Wouldn’t it be convenient if there were a single retirement strategy that would work for everyone? Unfortunately, there isn’t. Each of us is different – our vision of ideal retirement is different as each of us approaches retirement from a different place and in a different financial situation.
If you are in your 50s or 60s, there are a lot of factors that come into play when developing a great retirement strategy. Below is a list of questions you need to ask yourself while planning your retirement:
How long are you going to live?
If you are healthy and many in your family have lived beyond 95 years, you may well do so, too. But, if you are in your 60s with poor health and many in your family have not lived beyond 70 years, your chances of living beyond 95 years are slim. Your life expectancy matters in retirement planning because the longer you live, the larger should be your nest egg to ensure you don’t outlive your retirement funds.
What are your expected living expenses in retirement?
Give some thought over what expenses you are likely to incur in retirement. Consider your lifestyle, hobbies, travel plans, gifting habits, etc., and their estimated costs.
What are your expected healthcare costs in retirement?
Another important factor to consider is the healthcare costs in retirement. There’s a good chance that your healthcare will increase in retirement. Your retirement plan should be able to factor in the out-of-pocket healthcare expenses.
How much money have you saved?
The more savings you have now, the more comfortable your life will be in retirement. Money socked away for retirement grows annually due to the compounding effect and gets accumulated to ensure a good retirement life.
What retirement accounts do you have, traditional, Roth IRAs or 401(k)s?
A tax-advantaged retirement account, such as IRAs and/or 401(k)s (traditional or Roth) is a good place to build wealth for retirement. Depending on the retirement plan you choose, your contributions are tax-deferred and withdrawals are taxed, or contributions are taxed and withdrawals are tax-free.
What real estate do you own?
Try entering your retirement with all mortgages paid off. Consider owning real estate to generate rental income in your retirement. You can also look into buying/selling real estate if you plan to move from a high-tax state into a low-tax state in retirement.
When you are in your late 50s or 60s, there are certain steps you should take as a part of retirement planning to ensure you are well-off financially in your golden years:
- Get free of debt
You goals should be to get debt-free before you retire; otherwise, the debt will leave you stressed in your retirement when your financial focus should be on health insurance, travel, and healthy foods.
- Create a budget
Retirement may be the time to enjoy the fruits of your labor. But don’t go overboard and spend your life’s savings in a few years. To ensure that your money lasts longer, create a budget to keep track of your expenses. A budget will help you make a realistic determination of your income/expenses, what you can afford, and where you can save.
- Determine the right time to take your Social Security
If you take your Social Security benefits before you reach your normal retirement age, you’ll get lower annual benefits than if you had waited until you reached your full retirement age.
If you are not in need of money when you reach full retirement age, don’t take your Social Security benefits. Wait until you reach 70 years to get maximum benefits.
- Register for Medicare
If you have Medicare, it can cover certain medical expenses instead of you using your savings to cover those expenses. Medicare also provides hospital insurance that can cover costs associated with in-patient care, certain follow-up care, and physician services that are usually not covered under the hospital insurance.
- Lower the cost of living
If you live in a large place, consider moving into a smaller home that is low on maintenance in an area where the cost of living is cheaper. This step could help you save some money, which can be added to your nest egg.
- Take Required Minimum Distributions
You must take the required minimum distribution (RMD) once you reach a certain age to avoid penalties. For all these years, the RMD age was 70½. But now, with the SECURE Act, which came into effect in December 2019, the RMD age is increased to 72 to reflect increased life expectancy. If you miss taking your RMD, you will have to pay a 50% penalty on the amount you should have withdrawn. However, Roth IRAs don’t have RMDs; you can keep your money in the account for as long as you want.
With retirement planning, one thing is sure: there is no one-size-fits-all strategy. Work with a financial planner to design a retirement strategy that is tailored to your income and needs.
This post was graciously provided by Rick Pendykoski. Rick is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments. Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as Business.com, SAP, MoneyForLunch, Biggerpocket, SocialMediaToday and NuWireInvestor. If you need help and guidance with traditional or alternative investments, email him at email@example.com.