The 25 Essential Retirement Planning Tips
A comprehensive guide to retirement and all the major things that influence your path to successful planning.
There aren’t many things that you get a second chance at. Just like your college interview, retirement is one of those things that you want to prepare for – otherwise, your future might not be exactly how you imagined. As our CEO, Lorraine Ell, once said “You only retire once, it SHOULD be a big deal”.
It’s no surprise then with something that your entire adult life leads up to, retirement planning often leaves people feeling confused, overwhelmed, and even doubting their sound decisions.
We want you to feel comfortable, and educated, and informed to take action.
If you are early on in making plans for your wealth, already a couple years into your retirement, or anywhere between, this article is for you.
We have organized the most common questions we hear from our clients and community – and given them an answer. These 25 essential retirement planning tips will provide you with actionable insights, statistics, and resources so you can find your path towards a clear and confident financial future.
01. Set a Comprehensive Plan
The most important and first step in financial planning is creating a comprehensive plan. Only 30% of Americans have a long-term financial plan. Most people have lived their lives day to day, month to month, year to year.
However, retirement is the time to have the best and most complete plan possible. You want to spend this time of your life doing what you want to do and you want to make sure you have the finances and wherewithal to achieve what is important.
A comprehensive plan should include retirement planning, income planning, tax planning, estate planning, and insurance planning. The plan should give you a good idea of where you are now and where you will be in the future. It should be reviewed and updated annually or as things change in your life.
02. Plan Ahead for Taxes
When it comes to your retirement planning, saving, investing, and plotting how to spend your free time are at the top of the list. How much you will have to pay in taxes after retirement may be the last thing on your mind, but taxes can be a bigger swing in your wealth than investment returns.
There is a lot of uncertainty around tax laws so it is important to keep up with the changes that impact you. It takes some planning but there are ways to lower your future tax liability. Roth conversions, and gifting are a few strategies that you may consider.
Also, times of transition in your life (divorce, starting a new job, retirement) can make a big impact on your taxes. Those are times to evaluate your strategy.
03. Know Your Money Personality Type
We’ve all taken those online quizzes that let us know what our likes and dislikes tell us about our personalities.
Here’s something that’s probably not a surprise–different people have different approaches to how they handle money! Are you someone who isn’t afraid to pay more for something that will bring you joy in the long-term? Are you someone who is very conscientious about your purchases and spends a lot of time reviewing your budget? Do you not really want to spend time thinking about your money and would prefer to have it managed by a professional?
Just like with other areas of personality, there are pros and cons to each way of handling money. It’s important to have an awareness of what areas might be strengths for you, as well as areas where you may need some assistance.
It’s also important if you are in a relationship that you understand how your partner feels about money. Sitting down with your partner and your advisor can help you talk through some of these differences and come to an agreement about your financial goals.
04. Choose the Right Time to Start Social Security
Many of us have been contributing to Social Security since our very first job and look forward to the day that we can start seeing a benefit from that investment.
It is not surprising that 32% of Americans file for Social Security as soon as they can at age 62. However, this can be a big mistake that can have long term consequences on your retirement plan.
There are a lot of factors that need to be considered here, but one of the most important factors is your age. Taking Social Security early can permanently reduce your benefits by up to 30%.
05. Waiting to Claim Your Social Security Can Pay Off
If you file for benefits before your Full Retirement Age, your benefit will be reduced. This reduction is between 25-30% and is permanent. Also, if you are married, the lower Social Security payment will go away when one spouse passes away. If the spouse with the greater Social Security wage history waits for as long as possible to file, that larger benefit will be left for the surviving spouse.
Your benefit will actually increase around 8% per year between your Full Retirement and age 70. After reaching age 70, there is no additional benefit to waiting to take your benefits. If you are still earning money from a job, it is likely that this income will put you over the limit to avoid taxes on the Social Security Benefits. You could end up paying taxes on up to 85% of your Social Security benefit. If possible, it would be beneficial to wait on taking Social Security until you retire.
In conclusion, Americans are living longer. According to the Center for Disease Control, the average American who makes it to age 65 can expect to live another 19 years. If you expect to live longer than average, then you will likely get more money from Social Security in your lifetime by waiting to file.
For most people, the “break-even” age where waiting until 70 results in more income over your lifetime is just ten years, to age 80.
06. Understand When to Take Your RMD
RMD stands for required minimum distribution. When you reach a certain age, you are required to withdraw a minimum amount from your IRAs and 401ks or get a huge tax penalty.
Until recently, RMDs were required by everyone at age 70 ½. However, in late 2019 Congress passed the Secure Act that increases the age.
The Secure Act increases the age after which you must begin taking RMDs from 70 1/2 to 72 — at least for anyone who turns 70 1/2 after 2019. RMDs can be great retirement income, but often trigger higher taxes. It is important to plan for higher taxes when the RMD’s begin or use strategies such as Roth Conversions to lower the future tax impact.
07. Make Sure You’re Covered
How long has it been since you reviewed your insurance coverage? It’s not the most fun thing to do, but are you sure you have an appropriate amount of coverage? In retirement, it is possible that you might be over-insured, rather than underinsured.
Now that the kids are grown, do you know if that life insurance policy you’ve been paying on for years is still needed? Perhaps you aren’t driving as much if you don’t have to commute to work every day. Do you know what your maximum out of pocket expense would be each year with your current health plan?
Make sure to include a discussion of your insurance coverage in your financial plan when you meet with your advisor. Having the right type and amount of coverage for your current stage of life is always important.
08. Plan for your Legacy
A big part of retirement planning is figuring out how much you can and want to leave behind to heirs. People often put off creating a will or estate plan because they want to avoid making difficult decisions or having stressful conversations with loved ones. The idea of death, money, and splitting possessions can create conflict.
Having your affairs in order can make things much easier for your loved ones when you pass.
Do you know what your estate is likely to be? And, have you created all the recommended documents and kept your paperwork up to date?
09. Know What You Own (and why)
How have you made your investment decisions in the past? Perhaps the bulk of your investing has been done in an employer retirement plan and your available choices were somewhat limited. How do you know if an investment that sounds great is a good choice for you, or if it has a lot of restrictions or hidden fees?
It’s important to have a basic level of understanding about financial terms and investments. You do not have to be an expert, but anything that is legitimate in the financial world should be something that can be explained in a fairly brief way in layman’s terms.
If someone is trying to sell you something and they are not able to answer your questions in a way that makes sense, that is a clear sign that you should be very cautious of that investment. Don’t be afraid to ask questions! If something doesn’t make sense to you, ask questions until it does! You will not be the only person in the room who doesn’t understand.
10. Stay Inquisitive About the World Around You
It’s easy to become isolated and fall into a rut after you retire. Keeping a curious mind will allow you to really enjoy learning how the world works. Local libraries and adult centers are great places to go for educational programming.
Curious people are always asking questions and searching for answers — meaning that the brain is getting a workout and staying strong. Being curious and learning new things can help you age slower. Volunteering at a local school is another great way to learn new things and give back to the community.
11. Follow the Lessons of Healthy 90 Year Olds
Being mobile and able is the goal for any retiree! UC Irvine is heading a celebrated research project that is documenting what factors determine who will live past age 90. Here are some of their findings:
- Smokers die earlier than nonsmokers
- People who exercise live longer than those who do not. As little as 15 minutes a day makes a difference. Forty five minutes a day is best.
- Nonphysical activities are also important. Think book clubs, meeting friends for coffee, crossword puzzles.
- Vitamins do not seem to make a difference.
- Moderate alcohol consumption is associated with living longer. Up to two drinks a day leads to a 10–15 percent reduced risk of death.
- Coffee is good too — 1–3 cups a day.
- Gain a little weight — people who are average or slightly overweight seem to live longer than those who are underweight.
If you want to know more about this retirement research, 60 Minutes did an excellent report on “Living to 90 and Beyond.”
12. Manage Cash Flow
OK, so you’ve retired and you’re no longer getting that regular paycheck. Now what? Do you know where you will get the funds necessary to pay your bills? Perhaps you have a pension or Social Security income.
This income may cover some of your expenses, but perhaps not all of your expenses. Have you thought about how you might start taking money out of your old employer 401(k) or 403(b)? Are you aware of the tax consequences of doing so?
It can be a big psychological switch to go from saving automatically in these retirement accounts to withdrawing money from them. It can be very hard to know if you are withdrawing from things in the order that makes the most sense for you and your tax situation.
Talking to a financial advisor can help you set a strategy that will work for you as you create your new “paycheck” in retirement. You’ve been saving in these accounts for your whole adult life–it’s time to have them start working for you!
13. Cut Housing Costs
Housing is the most expensive budget item for most households. Your home is probably also your most valuable asset. As such, optimizing your housing to best achieve your retirement plan is critical to your retirement success.
A few ideas for cutting housing costs in retirement include:
- Rightsizing — downsizing your home can be the most efficient way to tap your home equity.
- Getting a reverse mortgage — there are many pros and cons to a reverse mortgage.
- Purchasing a home with a reverse mortgage — find out how the HECM for purchase works.
- Moving to a retiree-friendly location — Bankrate has a list of best states for retirement.
- Selling your house to travel or retire abroad — here is a list of the world’s best places to retire.
- Exploring senior housing options — so many different retirement housing options are available
- Could you live in a tiny house?
- What about getting a roommate? Think Golden Girls and reduce costs by living with friends.
14. Plan for a Longer Retirement
The concept of “Retirement” as a phase of life that can last several decades is a fairly new concept. For most of history, people worked until they were too old and infirm to do so and then they relied on family members to take care of them for the rest of their lives.
Life expectancies have increased greatly and many people are in good health when they retire. However, relying on Social Security alone for your retirement income could be a mistake! If you do have a long, healthy life, inflation will soon start to eat away the purchasing power of those on a fixed income.
Having different sources of income and/or different accounts with savings in it can help your retirement income withstand your longevity. Depending solely on one account or income stream may limit what you can accomplish once you have the free time you’ve been waiting for!
15. Spend Time with the Grandkids
Research from the Institute on Aging at Boston College found that grandparents who were able to both give and receive support from grandchildren are less likely to be depressed. In fact, “the greater emotional support grandparents and adult grandchildren receive from one another, the better their psychological health,” said Sara M. Moorman, an assistant professor at Boston College.
If you have grandkids, spending active play time with them can help you stay healthier. Active play doesn’t have to mean that you’ll climb a tree, but you can play other games and go on outings together. This is also a great way to help out your adult children who may be stressed balancing work and raising children.
16. Understand Your Investing Risk
Many people think of the stock market when they hear the word “risk.” Market fluctuations are certainly risky and can cause a great deal of uncertainty. However, there are other types of risk that you may not be considering! Have you thought about Liquidity Risk or Interest Rate Risk? Do you know if those risks apply to your portfolio?
All investing comes with some level of risk. The main way to mitigate these risks is to make sure your portfolio is properly diversified. If you are too heavily concentrated in any one type of investment, you may be putting all your eggs in one basket!
17. Don’t Let Your Emotions Get in the Way
Understanding your finances can be a very emotional process. It seems like financial information should be very cut and dry. You should be able to solve problems using dollar figures and percentages and there should always be a right and wrong answer.
In reality, we are all human and we all have ingrained behaviors and feelings about money that can get in the way of our best intentions.
Recognizing that these emotions are normal and that everyone has beliefs and feelings about money and how it should be handled is the first step towards making logical decisions. If you aren’t sure what you should do, it can be helpful to speak with a neutral third party.
Also, always keep in mind that the financial decision that is right for you may not necessarily be the best decision for your neighbor or colleague. Finances can be very personal and there is no one-size-fits-all answer for everyone.
18. Consider Long Term Care
You also want to look at ways to fund long-term care costs. Long-term care is not covered by Medicare or Medicare supplemental insurance. And, research suggests that at least 52% of people turning 65 today will need long term care at some point.
Long Term care can be prohibitively expensive after age 65. For healthy adults the best time to shop for long term care is between ages 60 and 65.
19. Avoid Retirement Depression
For many people, it takes some time to adjust to retirement. How do you fill your free time? For many, their jobs have been a defining characteristic. People may feel pressure to fill their time with activities or feel guilty for enjoying their free time.
Before jumping into retirement, spend some time thinking about what a successful retirement looks like to you. There is no right or wrong way to retire. The point of retirement is to enjoy the benefits of all your years of hard work.
Remember that it is a huge transition, and it is ok for it to take a while before you really feel like you’re in your groove. Also, it’s possible that your goals might change after you live in retirement for a while. That’s ok!
20. Want Health in Retirement? Make Exercise Fun
Many research studies have found that how fast you walk after age 60 is a good gauge of longevity. Apparently, your walking speed can predict dementia, shorter life spans, and depression.
Try making exercise something you look forward to instead of something you have to do. Instead of walking (trudging) on a treadmill, take walks through the park or go for mini hikes. Still does not appeal to you? Why not listen to music or, better yet, bring a friend along and talk and laugh as you get the heart rate going.
21. Consider Health Care Costs
Americans age 50+ cite health care costs in retirement as their greatest financial concern, regardless of their wealth level. Yet the vast majority of people have not factored these costs into their retirement planning.
Premiums for health care have jumped 47% in the last decade and health care costs are forecasted to continue to rise. In fact, health care costs consume about 9% to 14% of a retiree’s spending.
It is important to re-evaluate your supplemental Medicare coverage every year. Insurance companies change policies and your health changes too. Shopping for the best supplemental coverage can really save you money and improve your benefits.
22. Monitor Your Financial Plan
So you’ve met with a financial advisor and created a holistic retirement plan–now what? Even the best laid plans can be derailed by an unexpected situation or market volatility. Perhaps your plans change in a good way.
Maybe you have the opportunity to go on a once-in-a-lifetime vacation and you want to know if you can afford it. How will you know?
When things change, they can change very quickly. It’s very common for the market to have long periods of time where it is relatively steady, with very quick and dramatic downturns. It’s also possible that the market could perform better than expected and you have a little extra growth in your portfolio.
It’s important to revisit your financial plan on a regular basis to keep it updated.That way, if anything unexpected does change, you can start to make plans immediately rather than when it’s too late.
23. Rebalance Your Portfolio
Many people take a “set it and forget it” approach to investing. It’s true that it is possible to make changes too frequently, but never making any changes isn’t the right choice either. If you are well diversified, every day the values of the assets that you own will change.
Some will increase more than others, depending on what the current market conditions are. You may unintentionally be taking on more risk than you are aware.
A great best practice is to schedule a regular meeting (with yourself, or with your advisor) to review your investments. You certainly don’t need to look at them every day, but once a quarter or twice a year is a good period of time to take a look at things.
It’s possible that no changes will need to be made, but if there’s something unusual going on in the market, you may be able to take advantage of some opportunities to make changes that will be beneficial for the long-term.
24. Protect Yourself from Fraud
This is not something that applies only to those in retirement, but it’s always important to be cautious! Every day, people fall prey to schemes from fraudsters on the internet, or scam callers on the phone.
If you are approached by someone who is offering something that seems too good to be true, it probably is.
Before making any large financial decisions, it is good to run those decisions by a trusted third party just to make sure things make sense. Research, research, research!
25. Keep Making 5-Year Plans
No one knows what tomorrow will bring. When you approach retirement, it can feel like you’re close to the finish line. No need to make long-term plans. You’ll head out to your garden and stay there for the rest of your days.
In reality, many people live decades in retirement. Make sure to keep setting goals and making plans. These do not need to be financial goals necessarily. Find a new hobby that you enjoy. Take some educational classes at the public library. Join a community center and meet some new people. Staying active keeps you healthy both physically and mentally.
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