5 Questions to Ask Yourself When Planning for Retirement
Retirement is a significant transition that many individuals work hard for and look forward to. It’s a time to relax, pursue hobbies, travel, and spend quality time with loved ones. However, achieving a fulfilling retirement requires careful planning and consideration. To ensure a smooth transition into this new phase of life, it’s important to plan ahead to ask yourself five critical questions.
In this guide, we’ll explore these questions and provide insights to help you plan for a secure and enjoyable retirement.
What Do I Want to Do in Retirement?
Retirement offers an opportunity to explore new interests, pursue passions, and enjoy leisure activities. Take some time to reflect on what brings you joy and fulfillment. Whether it’s traveling, volunteering, starting a new hobby, or spending time with family, identifying your retirement goals will help you create a meaningful plan for this next chapter of your life. While you may think you just want to relax and not have a single obligation, you are likely to find that gets dull after a while. Not only that, but staying active and engaged in retirement will keep you healthier, both physically and mentally. And better health will lead to lower health care costs! A win-win.
Do I Have a Retirement Income Plan?
One of the most critical aspects of retirement planning is ensuring that you have a reliable retirement income plan to support your lifestyle while not risking running out of money. This plan should include an assessment of your current savings, investments, pensions, Social Security benefits, rental income, annuities, and more. Not only that, but you need to map out what your future income will look like at different stages, since it may vary over time. Questions you should have answers to include:
- When do I plan to claim social security?
- Can I afford to delay social security until age 70 to get the highest monthly benefit?
- When will my pension begin (if you are lucky to have one these days)?
- Do I have enough assets to supplement my other income if needed?
- What order do I take money out of different accounts?
Speaking of what accounts you plan to take money from, when was the last time you reviewed how your money is invested? As you approach retirement, it is common to start taking less risk with your investments to protect more of what you have accumulated. However, the most appropriate investment strategy will depend on your financial situation. You will likely want to have different “buckets” of investments to align with the different time periods that you will need money.
A well planned retirement income strategy will leave you more informed about the future and whether you are likely to outlive your money or need to rely on others at some point.
Do I Know What My Taxes Will Look Like in Retirement?
Unfortunately generating retirement income means generating taxes. Many individuals think they won’t have taxes in retirement, but that is far from true. In fact your taxes could be even higher in retirement depending on your income sources! Taxes can have a significant impact on your retirement finances, so it’s essential to understand how they will affect you once you stop working.
Income that will be taxable in retirement includes, but is not limited to:
- Social Security benefits (up to 85% of your benefit may be taxed as ordinary income)
- Pre-tax retirement account withdrawals
- Capital gains upon selling investments or real estate
- Pensions & annuities
- Dividends and interest
Depending on your net worth your income can add up quickly putting you in a high tax bracket. Are you prepared for taxes and do you know how you will pay those taxes when it is not automatically withheld from a paycheck? Your tax strategy needs to go hand-in-hand with your income strategy.
Is My Estate Plan in Order?
Estate planning is another crucial aspect of your retirement plan to ensure someone is able to make decisions on your behalf if needed, your loved ones are protected and your money gets passed along to the intended individuals or charities in the most effective and tax efficient manner. This includes creating or updating essential documents such as wills, trusts, powers of attorney, and healthcare directives. Your estate plan does not need to be fancy, but it does need to account for your assets and loved ones.
If your assets currently fall over the estate tax exempt limit of $13.61 million, then your estate plan will also need to tax tax planning into consideration to pass along the highest after-tax amount to your beneficiaries.
Am I Financially Prepared for the Unexpected?
Let’s face it, life rarely goes exactly according to plan. Planning for the unexpected does not make you a pessimist…it makes you prepared. An often overlooked, but common situation in retirement is experiencing higher health care costs than anticipated. Preparing for the unexpected, health care or otherwise, can include maintaining a sufficient emergency reserve, making sure your insurable risks are adequately covered, and for health care purposes, staying active and healthy!
Being prepared for the unexpected also means you are routinely monitoring and adjusting your retirement plan. This is not a set it and forget it type task. You will need to give your planning the proper time and attention it deserves, otherwise something unexpected is bound to catch you off guard.
Final Thoughts
Planning for retirement requires careful consideration of various factors, from financial preparedness to lifestyle goals and estate planning. By asking yourself these five crucial questions and taking proactive steps to address them, you can set yourself up for a secure and fulfilling retirement.
At Crest Wealth Advisors, we help our clients map out their retirement strategy so they know not only when they can afford to retire, but where their income will come from, how to minimize taxes in retirement, make sure there loved ones are covered in the case of an early loss and more. We update and monitor this plan twice a year – or more if needed – to stay ahead of any potential issues and provide peace of mind that the plan remains on track. If this is something you could benefit from then contact us today!