Most people dream of their retirement through their working lives. It’s a time to enjoy the fruits of your labor and spend your days exactly as you want them.
But before you fill up your calendar with all sorts of travel, social outings and volunteer activities, it’s important to take the time to figure out when and how you’ll tap into your hard-earned money to support yourself.
Let’s explore why you need a plan for your life in retirement, as well as things you should consider as you create a long-term retirement plan.
Why Should You Plan Your Retirement?
Knowing how you want to receive income in retirement and setting up your plan will give you unencumbered peace of mind. You have choices that include:
- Receiving monthly income through an annuity
- Managing your money and making periodic withdrawals
- Receiving income from an annuity plus some investments
In addition to decisions about how you’ll receive income, you also need to consider how you’ll spend that money. If you overspend early in your retirement, you could be left financially struggling a few years down the road.
8 Things to Consider in Your Retirement Plan
From saving to spending, here are the top eight things you should include in your retirement plan:
1. Income Streams
How you’ll manage all of your financial resources like Social Security income, pensions and savings. With every income stream combined, how much money can you expect to collect each month?
Your total income stream informs your lifestyle in retirement, and even when you can expect to retire.
2. Your Expected Spending
Know your life expectancy and design a plan that won’t draw down your savings too fast or too slow. You want your money to last at least as long as you do! Plotting life expectancy is not an exact science but there are expert estimates available. And you may want to consider family history in your calculation.
Adjust your living standards if it’s clear that you won’t have enough money to meet your lifetime expenses.
3. An Emergency Fund
Many people forget that emergencies can happen at every stage of life. Just as you needed a rainy day fund when you were younger, you’ll also need one in your golden years. With higher risks of health issues, an emergency fund now may be more vital than ever.
Keep easily accessible funds available for unexpected life events – a good rule of thumb is to aim for at least six months’ worth of living costs.
4. Inflation
Your retirement could last 30 years or more, and prices won’t stay fixed during that time. Since traditional bank account interest rates are well under average inflation rates, your best bet to combat inflation may be to invest your money.
Try to keep your income growing with inflation by investing for income and security.
5. Other Assets
Don’t forget – your home and other fixed assets can be tapped to meet your living needs. According to the U.S. census, Americans aged 65 and older have an income stream of only $38,515, but they have a total net worth closer to $170,500.
If you bought a huge home decades ago but are now feeling all that empty space, consider downsizing to a smaller home and collecting the difference in money to support your lifestyle costs.
6. Tax Implications
Unfortunately, taxes don’t disappear once you retire. In fact, there are several tax implications with retirement accounts you should be aware of.
I recommend you take your required minimum distributions after age 70 ½ and stay informed about changes in tax issues that impact retirees. For more advice on your specific tax situation, it’s best to connect with an advisor or tax planner.
7. Market Shifts
We can plan every piece of your financial future, but there will almost certainly be surprises along the way. No one can predict market fluctuations perfectly, so you’ll still need to check in on your finances consistently.
Keep track of your investments or work with a financial advisor to make sure your financial goals are met and maintained.
Related: Investing in the Current Market: 10 Common Questions and Answers
8. There’s Always More to Learn
Stay educated so that you are well enough informed and can understand the advice and recommendations of your advisor/fiduciary. When it comes to finances, there is always more to learn!
Planning retirement can feel overwhelming at times – but it’s an important process that helps ensure you’re set for the rest of your life.
Connect with Clarity
Are you ready to start saving for the retirement of your dreams? Need a team to help you get on track for financial success? Schedule a meeting to connect with Clarity Wealth Development today
