You know planning ahead is how you’ll be able to enjoy a secure retirement. But where do you start? Working with a local financial advisor is one way to approach planning for your retirement. A professional can help you clarify your goals and guide you on how to reach them.
As a financial representative with Modern Woodmen of America, I help members in Castro Valley and surrounding areas with customized retirement strategies. Here are some of my tips to help you prepare for your golden years.
Determine your retirement income needs
First, estimate how much income you'll need in retirement. Examine your current expenses and spending habits. Are there costs that will be eliminated, like commuting or childcare? What new costs might you face, like paying more for health care or for your travel plans?
As a general guideline, plan you will need 70-80% of your preretirement income for retirement, but your specific needs may vary. A financial advisor can help you determine your expected costs and come up with a savings goal that will guide other planning decisions.
Evaluate your retirement savings
Next, take stock of any 401(k) or 403(b) accounts, IRAs, company pensions, Social Security benefits, and other assets you can draw from in retirement. Compare your projected income needs with your anticipated retirement income sources. Is there a gap for you to fill with additional savings? Or have you saved enough?
Understanding your current savings will help you and your financial advisor determine how much more you need to accumulate. Plus, you can get advice on how to continue growing your balances.
Find the right investment mix
As your retirement date nears, you may want to shift your portfolio mix to more conservative holdings. The right mix depends on your timeline, risk tolerance and income needs. Generally, you'll want to reduce risk while still maintaining growth potential.
Your advisor can run simulations for your situation and help you allocate your assets strategically among stocks, bonds, cash equivalents and other products.
Have a withdrawal strategy
When you retire, which of your assets will you tap into first? Perhaps, you’ll spend down taxable accounts before tax-advantaged accounts, like 401(k)s or traditional IRA plans. What’s the optimal age for you to start claiming Social Security benefits?
Your financial advisor can help you implement a tax-efficient withdrawal sequence to make your savings last longer. They can also help you determine required minimum distributions (RMDs) on accounts like traditional IRAs, and advise if you might benefit from conversions to Roth IRAs.
Guarantee lifetime income
Income annuities provide income security and certainty in retirement. They offer predictable monthly payouts, either for life or a set period of time to cover essential expenses when layered with Social Security and withdrawals from investment accounts.
Deferred income annuities pay out later, at age 80 or 85, to cover expenses later in life.
Your advisor can help you evaluate how different annuities may align with your comprehensive retirement income distribution plans.
Prepare for higher health care costs
Health care will likely be one of your most expensive costs in retirement. Estimate what your retirement medical expenses based on your health, access to retiree healthcare benefits, and Medicare options. Your financial advisor can factor rising healthcare costs into your retirement income plan, as well discuss health savings accounts and other plans to help pay for medical expenses tax-free.
Plan for long-term care needs
Be sure your retirement plans safeguard your nest egg from stays in assisted living or nursing home care facilities or in-home aides. Options like long-term care insurance can provide funds, when combined with other sources of income, can help you cover health care costs without draining your savings.
Consider housing options
Do you plan to age in place (possibly with home modifications), downsize or relocate? What senior living options might you consider?
Evaluating housing scenarios with your financial advisor allows plan for these costs, as well as factors such as property taxes and insurance.
Document your estate plans
Ensure your assets are distributed according to your wishes by making sure you have basic documents, like powers of attorney and healthcare directives, and confirm you have the correct beneficiaries assigned to your retirement accounts and insurance certificates.
A financial advisor can also work with your attorney and tax professional on strategies that could potentially minimize what your heirs pay in taxes and maximize the money you pass on to them.
Continue the conversation
Your retirement plan is not a one-and-done process, and it's essential to have professional guidance tailored to your situation. Schedule regular check-ins (at least annually) with your financial advisor to review your progress and make changes as needed. Be sure to:
- Reassess your target retirement date, income needs and risk profile.
- Adjust based on updated projections.
- Measure your savings and withdrawal rates against your plan.
Look for an advisor with experience in retirement and distribution planning. They'll guide you through important decisions like claiming Social Security and crafting a sustainable withdrawal rate. Choose a representative who:
- Has time and interest for ongoing collaboration.
- Provides help lines and other resources for retiring clients.
Retirement is your time to enjoy life and pursue your passions – but only if you prepare diligently. A Modern Woodmen representative can help you navigate all stages of life and prepare for the retirement you envision.
* Securities and advisory services offered through MWA Financial Services, Inc., a wholly owned subsidiary of Modern Woodmen of America. Member: FINRA, SIPC. Tax issues are complex. Consult a tax professional before making a decision.
