Preparing financially for retirement cannot be neglected.
The vocation of employment is a significant part of the lives of most American adults.
Their work time generates income to provide for themselves and their families.
However, when retirement comes, paychecks are no longer received regularly from an employer.
Retirees must draw income from savings.
Inevitable but avoidable mistakes can lead to stress over strained finances in retirement.
Creating a strategic and structured retirement plan can set you up for a more stable financial future.
Strategic money management can help you thrive in retirement.
People often miscalculate how much they will need to spend in retirement.
They mistakenly believe their expenses will decrease once they enter their golden years.
Healthcare, housing, and daily living expenses all continue in retirement.
Often, these costs even rise in retirement.
If you inaccurately assess your future expenses, your ability to maintain your current standard of living could be threatened.
Healthcare costs are often hard to predict.
Although Medicare covers many medical expenses, it excludes dental, vision, prescription drugs, and long-term care coverage.
Your savings can take a significant hit if you do not account for these medical expenses in your retirement planning.
You may even be required to ask family members for financial assistance.
Social Security is not meant to be the sole source of retirement income.
It is better to consider it as a safety net or a supplement.
It is common for seniors to overestimate their benefits while failing to account for possible benefit reductions through early withdrawal penalties or taxation.
How can you maximize your Social Security benefits?
Your monthly benefit will increase if you delay taking Social Security until full retirement or later.
By coordinating spousal benefits, you can maximize income for your household.
To avoid permanent payment reductions, do not take early withdrawals.
You can maximize your benefits by understanding when and how to claim Social Security.
If you only have one retirement income source, you can trigger financial instability if you face unexpected expenses.
You should diversify your portfolio rather than relying on Social Security or a pension alone.
Means of diversification include personal savings, investment accounts, 401(k)s, IRA accounts, and passive income through rental properties or annuities.
Various sources of income allow you greater financial flexibility and protection against the cost of living increases and market fluctuation.
Like a slow air leak from a balloon, inflation reduces the purchasing power of the dollar over time.
The amount you have saved now will not cover as many of your expenses in the future.
Yikes!
How can you ensure your retirement planning accounts for inflation?
Your investment strategies should focus on asset growth.
When making withdrawals, your rates should align with stability over the long term.
You should factor the rising cost of living and healthcare expenses into your savings goals.
Making more withdrawals during a market downturn could deplete your savings faster.
A good financial planning strategy should address withdrawal strategies and promote diverse investments.
One of the most common mistakes retirees make is taking too much out of their savings early in their golden years.
To avoid this misstep, do not withdraw more than 4 percent of your savings annually.
This strategy can help your savings stretch for 30 years or more.
While this is a general rule, various factors affect whether you must adjust your withdrawals to a lower amount.
What factors should you consider?
You should look at life expectancy.
Those with long-lived family histories will require a more conservative approach.
Poor investment performance may require a temporary reduction in withdrawals.
The prevalence of unexpected expenses like home repairs or healthcare costs can strain your accounts.
Engaging in financial planning for your golden years allows you to enjoy your savings and reduce the stress of outliving your resources.
The value of a financial advisor cannot be overstated.
Case in point.
Gretchen is a CPA, and I am an attorney.
In addition, both of us became Certified Financial Planner ® Certificants more than 30 years ago.
That noted, not only do we not provide financial planning and investment services for clients, but we also have our own financial advisor.
Against the backdrop of that personal and professional disclosure, I cannot stress the importance and benefit of having independent professional financial advice.
It repays itself many times over in performance and peace of mind.
Retirement planning involves more than a focus on strategic financial action.
Estate planning is also necessary to protect everything you have and everyone you love.
Failing to create a comprehensive estate plan leaves the assets of retirees vulnerable to legal complications, avoidable taxes, and a lack of choice over heirs.
What should your estate plan include?
A comprehensive estate plan should include a last will and testament or trust, financial power of attorney, and a healthcare directive.
The last will or trust is the key to asset distribution.
Financial powers of attorney appoint a trusted individual to manage money and property matters if you become incapacitated.
Healthcare directives allow you to outline medical preferences should you face a severe accident or illness.
Not having an estate plan in place can lead to delays in estate administration, conflict among loved ones, and higher legal costs.
Many retirees believe simply estate planning is a one-and-done task to check off their lists.
Because life circumstances change, estate planning documents and beneficiary designations must be reviewed regularly and updated as required.
People commonly neglect to update their last will or trust after divorces, marriages, or the birth of grandchildren.
Even if they update these documents, they may forget to update beneficiary designations on insurance policies or retirement accounts.
For those wanting to avoid probate and provide greater asset protection for the inheritance of their beneficiaries, a trust should be included in the estate planning.
Estate planning reviews help grant peace of mind regarding your wishes being honored and your assets being protected.
Planning for retirement involves saving for the future and creating a strategic plan for meeting your needs and leaving a legacy.
You can secure your assets and build a legacy by working with an experienced estate planning attorney and financial planner.
If you need to create or review your estate plan, request a consultation with our Overland Park law office.
To avoid underestimating your retirement needs and putting your financial security at risk, include inflation, housing, and healthcare costs into your budget.
Treat Social Security as a supplement or safety net to your retirement income rather than your only source of income.
You can increase your financial security by diversifying your income sources and delaying Social Security benefits.
Make strategic withdrawals from your accounts to prevent running out of funds in retirement.
Because estate planning is key to protecting you, your assets, and your loved ones, you should have updated estate planning documents, as noted above.
You can set yourself up for a more enjoyable retirement by prioritizing your financial and estate planning.
This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.
References: National Council on Aging (April 17, 2024) “Debunking the Top 6 Financial Myths About Retirement”
REMEMBER: “The choice of a lawyer is an important decision and should not be based solely upon advertisements.”
This statement is required by rule of the Supreme Court of Missouri.
