Ideally you’ve been planning for retirement for most of your working life. Making the decision to retire is different for everyone.
Whether you would like more time for leisure, family or need to retire for health reasons, the most jarring fact to realize is that you’re finally reaching toward the end of the rainbow and it’s time to start living on the pot of gold you’ve been collecting for your golden years.
Since I have been in the trust business more than 40 years (how did that much time pass so quickly?), I have worked with all types of families with varied career paths and levels of income: high earners, good savers, poor savers, big spenders.
Everyone faces some similar issues when it’s time to retire, so here are a few “game changers” I have noticed along the way.
Expectations of retirement
You’re in a unique position to determine what you will do with your time. So while you are still working is the time to consider what types of goals you have for the future. What will you enjoy? Do you want to keep working part-time, travel more, or maybe even start a business just for fun, even if you don’t make money?
The list is limitless. But it must be your list, with your goals and priorities. Then start quantifying the goals on your list. One thing is certain, entering retirement debt-free gives you a lot more options. So when you are looking at your mortgage, plan on having it paid off when you retire. Being debt free in retirement is a real game changer.
Baby boomers are the first generation to have had 30-plus years to save in tax-deferred vehicles like a 401(k) and/or an IRA. It is important to evaluate income strategies and income tax management in retirement. The impact of different tax planning strategies can be a game changer on retirement outcome.
For example, you may want to consider withdrawing a portion of your IRA or 401(k) prior to age 70½ to either reinvest in a taxable account or to convert to a Roth IRA. Or start making Roth deposits to your existing retirement plan early in your working career. This strategy may help reduce tax rates, diversify assets and expand estate planning benefits.
Almost no one can predict exactly how health care costs will change, except that we should always overprepare. What we do know is that health care is one of the big concerns, yet fewer than 8 percent of people adequately plan for health care costs.
It’s important to keep in mind that prices for health care (including Medicare premiums) have and are projected to continue to inflate higher than the official consumer price index. Resources abound for advice and levels of care for aging. This is tough, but do try to address these issues in your planning and before they become issues for your loved ones.
Cash on hand
Speaking of loved ones, remember that your retirement planning was done so that your assets remained invested for the duration of your retirement. We always want to do everything we can to help our loved ones, and sometimes, that means keeping our goals first. Of course, all circumstances are different, and there are good ways to lend a hand to those who could use it. Maintaining your independence is a great gift to your children.
Be sure not to confuse liquidity with long-term investment strategies. Keep enough liquidity to let you sleep at night and allow yourself to stick to your long-term investment strategy. As an example, you may want to keep two to three years of income needs in liquid accounts to prevent you from selling stocks and bonds during a market downturn, for living expenses.
Shared vision with spouse
Lastly, it’s crucial that your family has a shared vision of what life will look like in retirement. Whether you intend to travel, take up new hobbies or move to another city, establish priorities that will ensure living within your means. Ongoing communication on this front will keep goals in check as life continues to change in this new phase.
But also live your life to the fullest.
As important as it is to plan for retirement, it is just as important to live every day to its fullest with no regret. When Sam Beall’s widow, Mary Celeste, spoke at his funeral after Sam died in a skiing accident at age 39, she encouraged all of us to live on “Sam time.”
Sam time means pack as much meaningful stuff as possible into every day — but remember, you decide what is meaningful to you.
Thank you, Mary Celeste, for those wonderful words and thanks, Sam, for being a role model for all of us.