of extra cash every month and a business you can run without being involved, you’ll then have your bases covered on all fronts. If the market takes a dip, you have your property to keep the cash coming in if your withdrawal rate must be decreased in a given year. Alternatively, if a dividend stock you own ceases to keep up with its distributions then you have the business income to insulate you from financial demise.

In short, when it comes to retirement income, more is better but all your efforts can be stunted if you miss the mark on one particular thing which we will get into now.


Number 3: Eliminate all forms of debt

You may not know this about me but some of my favorite words in the English language have four letters like food, love and even my name, Adam. However, one four letter word that I, nor your retirement dreams love is debt which is why eliminating all the debt you have is essential to setting yourself up for an amazing retirement life!

Now, me telling you that carrying debt is not an ideal situation to be in probably isn’t something you’ve never heard before. However, there’s a chance that no one has ever explained how carrying debt affects your retirement goals so let me briefly explain how the two relate to one another.

The first instance where debt impacts your retirement actually comes well in advance of your golden years during your accumulation phase. As I mentioned earlier, en route to living your best retirement life, you will need to invest regularly into the assets that will keep you financially afloat down the road. However, as you can imagine, making these contributions will be much more difficult when you are handing over hundreds or even thousands of dollars a month in debt repayments and interest at the same time.

The other situation where this debt is going to hold you back is when you do finally enter your retirement phase. If you are still having to dish out money to creditors every month, you will have to maintain an unnecessarily high withdrawal rate which means that you have to degrade the lifestyle you live in the most precious years of your life or save for longer and risk never retiring at all.

Therefore, you must eliminate all your debts when setting yourself up for the best retirement possible!


Number 4: Set up an emergency fund

If you’ve ever been at the house of a girl you really like and realized you need to take a serious bathroom break then you’ll know exactly what an emergency is. Fortunately, this type of emergency only costs you your pride and not your money but other emergencies in life can hit your wallet pretty hard and when these situations arise in retirement they can be extra punishing. Why is this? Let me explain.

Chances are at some point during your retirement years, you’re going to face some sort of emergency situation that can only be extinguished by money. For instance, you may have your car break down or your furnace explode which can only be fixed by cracking open your wallet and letting tears of sadness roll down your face. Normally, this isn’t the end of the world but when you’re on a fixed retirement income, these costs become extremely hard to cope with.

As such, I recommend you set aside six months worth of living expenses for your golden years. Typically I recommend more but if you’re ready to retire and have taken my advice by setting up multiple retirement income streams then you will have these other assets to support you as well which makes me feel confident that you will be able to handle any financial mishap that comes your way!


Number 5: Avoiding lifestyle inflation

You’re a year into retirement and you’ve not only watched every last show on Netflix but you’ve also beat Candy Crush 16 times, what do you do now? Well, for some, retirement can cause extreme boredom, and when this boredom isn’t managed, it can often lead to increased spending.

Overspending during your retirement years is probably the second worst situation to find yourself in during retirement, second only to not saving enough in the first place, and must be avoided at all costs (pun intended).

Part of proper retirement planning includes having an idea of how you want to spend your time as you grow older. As they say, idle hands are the devil’s playthings and by ensuring you know how you want to fill your days, you can keep the demons away.

Therefore, besides ensuring that your retirement years don’t lack purpose and enjoyment, knowing how you want to spend the later years of your life will also offer you protection against slipping into an inflated lifestyle which can have all your years of hard work whisked away from you in an instant.

Fortunately, if you do commit to ensuring you’ve done all of these 5 things before retiring, then your retirement years will surely be some of your best!