Is Your Retirement Income Inflation-Proof?
Retiring comfortably is challenging, as there is a lot to consider. You need to plan for your potential healthcare needs, how inflation will impact your income and savings, and if you have enough in your emergency fund. Here are 20 things your retirement planning is missing.
1. A Clear Vision of Your Lifestyle
Smart retirement planning starts with a clear vision of the lifestyle you want. If you want to travel, run a small business, or just read all day in a cottage, you need to make sure you plan accordingly. Without clarity, you won't be able to build a financial plan that will deliver your ideal retirement.
2. Healthcare and Long-Term Care Planning
Healthcare is one of the most underestimated retirement expenses. Medicare doesn't cover everything, and long-term care can quickly deplete your retirement income or savings. You need to account for supplemental insurance and out-of-pocket expenses at the very least.
3. Inflation-Proofing Your Income
A fixed income can lose its value fast if inflation spikes. Proper retirement planning should include investments that grow over time, like equities, dividend-paying stocks, or inflation-adjusted annuities.
4. A Tax-Efficient Withdrawal Strategy
How and when you withdraw your money in retirement can impact your tax bill. You need to balance your distributions from taxable and tax-deferred accounts to maximize your wealth. Consult with a tax advisor to create a strong withdrawal plan.
5. Emergency Fund
Retirement doesn't mean that expenses become predictable. You will still have to deal with roof repairs, family emergencies, and unexpected medical bills. You need a dedicated emergency fund separate from your investment portfolio to prevent you from having to sell assets if something happens.
6. Social Security Optimization
Claiming Social Security too early can permanently reduce your benefits. Delaying benefits until you reach full retirement age, or even later, can produce a significantly higher monthly payout. Many retirees miss this opportunity.
7. Estate and Legacy Planning
Retirement is the ideal time to ensure your assets are distributed per your wishes. This includes wills, trusts, and choosing your beneficiaries. Proper estate planning can help minimize your tax obligations and avoid lengthy probate battles.
8. A Plan for Required Minimum Distributions
Once you reach your early 70s, the IRS requires you to start taking distributions from most retirement accounts. You need to plan for these withdrawals, or else you could face a hefty tax penalty or get moved to a higher tax bracket.
9. Longevity Risk Planning
People live longer than ever, which means you need your money to last 25 to 30 years, if not more. Your retirement planning needs to include annuities and conservative withdrawal rates to ensure you don't outlast your savings.
10. Lifestyle Inflation Control
After your decades-long career, it's easy to splurge early in retirement. Yet, overspending in the first few years can devastate your finances for the long run. Create a spending plan that allows for fun but preserves principal for the long haul.
11. A Housing Strategy
For most retired people or couples, your home is your most valuable asset. It's also your biggest expense, so decide early if you'll downsize or age in place. Factor in maintenance costs, property taxes, and home upgrades for accessibility.
12. Purpose Beyond a Career
Many retirees underestimate the level of purpose they found in their careers. Without meaningful activities, even the most financially secure retirees can feel a sense of emptiness. Plan to fill your time with volunteering, hobbies, mentoring, or a creative pursuit or two.
13. Spousal and Survivor Income Planning
If one partner passes away, income sources like pensions and social security may decrease. You need to build adaptable scenarios for both individuals to ensure neither is left in a bad financial position.
14. Updated Insurance Coverage
Your insurance needs can change throughout your retirement. You may not need life insurance for income replacement, but may need more medical insurance or liability coverage. Review your policies to make sure they match your retirement needs.
15. Philanthropy Strategy
If you want your legacy to include charitable donations, you need to plan for it and be strategic. Look into charitable trusts to find a way to support your causes while gaining tax advantages.
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16. Contingency Plan for Cognitive Decline
Planning for cognitive decline is emotionally challenging but it is an act of love. Assign a trusted financial power of attorney, simplify accounts, and automate payments. Having systems in place ensures continuity if you can't manage your finances at some point.
17. A Retirement Income "Bucket Strategy"
You should segment your savings into short-, medium-, and long-term "buckets". The goal is to keep a few years' worth of living expenses in cash or bonds, and let the rest grow until you need it.
18. Travel and Experience Budget
Travel often tops a retiree's wish list, but most don't plan with enough detail. Set aside specific funds for travel and experiences to avoid feeling guilty or having to deal with the aftermath of financial strain.
19. Regular Financial Checkups
Even in retirement, your financial strategy can't remain static. Markets change, tax laws shift, and your financial needs evolve. Schedule semiannual check-ins with your financial advisor to review your strategy and performance, and to make sure your goals haven't changed.
20. Emotional and Social Preparation
There is a big emotional adjustment that comes after your career is over. You need to replace the structure and make up for the lack of social interaction. This can be harder than most retirees think. The goal is to build a new social network, cultivate friendships, and explore hobbies that you ignored for the sake of making money.
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