Retirement Planning Guide
Discover new possibilities for your retirement with this guide, packed with practical advice to help you enjoy your golden years to the fullest.
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Planning for retirement is more complicated today.
In the past, retirement was more easily attainable. You put in the work, earned your gold watch, and sailed off into the sunset. However, that’s unfortunately not the case anymore. Why? Because most of us don’t have pensions to rely on and the money we’ve saved doesn’t go as far as it used to. We also often have expenses our parents’ generation simply didn’t need to contend with. Perhaps higher education for your children, aging parents, and/or sky-high healthcare costs ring some bells here?
Although these circumstances are difficult, they’re (thankfully) not impossible. The American Dream is still there for the taking; it just requires a bit more planning and effort.
This retirement planning guide isn’t 100% comprehensive, nor is it meant to replace the advice of a financial advisor. Its purpose, rather, is to help spark new insight into the topic of retirement and provide you with some tips along the way to make your golden years a little more enjoyable. Let’s dive in!
How Much Money Do You Need to Retire?
Perhaps you’re wondering, Can I live on Social Security alone? Or Will a $50,000 annual income work during retirement? The honest answer? It depends on several factors, including where you’ll live, your (and your family’s) health, and your lifestyle. That’s why, at some point, you’ll need to develop a comprehensive budget to help determine this number.
If you want to kick things off with a ballpark estimate, look no further than the latest U.S. Bureau of Labor Statistics Consumer Expenditure Survey: data revealing that annual spending by retiree households—defined as those run by someone age 65 or older—currently averages $61,432 (or $5,119 a month).
A little more than 36% of these expenses are housing-related (mortgage, rent, property tax, and maintenance/repair costs). With all other factors equal, then, an annual income of $50,000 is perhaps too low of a goal.
How to Close in on a Realistic Retirement Budget
Obtaining a more realistic number won’t happen overnight. After all, it requires a lot of research and thought as you’ll need to develop goals and some sort of vision for retirement.
That’s precisely why we recommend engaging in insightful conversations with your partner about how you envision your retired life, which won’t only help bring you closer to this number but also provide a renewed sense of excitement and purpose for this next phase of your life.
While it’s fair to assume you’ll likely encounter a few bumps along the road toward mutual alignment, remaining honest about your expectations and finding common ground is paramount to successfully navigating retirement. Some key topics to initially address—most also apply to those not married—include:
Your vision for retirement
Considering where you and your spouse want to live during retirement is a good start. If you both want to reside in a brand-new locale, think about renting before buying as a practical experiment. This is especially important if this area is located far away from friends and family and/or you haven’t previously lived there. As a worst-case scenario, if you both find yourselves unhappy in this new location, you’ll likely enjoy the ability to pivot more quickly and with less hassle—as you won’t need to sell a home. After deciding where to live, spend time pondering how exactly you’ll enjoy your newfound freedom.
When to retire
As for timing, you’ll need to consider a) your home’s condition and location, ensuring expenses won’t eat up your desired retirement lifestyle b) Social Security and the age when you’ll start collecting; the longer you wait, the higher the benefit c) health insurance, especially if you retire before you’re eligible for Medicare and d) retiring at different times; when one spouse retires before the other, basic activities such as rising at different times, assigning household chores, and not feeling trapped at home while one spouse works are often significant considerations with respect to maintaining a healthy marriage.
Impact of losing a spouse
A much less pleasant—but crucial—conversation involves planning for the aftermath if one spouse is left behind following the other’s death. More specifically, you’ll need to determine if your spouse will have enough retirement income when you’re not around (and vice versa).
Find Out if You’re on Track for Retirement
Now that you’ve hopefully mapped out a rough plan, you’ll need to figure out if your retirement income can support your desired lifestyle.
You can use a calculator
One option is to use an online calculator; according to Semrush, a leading marketing insights company, internet users perform well over 100,000 monthly searches on this exact topic. However, the drawback with these online tools is that they are way too simplistic for the complexity that is retirement.
But a financial advisor is a better option
A better approach is to work with a financial advisor who can take a deep dive into your finances and investments to identify how likely you are to reach your retirement goals.
If you aren’t in fact on track, he/she can provide actionable steps to get you where you need to be (something a calculator can’t do). Working with an advisor will also give you more confidence in your calculations and plan.
Our “Am I on Track?” service collects your financials and gathers insights about your retirement goals to churn out an actual score (from 0 to 100) indicating how likely you are to reach them. Not on track? We’ll outline actionable steps to steer you in the right direction.
Actions to Consider Before Retirement
While we can’t provide specific recommendations on how to reach your goals without understanding your own personal situation, we can share some actions people commonly take in their 50s and 60s to better prepare for retirement—whether or not they’ve saved enough (or too little) for retirement.
Utilize catch-up contributions
If you are 50 years old or older and want to save additional money for retirement, you'll be pleased to know that the IRS has established rules to assist you through "catch-up contributions." These are extra contributions you can make to your 401(k) and IRA accounts beyond the standard annual limits.
You can start making catch-up contributions at any time during the calendar year in which you turn 50. Additionally, if you are between the ages of 60 and 63, you can take advantage of "super" catch-up contributions for 401(k) plans and other employer-sponsored plans, such as 403(b)s, 457s, and the government's Thrift Savings Plan (TSP).
Update beneficiaries
You might already know that several types of assets—including retirement accounts and insurance policies—can pass to your heirs regardless of whether or not you have a will.
However, you may not know that beneficiaries listed on these accounts supersede even your own last will and testament (the document that communicates your final wishes regarding the distribution of assets and other possessions).
Consequently, your assets can land in the hands of an unintended person: such as an ex-spouse or even a deceased relative. Other circumstances may trigger the inadvertent exclusion of a specific person, especially if you opened the account years ago (e.g., before the birth of a child or marrying into the family). These situations can often lead to probate and costly delays, meaning that keeping your beneficiaries up to date is one of the easiest (and smartest!) actions you can take.
Revisit your investment strategy
Generally speaking, you should invest more conservatively as you get older and thus decrease the percentage of equity holdings (stocks) invested in your retirement accounts to reduce risk: which is especially critical as you may lack the luxury of waiting for a market bounce-back after a significant dip.
While the actual number varies by person, a general rule of thumb is to subtract your age from 100 (higher if you expect to live longer) to pinpoint which percentage of your portfolio to keep in stocks. “Safe” assets such as bonds and CDs should comprise the remainder.
Assess your life insurance policies
When most people think of life insurance, they assume its only purpose is to pay a designated beneficiary a lump sum of money upon the death of the insured person. If leveraged correctly—especially during your retirement years—life insurance (particularly permanent policies) can in fact help accomplish so much more. This includes providing access to cash and living benefits, should you fall ill.
Engage in tax planning
In addition to tax implications of your retirement accounts and investments (which we’ll discuss shortly), you’ll need to plan for government programs such as Medicare. Why? Because this program assesses surcharges (IRMAA) for Parts B and D based on tax returns you reported from two years prior: meaning your 2026 income determines your IRMAA in 2027, your 2027 income determines your IRMAA in 2029, and so on. It’s therefore prudent to utilize proper tax-planning strategies to mitigate or even eliminate Medicare surcharges altogether.
Consider an HSA
You can use a health savings account (HSA) to pay for qualified out-of- pocket healthcare expenses, including deductibles and copays. These accounts are specifically designed to help people with high-deductible health insurance plans (HDHP) cover such expenses, and one of their most appealing features is that any money left in the account at the end of each year simply rolls over: providing a greatway to save for future healthcare costs.
Essential Pre- Retirement Advice Video
If retirement is in your near future, be sure to check out this video! Receive practical tips on topics ranging from retirement savings and tax diversification to navigating psychological and emotional aspects of your golden years.
Five Common Retirement Mistakes to Avoid
Now We reflected upon conversations we’ve had with clients and combined that intel with third-party study findings to fuel this section. Our goal? To arm you with the necessary knowledge so you can avoid common pitfalls retirees often encounter.
While it’s impossible to plan for every scenario, our research points to the following gaffes as the most common stumbling blocks that often catch retirees by surprise. Consider these in your planning to help ensure you enjoy a comfortable and stress-free retirement.
Assuming you’ll have minimal home repairs/renovations as a retiree
Whether you want to remain in your current home as you get older or move into a brand-new residence, you’re unlikely to avoid home repairs and/or renovations altogether. Not saving or budgeting enough to cover such expenses is a common regret among retirees; after all, even a new home isn’t immune to accidents and weather damage homeowner’s insurance may not cover.
Also remember that most homes aren’t designed with old age in mind. Therefore, if you require wheelchair accessibility or need to expand a bathroom or convert existing space so key areas exist on one level, expenses can quickly add up.
No singular rule governs how much to set aside, especially since so many variables are at play—including the age of your home. However, a good rule of thumb is to earmark at least one percent of your home’s value every year. For example, if the value of your home is $500,000, aim to save at least $5,000 annually.
Not employing a long-term care strategy
U.S. Department of Health and Human Services data indicates that someone celebrating a 65th birthday today has an almost-70% chance of needing some form of long-term care (LTC) services in his or her remaining years. Females in particular are expected to need additional care compared to their male counterparts, requiring an average of 3.7 years of care compared to 2.2 years for men. An estimated 20% of today’s 65 year olds, meanwhile, will require care for more than 5 years.
Many people incorrectly assume Medicare covers long-term care. The truth is that it doesn’t, except in very limited circumstances. Long-term care insurance policies typically cover out-of-pocket expenses associated with home care, assisted living, and nursing homes: benefits not covered by Medicare or other public programs. Even if you qualify for Medicaid, you’re still restricted to facilities that accept payments from the program—whereas an LTC policy offers additional care choices.
Obtain a policy in your mid-to-late 50s
While everyone’s situation is different—especially if you have a family history of illness at a young age—experts recommend you obtain a policy in your mid-to-late fifties so you can lock in a lower premium.
Several reasons help drive this decision; the primary factor is that you must qualify for long-term care insurance, meaning you must be healthy enough to buy coverage. As many people experience slight health declines beginning in their 50s, it’s perhaps no surprise that according to the most recent American Association for Long-Term Care Insurance (AALTC) data, 34% of those aged 60-64 who submitted long-term care applications were denied. This number rose to over 38% for those between the ages of 65 and 69 and was significantly higher (47.2%) among people aged 70+.
Another reason to buy a policy when you’re younger is that long-term care premiums are based on your age when you apply. That said, avoid doing so too early as the AALTC reports people aged 70+ file more than 92% of long-term care insurance claims. In other words, if you buy a policy in your 40s, you’ll likely pay premiums for more than two decades before you ever file a claim.
While alternatives to stand-alone LTC policies do exist—including self-funding and adding a rider to your life insurance policy— a financial advisor can help you evaluate your options and make recommendations based on your own unique situation.
Failing to enroll in MedicarePart B or D on time
You are required to enroll in Medicare Part B if you lack “creditable coverage” from another source, such as an employer. A failure to do so may result in a 10% monthly premium fee for each 12-month period you could have had Part B but didn’t, and in most cases, this penalty is assessed for as long as you possess it.
While Medicare Part D is optional, people who lack credible prescription drug coverage for more than 62 consecutive days after they’re first eligible will need to pay a late enrollment penalty once they do in fact enroll. This penalty is permanent, with the amount based on how long they went without Part D or credible prescription coverage.
Waiting to buy a Medicare Supplement plan (Medigap)
Offered through various insurance companies, Medicare Supplement plans cover many out- of-pocket costs Original Medicare does not: such as copayments and deductibles. Some policies also cover medical expenses when you travel beyond U.S. borders—another service Original Medicare doesn’t offer. If a Medicare Supplement plan (also known as a Medigap policy) is right for you, keep in mind that insurers who offer such policies cannot deny you coverage or charge you more for any preexisting condition when you first enroll in Medicare. However, adding a Medigap policy outside of your initial seven-month enrollment period may cost you more overall; even worse, insurers can deny you coverage based on your health status. Specifics vary from state to state, so be sure to do your homework accordingly.
Not planning for all that newfound free time
Retirement is about more than just money; many people are unprepared for and struggle to manage related psychological adjustments. For example, when you leave your career, you’re perhaps also leaving your daily structure and sense of purpose behind. You might encounter different stressors during retirement as well, such as more arguments with your spouse (who you’re likely spending a lot more time with) and less contact with co-workers you once saw on a daily basis. It’s therefore critical to not only think through your finances but also how you’ll fill your free time during retirement.
A recent Bankrate study reports that half of parents with adult children are sacrificing, or have sacrificed, their own retirement savings in order to help their children financially. While putting your children ahead of your retirement needs is noble, you’ll need to understand the financial impact it has for your future and draw the line accordingly (as difficult as that sounds). Helping your kids establish and implement budgets while ensuring they pay for various expenses will not only aid your retirement planning but also help them become more financially independent: a win-win!
Other Considerations to Better Prepare for Retirement
Further examine tax implications, especially with respect to retirement accounts
While some of your expenses may disappear in retirement, taxes most definitely won’t. If you collect Social Security benefits, take distributions from your 401(k) or traditional IRA, earn a paycheck from a pension, or even generate investment income, you’ll likely pay taxes as these sources count as income for the year in which you receive them.
How much you’ll pay ultimately depends on various circumstances, with your location ranking as a top factor in this regard. For example, if you’re like many Americans who’ll rely heavily on Social Security during retirement, you may want to avoid living in states that tax these benefits—Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont—as every dollar counts.
Maximize your Social Security benefits
You can take many approaches in this regard, such as the popular option of simply claiming your benefits at a later time. While it’s possible to do so as early as age 62, you’ll receive a more robust amount (about 7% higher) for each year you wait until reaching your full retirement age (when you first become entitled to your full Social Security benefits). If you wait even longer, this rises to approximately 8% each year between your full retirement age and age 70.
As delaying Social Security benefits is perhaps not a realistic option, however, another approach is to max out your earnings. Though calculated using a complex formula, your SS benefits are generally based on your highest 35 years of covered earnings—wages for which you’ve paid Social Security or payroll (FICA) taxes—and the age at which you start receiving them.
If you lack a 35-year work history, your benefit calculation will still include your unemployed years; Social Security will simply enter a zero for each year with no reported earnings; it’s therefore important to raise your lifetime income average by replacing those zero or low-income years with higher incomes until you start collecting (thus maximizing the benefit owed to you).
Become fluent in RMDs
The closer you are to retirement, the more you’ll hear about required minimum distributions (RMDs): the minimum amount of money you’re required to withdraw from specific tax-deferred retirement accounts beginning at age 73 (climbing to age 75 in 2033 for those turning 74 after December 31, 2032).
RMD rules apply to all employer-sponsored retirement plans including 401(k), 403(b), profit-sharing, and 457(b) plans. The mandate also applies to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs, as well as to Roth IRA beneficiaries.
Assuming contributions made into these accounts were tax- deductible, your required minimum distributions are taxed as ordinary income (per the same rate as your taxed wages, interest income, and short-term capital gains) in the year you take them. Consequently, those unfamiliar with RMDs may end up saving less for retirement than their more savvy peers.
Tip: One common strategy employed by investors—especially those whose income or investment values are particularly low or when future tax laws can adversely affect tax rates—is a Roth IRA conversion. This process involves rolling over all (or a portion) of one’s balance from either an existing traditional IRA, SEP, or SIMPLE IRA into a Roth IRA.
While you’ll pay taxes on the money you convert, this tactic will help you avoid RMDs (Roth IRAs have none) and better diversify your retirement accounts with a mix of tax- deferred options and others. It will also allow beneficiaries to inherit the account tax-free provided it was open for at least five years).
Manage your cash flow
Though you’re accustomed to spending money purely based on your income, retirement calls for a (challenging) psychological adjustment that requires you spend based on your savings and overall comfort level instead.
You can take several traditional approaches here. One such strategy is the 4% rule, which states that you should withdraw no more than 4% of your investment assets in the first year of retirement and then adjust withdrawals for inflation on an annual basis thereafter: either by taking a 2% increase every year (the Federal Reserve’s target inflation rate) or tweaking per actual inflation rates. In theory, this rule will help your investments grow enough to prevent you from depleting your funds too quickly over a 30-year retirement period.
Another option is to buy an annuity, an insurance product providing you with a guaranteed income stream for the rest of your life in exchange for a lump sum (or series of payments); this is sometimes a good option for conservative investors concerned about running out of money in retirement, but these types of products do come with many risks and are therefore not for everyone.
No matter which approach you ultimately take, know that it’s imperative to develop a cash flow strategy based on your own specific situation.
Leave a legacy
The estate-planning process is used to create a blueprint for the preservation, management, and distribution of assets in the event of your death and/or mental incapacitation: thus maximizing the value of your estate while minimizing associated costs and ensuring a smooth transfer of your assets to heirs.
A common misconception is that estate planning is just for the elderly or wealthy. The fact is, however, that if you own a bank account, car, home, furniture, or insurance policy, you have assets. You’ll therefore need to establish a plan for how they are distributed upon your death—however modest your estate.
Some considerations you may need to make are how to split an inheritance between your kids, if you should have a will or trust, and how to streamline (or even avoid) probate. An estate attorney can help you navigate some of these decisions with help from your financial advisor.
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