Tag: retirement

Gifting a Roth IRA?

When it comes to giving thoughtful gifts, financial security may not be the first thing on your mind. However, giving a Roth IRA can be a meaningful way to start your loved ones on a path toward financial security.

A Roth IRA is a type of individual retirement account that offers tax-exempt growth and tax-exempt withdrawals in retirement, which make it a powerful tool for building long-term wealth. Contributions to Roth IRAs are made with after-tax dollars, and qualified withdrawals of assets are tax-exempt and don’t increase your taxable income. In contrast to traditional IRAs, they aren’t subject to required minimum distributions (RMDs) during the owner’s lifetime, which means assets in the account can continue growing tax-exempt throughout the account holder’s life.

There are several benefits to giving a Roth IRA.

1. Tax-Exempt Growth

One of the primary benefits of Roth IRAs is that they allow contributions to grow on a tax-exempt basis. This means any earnings, such as interest, dividends, and capital gains, aren’t subject to federal income taxes while held within the account. Over time, this can add up to significant savings, especially for younger investors who are able to let their assets grow over many years before withdrawing them in retirement.

2. Retirement Savings

Establishing a Roth IRA for a loved one can be a great way to help them save for retirement. Many young people struggle to find extra money to set aside for retirement planning. Funding a Roth IRA can help remove some of that financial burden and allow your family member to focus on other financial priorities, such as saving for a home, paying down student loan debt, starting a business, etc.

3. Financial Literacy

Giving a Roth IRA can be a great opportunity to educate loved ones on multiple financial topics, such as saving early and often, the power of compound interest, the basics of investing, and the importance of planning for retirement. With a Roth IRA, not only are you helping your loved ones financially, you’re also teaching important financial strategies.

4. Estate Planning

Not only are Roth IRAs not subject to RMDs during the account holder’s lifetime, but they can also be passed on to heirs tax-free following the account holder’s death. Roth IRAs are a tax-efficient way to transfer wealth to future generations because they allow heirs to receive assets without having to pay income taxes on the distributions (unless the Roth IRA is less than 5 years old).

In addition, Roth IRAs don’t count toward the taxable estate of the account holder, which means they can help reduce the size of an estate for tax purposes. By giving a Roth IRA as part of an estate planning strategy, the account holder has the potential to reduce their heirs’ estate tax liability, which helps preserve more assets for future generations.

5. Compound Interest

By giving a Roth IRA to a younger family member, you offer the opportunity to take advantage of compounding interest over the individual’s lifetime. The impact of this cannot be overstated.

Suppose you contribute $1,000 to a Roth IRA on behalf of your granddaughter every year, beginning at age 20. By the time she reaches 40, you would have invested $20,000 on her behalf ($1,000 x 20 years). Assuming an average annual return of 10 percent, the investment would be worth $63,773.40 after 20 years.

On the other hand, if your granddaughter began contributing $2,000 per year to a Roth IRA from age 30 to 40 ($20,000 total), her investment would only be worth $36,934.83 after 10 years (again assuming an annual average return of 10 percent) because she has less time to take advantage of the power of compounding.

Contributing to Roth IRAs should not exceed the amount actually earned in a year by the account owner — or the maximum contribution limit, if the owner earns more than that amount.

The gift of a Roth IRA to young family members has the potential to significantly improve their long-term financial outlook and be a cornerstone of their nest egg now and in the future. Roth IRAs can truly be the gift that keeps on giving.

Gene Gard, CFA, CFP, CFT-I, is a Partner and Private Wealth Manager with Creative Planning. Creative Planning is one of the nation’s largest Registered Investment Advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.

Tags Finance, retirement, Roth IRA, tax

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Missing Retirement Funds?

Post author By Gene Gard
Post date September 18, 2024

Losing track of retirement funds is a common and concerning trend that has worsened in recent years. As of May 2023, there were approximately 29.2 million forgotten 401(k) accounts in the United States that held approximately $1.65 trillion in assets. And, due to recent increases in job switching, the number of forgotten 401(k)s has grown by more than 20 percent since May 2021.

Missing out on these retirement funds can put your retirement at risk, as you may end up losing significant assets. Fortunately, there are ways to locate and reclaim lost retirement accounts. The following tips can help.

1. Check with past employers.

If you’ve changed jobs throughout your career, it’s important to follow up with past employers to make sure you didn’t leave any money behind. Retirement plan administrators have several options for how to handle abandoned funds in an employer-sponsored account, based on the amount left in it.

• $1,000 or less — The employer can issue a check and mail it to your last known address. If you’ve moved since leaving a job, you may need to request a new check.

• Between $1,000 and $5,000 — Employers can move funds to an IRA without your consent. You’ll need to ask your past employer how to access the account.

• More than $5,000 — There’s a good chance your funds are still in the employer’s plan. It may be wise to roll over the account balance to an IRA that you control.

2. Search unclaimed property databases.

Sometimes people lose track of their retirement savings when they move and forget to notify past employers of their new address. When an employer or financial institution is unable to reach an account-holder, it may turn over the account to the state’s unclaimed property office.

Fortunately, you can search for your name on the National Association of Unclaimed Property Administrators (NAUPA) website or your state-specific unclaimed property office to find any unclaimed retirement funds that may be waiting for you.

2. Check the Department of Labor (DOL) abandoned plan database.

If your past employer’s plan was terminated, the DOL’s Employee Benefits Security Administration consolidates information about unclaimed retirement benefits and makes it easy to track down missing funds.

3. Contact the Pension Benefit Guaranty Corporation (PBGC).

The PBGC can be a great resource if you lost track of a defined benefit pension plan at a previous employer. This organization is a government agency that insures the value of pension benefits and helps individuals locate lost pension plans. Visit pbgc.gov for more information.

4. Track down forgotten IRAs.

If you think you may have abandoned an IRA along the way, take inventory of past bank and investment account statements for any evidence of the account. You can also reach out directly to any financial institutions you’ve worked with in the past to inquire about any inactive or dormant IRAs associated with your name.

If you think you left behind retirement assets at some point, it may be worth the effort of tracking them down. Even if you haven’t contributed to the accounts in many years, the power of compounding has the potential to significantly grow your retirement assets over time.

Gene Gard, CFA, CFP, CFT-I, is a Partner and Private Wealth Manager with Creative Planning. Creative Planning is one of the nation’s largest Registered Investment Advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.

Tags 401(k), Finance, IRA, retirement, retirement savings, unclaimed property databases

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Funding Your 401(k)

Post author By Gene Gard
Post date September 4, 2024

If you’re making regular contributions to an employer-sponsored retirement plan, such as a 401(k) or 403(b), congratulations! You’re taking steps toward a more secure financial future. However, even those who participate in a 401(k) plan may worry they’re not contributing enough to achieve their retirement goals.

Unfortunately, as with so many financial planning challenges, there’s no single guideline to ensure you’re putting enough aside. Even if you have an idea of the dollar amount you’ll need to comfortably retire, the amount you need to save varies based on a wide range of factors, including when you start investing, your portfolio allocation, market events, lifestyle goals, spending habits, inflation, etc.

A general rule of thumb is to invest 15 percent of your income in a retirement account, but your exact savings requirements may differ widely from that number. Rather than focusing on a specific percentage, consider implementing the following tips to help maximize your employer-sponsored retirement plan benefits.

1. Start contributing early.

Thanks to the power of compound interest, it’s typically more advantageous to start contributing to a 401(k) as early as possible, even if you’re only able to commit to a small amount.

2. Maximize your employer match.

If someone offered to give you $3,000 each year with no strings attached, would you take it? Of course you would! Yet many people pass up retirement savings opportunities by not contributing enough to their 401(k) to receive the full value of their employer’s matching contribution. That’s essentially saying no to “free” money.

3. Increase your contributions by 1 to 2 percent each year.

Once you’re contributing enough to receive your full employer match, consider increasing your contributions each year or whenever you receive a raise. Even a 1 to 2 percent annual increase can have a big impact on your savings over time, and you’re unlikely to even notice the impact on your take-home pay.

4. Diversify your contribution types.

Many employer-sponsored retirement plans offer the option of contributing to a traditional (pre-tax) 401(k) or a Roth (after-tax) 401(k).

• Traditional 401(k) contributions provide the benefit of lowering your taxable income during the year in which they’re made. However, these assets and their earnings are taxed as ordinary income when you withdraw them in retirement.

Once you are retired and reach a certain age, the IRS requires you begin taking required minimum distributions (RMDs) from your pre-tax retirement accounts. These withdrawals are subject to ordinary income tax.

• Roth 401(k) contributions don’t provide an immediate tax benefit, but assets can be withdrawn without federal income tax as long as you’ve reached age 59.5 and held the account for at least five years.

In addition, Roth 401(k) contributions aren’t subject to RMDs, which means your assets can continue growing within the account throughout retirement.

Contributing a portion of your retirement savings to both types of accounts offers a combination of tax benefits, including:

• An opportunity to lower your current taxable income when you’re in a high tax bracket by making pre-tax contributions

• Flexibility and tax-planning opportunities in retirement that allow you to draw from accounts with different tax treatments, based on your changing needs, market conditions, and tax exposure.

Gene Gard, CFA, CFP, CFT-I, is a Partner and Private Wealth Manager with Creative Planning. Creative Planning is one of the nation’s largest Registered Investment Advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.

Tags 401(k), 403(b), Finance, Memphis, retirement, Roth

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Five Habits of Successful Retirement Savers

Post author By Gene Gard
Post date August 21, 2024
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Be a successful saver. (Photo: Annie Spratt | Unsplash)

A recent report indicated that a mere 46 percent of American households have savings in a retirement account. Of those who have saved, 6 percent reported having more than $100,000 in retirement savings, and only 9 percent have more than $500,000, indicating a significant retirement savings gap between the amount they say they need for retirement and the actual amount saved for many Americans.

The good news is that successful retirement savers can teach us a lot about how to set aside money for the future. The following habits of successful savers can help you bridge the retirement savings gap.

1. They start saving early in life.

Successful retirement savers understand the importance of saving early and consistently throughout life. This practice allows them to maximize the benefits of compound interest over time because as investment gains accumulate, they increase an account’s balance and begin earning their own interest. Over the years, this cycle can lead to significant earnings.

2. They gradually increase the amount they save.

Successful retirement savers understand that gradually increasing the amount they save over time can have a significant impact on their assets, with a minimal impact on their current lifestyle. These savers often make an effort to increase the amount they contribute to their retirement accounts by 1 percent to 2 percent each year. Over time, small, regular increases such as these can have a big impact on your retirement savings, and you’re unlikely to even notice the difference in your net income.

3. They prioritize saving for the future.

Saving for the future requires focus and dedication. Successful savers often prioritize saving over paying for nonessential expenses. A great way to prioritize saving is by incorporating it as a line item on your budget. Just as you need to pay the electric bill each month, so should you save for the future.

4. They remain focused on the long term.

Successful retirement savers understand the importance of taking a long-term approach, both with their investment allocation and their savings behavior. For example, they tend to establish a long-term investment allocation and stick with it rather than trying to time the market.

In addition, successful savers typically avoid behaviors that could derail their savings goals, such as taking 401(k) loans or withdrawals before retirement.

5. They save in multiple accounts.

Successful savers often save in multiple accounts. For example, you may wish to start by saving enough in an emergency fund to cover three to six months of unexpected expenses. At the same time, be sure to contribute to your workplace retirement account. If you have additional funds available, make regular contributions to an IRA and a health savings account (HSA). Regularly contributing to multiple accounts can help maximize your savings over time.

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Long-term Care Insurance

Post author By Gene Gard
Post date August 7, 2024

What are your long-term healthcare goals? (Photo: Dominik Lange | Unsplash)

There is often debate among financial professionals about whether long-term care insurance (LTCI) is worth the expense. Some advisors argue having long-term care coverage in place is vital to protecting clients’ assets in retirement. Others believe it’s more cost effective to invest the money a client would have used on premiums into a diversified portfolio that can continue growing over time to cover future care expenses. The correct answer is “it depends.” When determining whether long-term care insurance is right for you, consider the following.

What are your goals?

• Do you hope to leave a financial legacy for your children or grandchildren after you pass away? If yes, an LTCI policy may help protect the assets in your estate. If no, your current assets may be enough to cover the cost of long-term care.

• Do you hope to continue living in your home for the rest of your life, or do you wish to move to a senior living community? If you want to continue living in your own home, you may need LTCI to cover the cost of an in-home caregiver. If you plan to move to a senior living facility, the assets from the sale of your home may be enough to cover your housing and care expenses.

• Do you have children or other family members who would take care of you should you become unable to take care of yourself, or would you prefer having a professional help with your daily living tasks?

What is your current financial situation?

Perhaps this question should be, “Do you have enough assets to cover the cost of long-term care without a policy in place?” Healthcare is one of the largest expenses faced by Americans in retirement. A 2021 study by Fidelity estimated the average retired couple, aged 65, would need approximately $300,000 in after-tax savings to cover healthcare expenses in retirement. And, according to the U.S. Department of Health and Human Services, 70 percent of adults who reach age 65 will require some type of long-term care as they grow older.

If you have enough available savings to use for long-term care expenses without derailing your other financial goals, an LTCI policy may not be necessary. On the other hand, if you or your loved ones would struggle to pay such a large expense, it might make sense to invest in LTCI.

How old are you?

One of the most important considerations in determining whether or not LTCI makes sense is the age at which you purchase it. If you wait too long to implement coverage, you may not qualify. On the flip side, if you implement a policy too early, you may end up making premium payments for longer than necessary.

Tags Finance, Long-term Care Insurance, LTCI, retirement

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Where to Retire?

Post author By Gene Gard
Post date July 24, 2024

One of the greatest freedoms of retirement is the ability to live wherever you want. But your choice can have a big impact on your lifestyle and budget, so it’s important to choose wisely. Here are six considerations as you decide on a locale.

1. Cost of living

The amount you pay for daily living expenses can vary between different cities and states. By choosing a location with a more affordable cost of living, you may be able to do more in retirement, such as travel, pursue hobbies, and purchase a nicer home. Be sure to consider expenses beyond just housing, utilities, and transportation. You’ll also want to consider food and groceries, entertainment, and recreational activities.

2. Healthcare availability

During early retirement years, you may not need to worry much about healthcare. However, as you age, it may become more likely that you need access to quality healthcare and, potentially, long-term care. Consider the quality and availability of healthcare and evaluate the availability of good doctors, hospitals, senior living facilities, and long-term care facilities.

3. Taxes

The amount you pay in taxes can have a big impact on the lifestyle you’re able to afford, which is why it’s important to consider how much of your retirement income may go toward paying Uncle Sam. Evaluate the impact of the following taxes as you consider your retirement location:

• State income taxes: Different states impose different tax rates on retirement income.

• State tax on Social Security benefits: There are nine states that tax Social Security benefits (Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont). Regardless of where you live, up to 85 percent of your Social Security income may be subject to federal income tax.

• Taxes on retirement plan distributions: Assets held in tax-deferred accounts, such as traditional IRAs and 401(k)s, are subject to federal ordinary income taxes when withdrawn in retirement. However, some states don’t tax these distributions, which can help lower your tax exposure.

• Pension income: Some states differentiate between public and private pensions and may tax only public pensions. Other states tax both, and some states tax neither. Again, the amount of state tax you pay on this retirement income source can have a big impact on your lifestyle.

• Capital gains: Long-term capital gains are subject to more-favorable federal tax rates than ordinary income. However, many states don’t differentiate between earned income and capital gains, which means, depending on where you live, you may face significant tax liabilities on your investment income.

• Estate taxes: In 2024, the federal government allows individuals to pass on up to $13.61 million without any federal estate tax ($27.22 million for married couples filing jointly). However, depending on where you live, your estate may be subject to state taxes.

• Property taxes: Property tax rates vary significantly from state to state, and even between counties. Depending on which state you live in, you may be eligible for a property tax exemption (which can add up to big savings over time).

4. Leisure activities

How do you envision spending your free time once you retire? If you’re an avid golfer, it’s probably important to live in a location with ample golf courses and a moderate climate. If you hope to hit the slopes on a regular basis, mountains and snow are likely essential. While finding an affordable location is important, it’s just as vital that it meets your lifestyle needs.

5. Climate

If you’ve ever felt the impact of seasonal affective disorder, you know how big an impact a location’s climate can have on your mental health. Once you’re retired, you may have fewer responsibilities to occupy your time, which can give you more freedom to enjoy the outdoors. Be sure to choose a location with a climate you enjoy.

6. Family and friends

Some retirees choose to move closer to their kids and grandkids, while others prefer the social aspects of an active adult community. Choosing a location with an adequate amount of social interaction can help you avoid loneliness and isolation in your retirement years.

Gene Gard, CFA, CFP, CFT-I, is a Partner and Private Wealth Manager with Creative Planning. Creative Planning is one of the nation’s largest Registered Investment Advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.

Tags Finance, retirement, retirement locale, retirement plan

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Why Planning for Retirement Is About More Than Money

Post author By Gene Gard
Post date May 1, 2024

As you plan for retirement, it’s important to focus on having enough assets to live the life you want. Money and assets are just tools we use to express personal values and highlight what we view as important.

In the years leading up to retirement (or at any stage of life), be sure to focus on the things that will bring you joy, meaning, and fulfillment throughout the next chapter of life.

Health

You may have scrimped, saved, and invested your entire adult life to prepare for retirement, but what does it matter if you’re not healthy enough to enjoy your golden years? As you plan for your financial future, don’t forget to take care of your physical health.

Not only can a healthy lifestyle lead to a more fulfilling retirement but it can also help lower your retirement healthcare expenses and free up more money for enjoyable experiences. As an added potential benefit, your fitness journey may even lead to new hobbies as you transition into your retirement years.

Friends

It can be difficult to transition from the workforce, where you’re constantly surrounded by people, to a relatively solitary life. Social isolation can lead to multiple emotional and health-related issues, including depression, anxiety, and dementia. Even if you have a spouse to keep you company, you may benefit from spending time with friends outside your home.

In the years leading up to retirement, it’s important to start developing friendships with others. Consider seeking companionship through common interests. Perhaps you enjoy golfing, volunteering, or painting. Make an effort to connect with other people you encounter in these settings, and work to build some friendships prior to retiring.

Hobbies

Speaking of interests, retirees often find fulfillment by participating in hobbies. Have you always wanted to take up golf? Write a book? Try your hand at pickleball? Learn to throw a ceramic pot? Retirement is the time to do it! Don’t be afraid to put yourself out there and try something new. As you begin to explore new hobbies, try lots of new things and experiences — but don’t be afraid to quit quickly and try something new!

Purpose

Few retirees are done pursuing their goals after they leave the workforce. In fact, those who are most satisfied in retirement continue to have a clear sense of purpose in their lives — a mission that guides their actions. While it’s important to relax and have fun in retirement, it’s also important to find a sense of purpose and continue finding meaning in your daily life.

You may find purpose by continuing to work in retirement. Or perhaps you’re driven to volunteer with an organization that’s near and dear to your heart. Maybe your purpose comes from spending time with loved ones, caring for relatives, or teaching your grandchildren special skills.

It can be helpful to write down your purpose and view each action through the lens of “does this help me move toward my purpose or away from it?” You might be surprised how many decisions you make out of inertia or neglect and not in pursuit of your purpose!

Gratitude

Practicing gratitude can have a big impact on both your physical and emotional health. The benefits of gratitude include:

• Lower stress

• Improved sleep

• Lower blood pressure

• A stronger immune system

• An improved ability to identify and regulate emotions

• Higher emotional intelligence

• More positive feelings

• Better connections with others

To find more fulfillment in retirement, make an effort to regularly reflect on the people and things you’re grateful for. Be grateful for small things, such as the sun shining on your face, as well as big things, like the birth of a new grandchild. Taking time to recognize and appreciate the things that bring you joy can lead to a happier and more fulfilling life at any stage in your journey.

Tags Finance, friends, gratitude, health, hobbies, Purpose, retirement

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Five Retirement Tips for Procrastinators

Post author By Gene Gard
Post date February 21, 2024

When it comes to fun life experiences, planning for retirement may rank just a bit higher than a root canal. However, putting off your retirement planning strategy is only going to harm you in the future. If you’ve been dragging your feet on establishing your retirement plan, now’s the time to get started.

Following are five important retirement planning strategies for procrastinators.

1. Determine how much you’ll need to retire.

The first step toward getting serious about retirement planning is to determine how much you’ll need to live in retirement. One of the best ways to arrive at this number is by working with a qualified wealth advisor to establish a comprehensive financial plan that takes into account your current financial situation, goals for the future, and any challenges with the potential to stand in your way.

Your financial plan should provide insight into your expected retirement lifestyle expenses, your estate planning goals, your tax liabilities, your investment return potential, your retirement income sources, inflation, and more. Taken together, this information can help you determine how much you may need to save to achieve your desired retirement lifestyle.

2. Evaluate your current expenses.

Are your current expenses making it difficult to save for the future? If so, it may be time to cut back. Start by tracking your spending over the last year. What patterns do you see? Maybe you spend a large portion of your income on housing. If so, does it make sense to downsize? Perhaps you carry a lot of debt. Interest rates and fees can add up, so you may want to really focus on paying off your debt. Even cutting back on smaller expenses, such as regularly eating out, can free up money to add to your retirement savings.

3. Enhance your income.

If you’ve put off planning for retirement, you may need to continue working longer in order to save. Not only does working longer allow you to set aside additional retirement savings but remaining in the workforce can allow you to delay taking Social Security benefits, which leads to a higher monthly benefit amount once you retire.

4. Contribute to a retirement account.

If you’re eligible to participate in an employer-sponsored plan but haven’t yet contributed, sign up immediately! Qualified retirement plans, such as 401ks and 403bs, provide a tax-efficient way to save for retirement. Also, many employers match a portion of your contributions, which means if you’re not saving in your employer-sponsored plan, you could be walking away from free money.

Even if you’re eligible for an employer-sponsored plan, you may want to consider saving additional dollars in an individual retirement account (IRA). In 2024, you can set aside up to $7,000 in a traditional or Roth (if your income is below a certain amount) IRA. For married couples filing jointly, your spouse can also make contributions, even if they’re not working.

5. Take advantage of catch-up contributions.

If you’re over the age of 50, the IRS allows you to make an additional $1,000 contribution. These catch-up contributions are especially helpful for those who procrastinate when it comes to saving for retirement, so make every effort to max them out.

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Retiring Earlier than Expected

Post author By Gene Gard
Post date December 20, 2023

Preparing for retirement takes deliberate, consistent planning and attention to detail. One important detail is retirement timing, or the age at which you plan to retire. Having an anticipated retirement date allows you to align your savings and investing goals with the year you’ll need to begin withdrawing money. However, many workers discover they must retire earlier than expected. In fact, according to a retirement confidence survey from the Employee Benefit Research Institute, the median American’s retirement age is 62 years old, while workers’ median expected retirement age is 65.

Whether you’re forced to retire early due to health concerns, a job loss, caregiving responsibilities, or just the desire to leave the workforce, leaving your career sooner than expected can impact your retirement plan. Below are seven tips to help you navigate an early retirement.

1. Understand your financial situation.

The first step in retiring earlier than expected is to check in on your financial situation. Evaluate your current savings, investments, and assets. Assess your monthly expenses and budget to gain a clear understanding of your current financial obligations. Determine how much you can reasonably spend each month while still preserving your retirement savings. Your wealth manager can help you assess and understand your current financial situation and any potential challenges you should be aware of.

2. Set clear retirement goals.

The next step is to define your goals. What do you hope your retirement will look like? How will you spend your time? Whom do you wish to support? What will bring you fulfillment? Having a clear vision of your desired retirement lifestyle can help guide your decision-making and allow you to prioritize your spending. Return to these goals often as you navigate the various aspects of your finances.

3. Develop a savings strategy.

Because you’re retiring early, your savings will need to stretch over a longer period of time. If you’re still in the workforce, maximize your savings potential by cutting unnecessary expenses and increasing your contributions to your employer-sponsored retirement account. Depending on your modified adjusted gross income for the year, you may also consider contributing to IRAs or Roth IRAs. Make a goal to save as aggressively as possible during your final years in the workforce. Your wealth manager can help you identify the best account vehicles for your additional savings.

4. Plan for healthcare expenses.

Healthcare costs are often one of the biggest expenses faced by retirees. If you need to retire earlier than expected, it’s important to have a plan in place for paying for healthcare. Explore your options for health insurance coverage, including COBRA, Affordable Care Act (ACA) plans, or private insurance.

5. Evaluate alternative income sources.

Retiring early doesn’t necessarily mean you need to give up all sources of income. Explore opportunities to generate income in retirement, such as freelancing, consulting, part-time work, or starting a side business. Also consider more passive income sources, such as investing in real estate, if the circumstances are right.

6. Adjust your retirement lifestyle.

Retiring earlier than expected may require you to make some adjustments to your lifestyle and spending habits. Carefully review your expenses to identify areas where you can cut back without compromising your mental and physical well-being. Consider downsizing your home or reducing your travel and entertainment expenses.

Before making any major changes, revisit your retirement priorities (see #2 above) to ensure your decisions align with your goals. By making conscious choices, you may be able to better stretch your savings without significantly impacting your long-term goals.

7. Continuously monitor and adjust accordingly.

Once you retire, it’s important to remain financially vigilant. Regularly review your overall financial situation, including your investments, budget, and progress toward your goals. Make adjustments as necessary based on market conditions and your ever-evolving financial life. Stay informed and engaged with your finances to help ensure your continued financial security.

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7 Tips to Pay Yourself in Retirement

Post author By Gene Gard
Post date October 18, 2023

For most soon-to-be retirees, the idea of no longer receiving a paycheck and relying on savings and retirement income to make ends meet is scary. With proper planning and strategy, you can create your own retirement “paycheck” using various sources of retirement income. The following tips can help you get started.

1. Understand your current financial situation.

The first step in establishing a retirement paycheck is to gain a full understanding of your current financial situation, including your savings, investments, potential Social Security benefits, pension benefits, and any additional sources of income you expect to receive during retirement.

2. Estimate your monthly expenses.

Once you understand your current financial situation, the next step is to determine how much you’ll need to spend each month based on your desired retirement lifestyle. This will include your required monthly expenses like the cost of housing, healthcare, transportation, food, etc. Additionally, you’ll want to include discretionary spending (“the fun stuff”), such as travel, entertainment, and hobbies. You should also consider if there are any large purchases you hope to make in retirement, such as a second home, a boat, new cars, big trips, gifting to family members, etc.

3. Identify any potential income gaps.

Compare your expected retirement income sources to your estimated expenses. Do you have enough to pay for your desired lifestyle? If not, you’ll need to review your monthly spending expectations, focusing on the amount, timing, and/or frequency of your discretionary spending and big-ticket purchases. Alternatively, identify additional sources of retirement income (e.g. part-time work) to bridge the gap.

4. Implement a strategic withdrawal strategy.

A tax-efficient, strategic withdrawal strategy can provide a steady stream of monthly income and help ensure you don’t outlive your assets. If you have retirement accounts with different tax characteristics (taxable, tax-deferred, tax-exempt, etc.), you’ll likely have flexibility to minimize your tax obligations while optimizing your monthly income.

The benefit of following a disciplined withdrawal strategy is that you can monitor your ongoing expenditures, making changes as needed to ensure you don’t spend more than you can afford in any given year. This practice can help you maintain adequate assets to last a lifetime, regardless of market volatility.

5. Maintain an emergency fund.

Once you retire and say goodbye to your earned income stream, the first priority is to fund and maintain an emergency fund for unexpected expenses. This fund should be prioritized above all other savings and helps ensure you don’t need to dip into retirement savings or sell investments at inopportune times to pay for unforeseen expenses.

6. Plan for healthcare and long-term care expenses.

We can all count on healthcare expenses at some point in our lives. It’s imperative to have a plan to cover the possibility of increased healthcare needs in retirement. While there are many ways to account for these expenses, retirees should consider supplemental health insurance, use of tax advantaged health savings accounts (pre-retirement), and whether long-term care insurance is appropriate to help protect their retirement savings from unexpected medical expenses.

7. Incorporate Social Security planning.

It’s important to carefully consider the timing of your Social Security benefits in order to maximize the amount you’ll receive over your lifetime. Filing for benefits early means you’ll start receiving payments earlier but at a reduced monthly amount. On the other hand, delaying until age 70 to begin taking benefits means you’ll receive an increased monthly payment, growing at 8 percent per year following your full retirement age through age 70.

You and your wealth manager can determine a Social Security timing strategy that makes sense given your personal financial situation, benefit options, and retirement goals.

Tags finances, retirement