Last time, we discussed the importance of having a vision before creating a financial plan. In this edition of “Our 2 Cents,” we’ll talk about financial steps to take when planning for retirement.
The Start of Your Career
Planning for retirement begins the day you accept your first job. While retirement is a lifetime away, you can take advantage of powerful financial tools from the start.
Take advantage of your employer’s match
Many employers will match your 401(k) and Health Savings Account contributions (read “HSA: The Triple Threat of Tax Savings”). Not taking the match means leaving free money on the table. Over a lifetime, your contributions and the match will grow to significant savings, so don’t miss out on the match.
Work with a financial planner
A planner helps you with two important goals. First, they help you balance near-term and long-term planning. Second, they provide regular financial check-ups to confirm you are on track. You should have a check up annually, if possible, but at least every three years and at any major life event.
If you’re building a business, have a sense of your exit strategy. Will a family member take over the business, will you sell it, or do you have a different exit strategy? It takes several years to implement an exit strategy, so start well before you want to retire.
About 10 Years Out
Continue to work on the items previously mentioned, and focus more closely on ensuring you’re prepared.
Solidify your financial plan
Start checking your plan annually with your financial planner. Determine exactly how you will meet retirement expenses. Will you draw down your assets over the years? Or will you leave an inheritance to beneficiaries or charity? Confirm the proper asset structure and spending plan.
If you need increased savings you can start making catch up contributions to your 401(k) and IRA accounts at age 50. This allows you to make $6,500 and $1,000 above the normal limits (as of this writing).
Create a social security plan
Gain a good understanding of your social security choices. You can claim social security as early as age 62 and as late as age 70. You’ll receive higher payments the longer you delay, but there may be reasons to begin drawing on your benefits early. If you are married, you’ll want to develop a plan jointly with your spouse. If you are divorced and meet certain requirements, you can draw from your former spouse’s benefit profile.
Advisors experienced in social security benefits can help you determine the best strategy. You can also check your benefits at the Social Security Administration website.
Some are concerned about the viability of social security and if it should be included in their financial plan. The closer you are to retirement, the more certain you can be about the payments you will receive. If you are decades from retirement, consider creating a plan without expecting social security benefits and add them in as you get closer to retirement.
Long term care insurance
Long term care expense is one of our greatest risks in retirement. Medicare does not fund long term care expenses, and advanced care can run hundreds of thousands of dollars a year. This is an important consideration when planning for retirement. Your financial planner can help you determine if you can absorb this possible expense with your assets or if you need long term care insurance. Look into long term care insurance in your 50’s so that you take advantage of premium pricing while you are still in good health.
While it’s not essential to enter retirement debt-free, it is empowering. At a minimum, eliminate credit card debt. More important than paying off debt is being able to live within your means.
Solidify your exit plan and begin putting the pieces in place to make the transition. Do you need to train a family member who is a successor to take over the business? Will you seek a buyer for your business? Solidify the plan and start taking action.
Within 5 Years of Retirement
As you approach the homestretch, now is the time to make sure you have all the pieces in place. If you have not achieved the income and asset structure you need, then consider working part time in retirement or postponing your retirement date.
Solidify your Plan
Now you should have a very solid plan including income and spending structure, social security, and business succession.
Review Your Estate Plan
Work with an estate attorney to ensure that your plan reflects your desires, all of your beneficiary designations are titled properly, and all of your assets are accounted for.
Have conversations with those you name as decision makers. Many parents name their adult children to roles such as executor of their estate, decision-makers for health care and financial needs, and coordinators of elder care. Many of these adult children are not aware of these responsibilities. So that they can be prepared, make sure those who will make decisions for you know of the responsibilities and understand your desires so they can properly represent your needs.
Determine health insurance structure
You can apply for Medicare in a 7-month period starting the 3 months before the month of your 75th birthday through 3 months after that month. Know your options and whether you need a supplemental plan. A health insurance specialist can help you understand your options and the Medicare website is an excellent source of information.
Planning for retirement can seem daunting, but if you follow the steps above, you will be well on your way. If you are mid or late-career, remember, that it’s never too late to start. Every step you take puts you in a more positive place. Most importantly, enjoy the journey!