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Retirement is near.
So, you’re probably thinking, what are the top retirement questions to ask yourself before you take the plunge?
After all, there is a lot at stake.
Nearing retirement is exciting and rewarding. What kind of life do you want? What do you imagine yourself doing?
SPECIAL NOTE FOR INDIVIDUALS AGED 50+ WITH OVER $1 MILLION: Tying your $1 million+ portfolio to your retirement and tax plan can be hard. If you are interested in learning how we can help fully integrate taxes, investments, and retirement income planning, click here for a free retirement assessment. Get more ideas than you thought were possible.
Perhaps the idea of traveling, new hobbies, and volunteering, gets you excited. Or maybe the idea of making your own schedule and having better control over your time is a motivating factor.
The future is yours.
But, retirement is also one of the most critical phases of your life. Small mistakes can snowball into big problems.
That’s why it’s imperative to identify opportunities and red flags in advance of taking the next step. Depending upon your retirement age, you have one chance to make your money last twenty five years or more.
After helping hundreds of individuals across Virginia and the United States transition to and through retirement, we’ve learned a thing or two about financial planning for retirement.
Our experience has taught us a lot about what works and...what doesn’t work.
Part of the lessons we've learned include key retirement questions to ask before you take the plunge. So much so, we thought you may benefit from hearing a few insights that we've gathered over the years.
Here are five retirement questions to ask yourself before you sail away into your golden years.
1. Do I have a spending and retirement income strategy that works?
Probably the most glaring aspect of your retirement transition is figuring out how much you can spend each year to support your lifestyle and financial goals.
Those approaching retirement can get a sense of their retirement spending by looking at their current household budget. Tracking your spending now can be a solid benchmark for future expenses. While some line items will change, many people find that their spending remains rather consistent in retirement.
Once you have a better idea of how much you’ll be spending, compare that plan against the sources of income you’ll have to support it, like Social Security, part-time work, pensions, and withdrawals from your retirement accounts.
Withdrawing from your retirement savings is the exact opposite of what you’ve been doing up to this point.
Retirement represents a complete shift in the way you treat your savings, and an important element of this shift is deciding how to withdraw. Many retirees consider how much they should, can, or need to withdraw but the specific method is often overlooked.
Building an efficient withdrawal strategy can bring immense value to your retirement income plan. If you have different accounts like a 401k, Roth IRA, and a taxable brokerage account, consider how much should come from each (including RMDs once appropriate).
SPECIAL NOTE FOR INDIVIDUALS AGED 50+ WITH OVER $1 MILLION: Tying your $1 million+ portfolio to your retirement and tax plan can be hard. If you are interested in learning how we can help fully integrate taxes, investments, and retirement income planning, click here for a free retirement assessment. Get more ideas than you thought were possible.
It can be prudent to take a portion of your annual withdrawal from each account rather than deplete one account at a time. But, the amount you withdrawal from your accounts depends upon your tax situation.
Also, when you decide to start social security benefits can influence when and which retirement accounts you withdraw from first. Do you plan to take social security income at 62, full retirement age, or wait until age 70? The decision matters.
Withdrawal planning is important for several reasons. With the right plan, you can reduce unnecessary taxes, take advantage of compounding investments, and prolong the longevity of your accounts.
Don't forget, the cost of living rises over time due to inflation. So you'll want to make sure that your income increases every year.
If you need help, talk to a financial planner who specializes in cash flow planning in retirement.
2. Have I accounted for my health both now and in the future?
Healthcare costs are not only an important piece of a successful retirement plan but a practical reality of aging.
Fidelity now estimates couples spend $295,000 on medical expenses alone in retirement excluding long-term care. Without a plan for your personal finances, you risk not being able to afford the care you need and putting the rest of your retirement savings at risk.
If you are looking forward to an early retirement before age 65, you'll find that health insurance is expensive!
Once you turn 65, and depending on the type of coverage you need or want, you’ll have some choices to make around Medicare. Most people qualify for Part A hospital coverage without having to pay a premium. However, you’ll have to pay a premium for Part B medical coverage. Depending on your income (specifically, your MAGI) you may also have to pay a surcharge. This alone may give you a planning opportunity.
Long-term care is another often overlooked healthcare item, which is significant when you consider that the average daily cost of a private room in a nursing home is over $250.
SPECIAL NOTE FOR INDIVIDUALS AGED 50+ WITH OVER $1 MILLION: Tying your $1 million+ portfolio to your retirement and tax plan can be hard. If you are interested in learning how we can help fully integrate taxes, investments, and retirement income planning, click here for a free retirement assessment. Get more ideas than you thought were possible.
Medicare does not provide coverage for long-term care, so it’s essential to consider how you’ll take care of health expenses should they arise. Generally speaking, you can purchase a long-term care policy or set aside additional savings/investments to cover these expenses. Either way can work, but each requires unique planning, so it’s something you need to explore well before you need it.
The important takeaway here is you can save a significant amount of money with proper planning—either directly through premiums or indirectly with additional protections from unplanned expenses.
We've found that families can potentially save tens of thousands of dollars in healthcare premiums with the right planning and strategies. From health savings accounts (HSAs) to reducing taxable income, the right plan can help prepare you for inevitable healthcare expenses.
And don't forget about the potential for downsizing your home in the future. The quality of your healthcare in the future has a direct relationship to where you live.
3. Am I excited about my retirement lifestyle?
It’s easy to get lost in the many financial components of retirement planning, but paying heed to the personal side of retirement planning is just as critical. Considering your lifestyle wants, needs, and expectations helps you walk into retirement with purpose and confidence.
What's on your bucket list?
Planning for your ideal lifestyle is just as important as a well-structured investment plan.
Ask yourself,
How will I spend my time?
How can I maintain and form new social connections?
Where/how will I find meaning and fulfillment?
How can I challenge myself, both mentally and physically, to maintain good health?
The reality for most retirees that don’t have concrete answers to these questions is that retirement becomes dull and unfulfilling.
Instead, make a conscious effort to build the retirement life you want one step at a time. For many, that involves something rather contradictory to the traditional idea of retirement—working.
Over the last few years, many retirees have embraced second careers that bring them joy, fulfillment, purpose, and resources for their life. Maybe you volunteer to teach a hobby of yours or start a small business. These are compelling ways to stay engaged and motivated in your golden years.
Whether it’s meaningful work or fulfilling hobbies, consider how you’ll spend your time before you make the leap.
4. Is my estate plan updated?
Your estate plan should be updated periodically, especially in significant life transitions, making retirement the perfect opportunity to check-in on your documents.
Even if you don’t think your estate is large enough to worry about because it is well below the estate tax exemption, there are plenty of reasons to give estate planning some time.
Perhaps you have acquired new assets (house, boat, business, etc.) and need a plan for passing those along. If you haven’t clearly laid out how you want your assets to pass to heirs, then they may have to deal with the courts and go through the probate process.
Avoiding probate alone is often reason enough to make sure you have a proper estate plan in place.
You also want to check-in on your primary and contingent beneficiaries, update your power of attorney and medical directive, and ensure your trusts are funded properly.
We often find that individuals prepare the right estate planning documents, but fail to properly establish their traditional IRA or life insurance beneficiaries. The result is a failed estate plan that you spent thousands of dollars creating.
An experienced Certified Financial Planner ™ or CFP® should be able to help analyze your estate plan.
5. Do I have an income tax strategy in place?
The way you pay taxes changes in retirement.
Knowing how your income channels are taxed and making a plan for tax-efficient withdrawals in retirement will extend the life of your nest egg and give you more flexibility and freedom in your spending plan.
Your 60s and 70 can be filled with fluctuations in taxable income. Your income from employment, savings withdrawals, annuities, pension payouts, and Social Security will likely all change during this time. Employer retirement benefits can also create tax opportunities and problems.
Managing your taxable income is paramount to reduce taxes now and in the future, and with all of this variation, there are many planning opportunities.
Should I do Roth conversions?
When should I take Social Security?
How can I maximize my giving while reducing taxes?
Is my investment portfolio managed with taxes in mind?
The answers to these and other retirement tax questions are often integrated because they affect each other.
SPECIAL NOTE FOR INDIVIDUALS AGED 50+ WITH OVER $1 MILLION: Tying your $1 million+ portfolio to your retirement and tax plan can be hard. If you are interested in learning how we can help fully integrate taxes, investments, and retirement income planning, click here for a free retirement assessment. Get more ideas than you thought were possible.
For example, consider your withdrawal plan.
As we mentioned before, the way you withdraw can have a significant impact on your taxes.
For example, it may be possible to reduce the taxes you pay on your Social Security benefits or Medicare Part B premiums because those factors are based on your other income sources.
We’ve created a handy checklist to help you go through these considerations and others when you’re thinking through retirement. Feel free to grab a copy here: What Issues Should I Consider Before I retire?
Conclusion
Retirement can and should be a wonderful chapter in your life. But, it's important to know the right retirement questions to ask yourself before you transition to the next chapter in your life.
There are just too many things that can go wrong if you don't plan ahead. That's why having a personalized financial plan can be so helpful. A plan can help address all the questions above and many more that we didn't discuss.
As a start, the five key questions you may consider include:
Do you have a spending and retirement income strategy that works?
Have you accounted for your health both now and in the future?
Are you excited about your retirement lifestyle?
Is your estate plan updated?
Are you prepared for your taxes?
If you're able to confidently answer these questions, then I think that's a great start to maintaining financial security and peace of mind going forward.
But, there's a lot more to think about and the devil is in the details.
If you’re looking for a tailored retirement plan that addresses all of your retirement questions, schedule a call with our team today.
Our financial advisors specialize in helping individuals and couples age 50 plus have enough money for retirement so you can enjoy life without the stress.
Whether you're located in Virginia, California, Florida, or anywhere across the country, we offer comprehensive advisory services that can help.
Mark Fonville, CFP®
Mark is a fee-only, CERTIFIED FINANCIAL PLANNER™ helping individuals age 50 make better decisions with their money so they can enjoy retirement without the stress of money. He is also the President of Covenant Wealth Advisors and has been featured in the New York Times, Kiplinger, the Chicago Tribune, and more.
Disclosures:
Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.