What is retirement? You see photos of people sitting on a beach, sipping a tropical beverage, with a big smile on their face. I don’t know about you but when I go to the beach for a week about halfway through I get stir crazy. You can only sit around doing nothing for so long before you get bored.
Retirement should be thought out well in advance. How are you going to stay sharp? How are you going to keep your body in shape? What are you going to continue to work towards?
I’m not saying you have to stay at your job, but you need to have something to look forward to.
In this article, we dive into the essential components of achieving financial independence during the golden years.
Retirement Income Planning:
- Assessing Your Needs: It’s easier to get away without tracking your current expenses during your working years maybe because your high-income masks the spending habits you have. Before you begin your retirement it’s essential to accurately track your expenses. Start by writing down all of your current expenses along with what expenses you would like to have such as having a bigger travel budget. Common examples would include essential costs like housing, healthcare, and daily living, as well as discretionary expenses like travel and hobbies.
- Social Security and Pensions: Understanding your Social Security benefits and any pension income you may have is crucial. When should you take it? How much of it will be taxed? Optimizing the timing of claiming Social Security can significantly impact your retirement income.
- Investment Portfolio Management: When one retires, it’s common to think you should move your entire investment portfolio to a very conservative allocation. However, consider this: when you are 40 years old and investing for a retirement 20 years from now, do you invest conservatively? No, you have plenty of time for the money to grow. Why would your entire portfolio at age 60 need to be invested conservatively when you will need money when you are 80? The appropriate approach can be to transform a portion of your portfolio into a source of income during retirement. The remaining balance should be to seek growth. Striking this balance between growth and income is where most people mess up.
- Annuities: Annuities can offer a predictable stream of income in exchange for potential upside growth. Remember that there is always a tradeoff. An annuity can provide a guaranteed income and a more stable income, the tradeoff being you can likely end up with less money over time had you left the money in the stock market.
Wealth Transfer Strategies:
- Estate Planning and Wills: As you enter into retirement, you also need to think about what happens when you are no longer here. An estate plan can outline your wishes. It’s a roadmap that helps ensure your assets are transferred efficiently to beneficiaries.
- Trusts: Trusts can be a versatile way to manage and distribute assets, offering benefits such as minimizing estate taxes, protecting assets from creditors, and providing for loved ones.
- Gifting Strategies: Gifting during your lifetime can reduce the size of your taxable estate while providing support to family members and charitable causes that you can witness while you are still here.
- Beneficiary Designations: After you have created your estate plan, it’s important to update your beneficiary designations on retirement accounts and life insurance policies. This ensures that your assets pass smoothly to your intended beneficiaries.
Remember that retirement isn’t what it’s made out to be in the commercials. It’s not sitting on the beach 24/7 with a big ol grin on your face. In fact, it can be lonely, depressing, and sadly many succumb to suicide in their elder years. I’m not saying this to be a downer, it’s a wake-up call to not approach the subject of retirement lightly.
Have a plan, and really think about what an ideal life looks like before diving in.
The views depicted in this material are for information purposes. They should not be considered specific advice or recommendations for any individual.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor.
Although it is possible to have a guaranteed income for life with a fixed annuity, there is no assurance that this income will keep up with inflation. There is a surrender charge imposed generally during the first 5 to 7 years or during the rate guarantee period.
The guarantee of the annuity is backed by the claims paying ability of the issuing insurance company.
Asset allocation is an investment strategy that will not guarantee a profit or protect you from loss.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
