Avoid Money Worries With Proper Planning - Part 4

Congratulations on accomplishing the goals and working through the steps of Part 3. Now you are ready to start preparing for a successful retirement and towards maintaining your goals for life in Part 4.

Setting Goals and Targets (Ages 65 to ?)

If you have done well in steps one, two and three, this part should be easier. Now it is time to really look at the long-term and to really tighten up the plan for the first several years in retirement. You must be able to answer the question, Am I ready to retire?

As you enter retirement, it is really important to “finalize” your detailed retirement and financial plan as there is now almost no room for error. Therefore, at this point it may be imperative to consider having a financial and tax advisory team that can give you good advice to finalize your accumulation targets, know the risks that can help you miss your goals and to start planning for eventual retirement income - hopefully with an eye towards tax optimization. 

Again, at STA Wealth, I created as system that I call Planning for Retirement the R.I.T.E. Way™ (Retirement Income Tax Efficiently). Taxes take a huge bite out of your retirement nest egg, especially if you saved the majority in tax-deferred accounts like pensions, 401(k)s and IRAs. If you properly planned along the way, you can take credit for saving yourself the worry that some haven’t thought about until retirement. (For more from this author, see: Retirement Planning: What's Your Hurdle Rate?)

1. Retirement 

“Finalize” your retirement budget (but you will need to look at this annually). Plan for the first one to three years in retirement. Optimize for Social Security, pension elections, etc. Through this, you can have a tax optimization plan for each year. Also, be aware that you may have spending contingencies not always expected, so it is really important to have a nice cash cushion for things like unexpected travel, health expenses or other cash needs without having to draw all from investments in the event of a down market. It is also important to “stress test” your retirement again to better know what the risks are of missing your goals (for portfolios - too much risk, not enough risk, not enough diversification, etc.) and to really look at multiple what if scenarios such as:

  1. Varying retirement dates.
  2. Varying spending in retirement.
  3. Looking at various hurdle rates of return.
  4. Looking at changes in tax law.

2. Advanced Estate Planning 

Depending on your estate level, now is the time to possibly look at more advanced planning (especially if your estate is much larger and/or if you have large charitable intentions). It may also be a good time to look at minimizing risks by looking into new insurance such as long-term care insurance (taking that worry away) - especially if you are married and worry about spending the retirement nest egg if one of you has a significant health event. (For more from this author, see: Avoid Money Worries With Proper Planning - Part 2.)

3. Tax Planning 

As mentioned in the R.I.T.E. methodology above, the closer you get to retirement, the more important it is to know how your retirement nest egg will be taxed and to plan for the ultimate distributions (sometimes called “retirement paycheck”) more tax efficiently. There are optimization strategies. This is especially true if you have complex assets such as pensions, deferred compensation, employer stock plans or real estate. Each year, depending on your expected income and the taxes in effect, you can optimize which funds to draw from to best meet your goals - especially if you set up the buckets described in earlier stages.

4. Social Security and Medicare 

Get with your financial advisor to learn your options and how to best maximize your situation in terms of your Social Security and Medicare options. Planning correctly in these areas can really be beneficial and if you know the right rules and your options, you can make better decisions.

5. Changes Needed – If Any

This is the perfect time to look at changes that need to be made to your plan to help you truly reach your goals. By knowing these facts, you can take much of the worry out of retirement.

Now you have finished a lifetime of work to be prepared to survive and thrive in retirement. If you want to review the other parts in this series, you can start here with Part I.