Retirement marks a monumental chapter in life. For many, your retirement years can span for 30 years or more. In fact, this stage of life may even outlast the time you’ve spent working! So it’s no wonder so many of us look forward to retirement: a phase where you can put the 9-to-5 grind behind you and focus on what truly matters to you.
Throughout our working years, we sacrifice, plan, and save—with some of us even creating detailed checklists to prepare for what’s to come. Yet, despite our best efforts, we may not get to everything on our checklist. Or worse, we may have had the wrong things listed out. So how do we know when we’re ready to retire? How do you know if you’re following the right checklist? The short answer is you won’t.
A Retirement Checklist is Not a Retirement Plan
As mentioned, many of us lean on the “checklist method.” That’s because checklists are a great place to start. However, a retirement checklist—no matter how much thought you put into it—isn’t meant to replace a comprehensive retirement plan. An effective retirement plan is designed specifically for you. It should reflect your values and interests, prioritizing your current finances and future aspirations, and adapting to your life as it changes.
A checklist on the other hand may include a list of “to-do’s” such as unfinished items that you want to cross off before the last work paycheck hits your bank account. It’s not uncommon for these lists to include big-ticket items in an attempt to take care of expenses upfront. This might be a home repair, replacing a vehicle, or even paying off the mortgage. While these actions may be satisfying, it may not actually improve your financial situation.
For example: What if you were to save that money? Many people who are preparing to retire often have only a few years left on their mortgage. Paying off a low-interest mortgage might not be the wisest move if the interest rate is below 4%. Instead, if they invested those funds into conservative savings or bonds, it could yield higher returns, allowing your money to grow while maintaining manageable payments. So while putting together a checklist and working through it may be your best intention, a retirement plan is simply not a “one size fits all” endeavor.
Retirement Planning Requires Careful Planning
Managing your financial resources wisely in retirement isn’t just about balancing cash flow; it’s also about avoiding unintended tax consequences. For example, taking large lump sums from an IRA to pay down debt may seem like a good idea, but it can lead to a spike in taxable income for that. This could push you into a higher tax bracket, potentially increasing your tax rate by 8 to 10% or more compared to spreading those payments over multiple years.
To illustrate this, consider the 2026 federal income tax brackets for married couples filing jointly (see below). Understanding how additional taxable income impacts your tax rate, can help you make more informed decisions about withdrawals and debt repayment in retirement.
Tax Rate | Taxable Income (Married Filing Jointly)
10% Up to $24,800
12% $24,801 to $100,800
22% $100,801 to $211,400
24% $211,401 to $403,550
32% $403,551 to $512,450
35% $512,451 to $768,700
37% Over $768,700
Let’s break it down using a couple of examples.
Example 1: If you were at $90,801 in taxable income and were going to pay $10,000 per year over three years, that $10,000 taxed as a distribution would keep you in the 12% tax bracket. This means you’d pay $1,200 in taxes each year on those distributions, totaling $3,600 over three years.
Example 2: You pulled the entire $30,000 in a single year to prepay the loan. If you were in your final year of work, where your income already exceeded $100,801, then the entire amount would be taxed at 22%. This effectively increases the tax burden from $3,600 to $6,600 paid in the current year—nearly double the cost of spreading the payments over three years. Now you may think, “I’m saving interest payments on this,” taking the prepayment could come at the expense of sharply higher taxes. Additionally, by keeping your assets invested, they have the potential to grow and offset a portion of the interest cost.
Careful planning and spreading out distributions can help you avoid unnecessary tax burdens and preserve more of your hard-earned savings. There are certainly instances where paying off debt early is a smart move, particularly when dealing with high interest payments (i.e., credit card debt). However, home mortgages or competitive auto loans may be less obvious once taxes and the opportunity cost of those assets are factored in.
Sitting down and preparing a multi-year tax plan can be a huge help in determining if it makes sense to pay now or pay later and avoid an unintended tax hit.
Focus on What’s Important: Not Getting Every Decision Right
As we transition into retirement, it’s important to account for both predictable and “one-time” expenses that may spring up. While you may not have to replace a roof often, you may have to do it again at some point over 30 years. Budgeting 1-3% of your home’s value annually for maintenance and updates can help ensure you’re prepared for these inevitable costs.
Similarly, cars are another big-ticket item people want to pay for and then check off their list, but the need to drive never goes away. Even those that “pay cash” for a car may not have car payments, car ownership still requires costs for upkeep, insurance, and someday (even if it’s years later) you’ll likely have to replace your vehicle. Including car ownership in your retirement budget—whether through loan payments, leasing, or saving for future purchases—can provide clarity and prevent financial surprises. This approach allows you to evaluate whether paying cash, borrowing, or leasing is the best option for your situation.
Ultimately, understanding the lifestyle you want in retirement is the cornerstone to building a realistic and effective retirement plan. While it’s all well and good to craft a retirement checklist, it’s a solid financial plan that will help you stay on track and guide you through important decisions and help you stay on course. Remember, planning doesn’t end with retirement; it’s a process that evolves with you.
