Retirement is a dream for many individuals, and you want it to go smoothly. However, retirement plans constantly confront obstacles, including market volatility, healthcare affordability, and inflationary concerns. In addition, you will likely spend decades on a fixed salary and lose the financial flexibility you formerly had.
Craig Cecilio, CEO, and creator of DiversyFund, a San Diego-based real estate investing platform, argues that the length of retirement will surprise incoming retirees. As individuals live longer, he observes that retirements have become longer. Therefore, it is imperative to be completely prepared before retiring and to leave room in your plans for the unexpected. Here are seven steps to guarantee that your senior years are truly golden.
#1 Review your financial retirement plan
Before leaving the security of a consistent paycheck, you should ensure that your retirement plan is as rock-solid as possible. Cecilio adds if you haven’t already, the first thing you must do before retiring is to create a retirement plan that is suited to your goals and takes into account considerations such as cost of living, medical bills, and Social Security. He also suggests paying off your debt before retirement to increase your financial freedom.
And if you already have a strategy, examine it and update it with the most recent numbers and estimates. Beau Henderson, RICP, CLTC, founder of RichLife Advisors in Gainesville, Georgia, advises: You must examine your retirement income plan to ensure that your retirement income exceeds your costs so that you do not have to unretire or, worse, run out of money.
Retirement planning is difficult for many individuals, given the complexity surrounding Social Security benefits, Medicare expenditures, and prospective investment returns. Have an expert assist you in analyzing your position, advises Sharon Duncan, CFP from Houston’s Selah Financial Services. You are likely to spend 20, 30, or more years in retirement. Your cost of living will increase due to inflation, but your retirement income will likely not increase as quickly.
A financial counselor, especially a fee-only fiduciary advisor, can assist you in avoiding typical errors, such as improper allocations early in retirement or inadequate income.
#2 Consider the effects of inflation.
As the past two years have demonstrated, inflation may surge unexpectedly and severely harm unprepared people. Bonds and other fixed-income assets are extremely vulnerable to the devastation of inflation. If you must consume all of your retirement income and cannot reinvest any of it, inflation will gradually erode your buying power, reducing the value of your dollars.
Therefore, you must have a financial strategy that accounts for inflation. Social Security does increase its benefits in reaction to inflation, but this is unlikely sufficient to maintain your quality of life.
You’ll need to incorporate growth assets into your financial strategy so that your income may increase over time and you’re not left with the same income you had ten years ago.
Ben Barzideh, ChFC, a wealth advisor at Piershale Financial Group in Barrington, Illinois, explains that they can generate retirement cash flow reports that analyze the client’s current income needs and their available assets, projecting forward 20 to 30 years with reasonable growth assumptions for the investments. Based on his client, he may add an annual cost-of-living rise to their salary and determine how it affects long-term estimates.
You’ll want to ensure that your financial plan is not overly cautious and permits you to increase your money throughout your lengthier retirement. Otherwise, your salary may be eroded by inflation.
#3 Make sure you protect your assets from market fluctuations.
For most retirees, it is unlikely that they will be able to live off the gains of their assets without dipping into their capital. Therefore, it is essential to ensure that any income you may require shortly (at least within the next year) is safeguarded from the market. You should not rely on a rising market (so you may sell shares) to meet your costs, as the year 2024 brutally proved.
For instance, if your annual Social Security and other retirement income are $30,000, but you want $35,000, you should set away $5,000 from investment accounts, which are more volatile than bank accounts. This money may be placed in a high-yield online savings account, or a portion can be placed in a short-term CD to collect interest until it is needed.
#4 Plan healthcare meticulously
According to Barzideh, what may surprise a retiree this year is the current expense of health insurance. Barzideh states that many individuals delay retiring until they are eligible for Medicare unless they can discover a cheaper option.
Therefore, if you intend to retire, ensure an affordable healthcare plan. However, it is more difficult to understand your alternatives and create a strategy than it was while you were working. If you’re accustomed to your employer offering a few options during the open enrollment, and then you’re done, Duncan adds, you’ll discover that health insurance involves more legwork after retirement. Duncan advises patience, adding that the work is not difficult, yet, it is irritating and time-consuming.
Again, a competent financial adviser may be able to assist you in locating cheap, high-quality solutions and comparing their prices and implications on your entire financial strategy.
#5 Reorient your thinking from saving to consuming
You’ve spent your entire life working and saving, but now that you’re retired, the time you’ve been saving for has arrived. You will need to adopt a spending attitude.
Until retirement, we believe that squandering our savings is ‘bad,’ says Duncan. In retirement, the reverse is true. During retirement, it is acceptable to spend instead of saving. Despite the apparent simplicity, this is a difficult emotional transition for many since we believe we are breaking the rules. According to Duncan, the emotion often disappears within a few months of retirement.
Others who have been schooled to save their entire lives may benefit from establishing a minimal spending budget, at least initially. With this budget, they can spend with a clearer conscience, knowing that emergency funds are available.
#6 Restate your objective
Having a great retirement depends not just on getting the financial basics straight but doing so simplifies everything. It also involves discovering a new purpose outside of the workplace, possibly with new friends or in a different setting.
“We’ve always had a purpose in our lives, and retirement is no exception,” adds Duncan. Retirement provides unprecedented freedom and adaptability, and you may even alter your objective at any time. Without a goal, you may dread your leisure time and experience boredom.
Find a purpose and live your retirement with purpose, and it enhances your health, vigor, and happiness, she states.
#7 Plan to maintain financial control in retirement.
You may believe that if you have a sound financial plan and are retired, you are free to relax, but it is still vital to manage your funds. Since many people live on a limited income, it may be even more crucial to keep track of your money and how legal changes may affect them.
“Be proactive with your retirement and make it your responsibility to know what pertains to you and your family in retirement,” advises Henderson, referring to the possibility of changes in taxes, legislation, and Social Security.
Knowing the regulations will place you in the best position possible, he explains. The problem is that most individuals remain passive in their retirement planning and only address concerns after the fact, which is where the most significant errors occur.
This is another instance in which a skilled fiduciary adviser may offer value to your retirement. Alternatively, a low-cost robo-advisor might help you save time on financial management.
Bottom line
Creating a retirement plan can be intimidating for many individuals, especially if they believe they won’t have enough money to retire or retire as they like. However, you may have more than you realize. And even if you don’t, you may be able to change your plan to optimize your savings.