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Retirement Planning


Like many big decisions in life – retirement is much less stressful when you have a well thought out plan in advance. In most cases, we are given the opportunity to establish a retirement plan of our own choosing; in some cases, circumstances such as health issues or job changes may force us into retirement sooner than intended. Hopefully, you have stashed away some retirement funds throughout your working years. Perhaps, you worked for a company with a pension plan, won the lottery, or otherwise secured the monetary essentials needed to support your retirement years. As that time approaches, we have a few more items you should consider in the 3-5 years leading up to your clocking out for the last time

1.The plan. Do you have a bucket list you intend to complete? Will you be traveling the world? Will you move to the mountains, or to the coast, or closer to the grandchildren? It seems silly to ask, but do you know what you will be doing in your golden years? The answer to this question will have a huge impact in so many other planning areas; it’s extremely important to think this through. For example, if you are thinking of retiring to the coast, the next 3-5 years need to be spent finishing up repairs and projects in your current home to get it ready to sell. Consult with a local real estate agent to determine must do’s and the potential value of your home. Further, check with the market you plan to move to, and determine what areas you will want to be in and what type of house you can afford. Are you going to downsize? If so, start cleaning out closets now. Will you sell a business or pass it to your children? Planning for that transition now will be key for getting the best price on the sale, or for continuity and continued success when passing it on to the next generation.And furthermore, you must consider the not-so-fun part of golden year planning. You must ask- who will be taking care of you when your health starts to fade? Will your kids take you in? Will you hire a nurse to care for you in your home, or relocate to an assisted living facility? While we all want to be healthy forever, its crucial to plan for the days when we aren’t. Being a burden on family is not how anyone wants to spend their final years, but it can be a reality without proper planning. Its also real easy to burn through your nest egg if you haven’t planned for this, potentially leaving a spouse with no cash after dealing with a serious medical condition or your death.And lastly, have you, your spouse, and family discussed these plans? Maybe you and your partner have always planned to travel- but you assumed it was buying an RV and cruising for 6 months of the year, and he/she thought it was 3-4 international vacations each year. One of you planned to move to Nashville and help with the grandkids, but the other planned for weekly offshore fishing along the coast of Florida. Open communication among families can really save stress and misunderstandings going into and during retirement.

2. Properly supplying cash reserves. The average American retiree relies on Social Security for over half of their monthly income. Starting Social Security benefits takes time. And more often than most people realize delays, errors, and glitches occur. Starting withdrawals from company pensions and retirement plans also take time to process, and they are occasionally plagued by delays and errors, as well. Having access to cash in basic savings, checking, or money market accounts can be crucial when beginning retirement. It is advisable to have at least 6 months of funds to cover emergencies and unexpected expenses before retirement. Not only does this need not go away in retirement, it usually increases. So building up cash reserves is strongly recommended in your pre-retirement years.

3. Estimating needs before retirement. 

a. Financial – If you do a quick Google search, you will find no shortage of retirement calculators, estimators, and advice on what your needs will be. There is simply no one-size-fits-all answer to this question. The retirement calculators and estimators are great in early years to give you a target for savings and motivators for fiscal responsibility. As retirement day approaches, you definitely need to re-evaluate this on a more personal level. I strongly suggest when evaluating this you speak with a financial advisor, CPA, and possibly an attorney or insurance agent, depending on your circumstances.Obviously, you will need to cover monthly expenses such as food, utilities, home, etc. Then there are non-monthly expenses such as home repairs, medical expenses, hobbies, travel, etc. Have you considered future big purchases like car replacement? The answers in point #1 will play a big role when estimating financial needs. Or vice versa, the amount of cash available, will tell you what options you have for your retirement plans. The list of things to consider can seem endless and daunting, but taking it a few pieces at a time can minimize the vast size of this task. A small list of example items to consider:

– Will you still work part time or monetize hobbies?
– Will you have aging parents or adult/disabled children to monetarily support?
– Do you still have small children in the home that will have current and future needs (college, healthcare, weddings, etc.)?
– Travel and hobbies?
– Nursing care in home vs. at a nursing care facility?
– Will you delay social security?
– Health and life expectancy?
– Sale of home, home purchase, downsizing, or other home needs?
– Can you access all of your funds now? (Consider cash tied up in property, sale of business, annuities, or other non-liquid assets)
– Are you married, single, plan to marry, or divorce?
– How susceptible to market changes are your investments? Are your investments diversified?
– Do you have outstanding debts? Is your home mortgage free?
– Are your investments in traditional or Roth retirement accounts, and how will taxes affect your cash flow?

b. Insurance – Most retirees receive their primary health insurance from Medicare, which becomes available at age 65. However, this will not cover all your medical costs. Commonly needed non-covered items include dental care and dentures, routine eye exams, and hearing aids. In addition to non-covered items, there are still deductibles and co-pays that you must cover. Fidelity Investments estimates that future healthcare costs for a couple at the age of 65 will be between $200,000-$400,000 in addition to Medicare coverage. Some people will purchase Medicare supplemental insurance policies that will cover gaps in insurance needs that Medicare doesn’t cover, others will pay these expenses out-of-pocket, and some will be forced to simply go without these medical needs. Further, are you retiring before 65? Do you have plans for health insurance in those gap years between retirement and Medicare eligibility? Please note: Not only can not having insurance be costly due to potential medical costs, but there are also tax penalties for not carrying it.

In addition to medical and dental insurance, long-term care insurance is a wise policy to investigate. Long-term care insurance typically covers medical and non-medical care for individuals who cannot do for themselves, such as cooking, cleaning, bathing, dressing, etc. Various policies, cover various levels of care, and just like health insurance policies, long-term care policies range in prices and coverage.

It is strongly recommended that leading up to retirement you speak with Insurance professionals, as they can guide you based on what your needs and budgetary constraints may be. Specific medical history and preferences for retirement will make a difference in the policies needed, as well. Further, the details and differences between policies can get complicated, planning in advance can save the pressure of having to make immediate and potentially detrimental decisions.

4. Tax planning. When it comes to taxes, a little planning and foresight can save some big bucks, and prevent unnecessary penalties. As previously pointed out, every retirement situation is different; which means the tax consequences are just as varied. Further, because the US tax code is complex, it is recommended you speak with a CPA or tax attorney in regards to your specific situation, but in general some thoughts to consider:

– Depending on your other income generators, up to 85% of your Social Security can be taxed. The amount of the tax will depend on the amount of other income you bring in, but it works on the same graduated scale as your previous working wages were taxed on.
– If you get a part time job during retirement, you could lose Social Security benefits. There are limits on the amount of earned income Social Security beneficiaries can earn and still claim benefits.
– When selling your home, if you sale the house for more than you purchased it, you could be subject to capital gains tax (15%-20%). However, there are tax exemptions at the federal level. Only gains in excess of $250,000 for individuals, or $500,000 for couples filing jointly, will have capital gains tax (assuming you meet a small list of requirements).
– Penalties can result for withdrawals from retirement accounts before 59 ½.
– Certain retirement accounts are subject to annual required minimum distributions- penalties can result if not properly done.
– Often tax liabilities decrease after retirement due to decreased income. It is beneficial to look at potential deductions or income streams and structure them so that you can get the best tax benefits by timing in which year they are reported.
– Not having health insurance, even if just for a few weeks, now comes with a penalty.
– Different retirement plans come with different tax consequences, some are tax free and some are not. Having one kind versus the other, or a combination of the two have various withdrawal and tax saving strategies.
– Estate planning.
– State tax considerations.
Retirement can be such an exciting time, and by considering these items in the few years beforehand you can really save some stress when the day comes. Keep in mind, some items above should be visited again after retirement too. For example, health needs change, tax laws change, wants and desires change- so don’t stop planning once you have retired.

And as a final thought- several times it is mentioned to seek the help of professionals. That advice cannot be emphasized enough. I also must note, when it comes to your health, finances, and general well-being, no one cares about you as much as you do. Continue to educate yourself on the topics above. If a professional does not seem to be listening to your needs, or provide solid explanation and background to their recommendations, its okay to find someone else. Its never a bad idea to get second opinions. Going through the motions and checking off lists won’t by itself reduce stress or provide a relaxing retirement. Having a strong confidence and understanding in your plan will let you sleep better at night.


Written by:

Melanie Orsini