We all know we need to plan for retirement, and most of us do plan at some point. However, there are a few common themes forcing people to dramatically adjust their plan right at the time of retirement.
Consider these topics before you take the retirement plunge.
Healthcare costs: This is the greatest concern for retirement sustainability. Insurance premiums and the amount individuals are paying out of pocket both continue to rise. Then there is long-term care to consider. Home health services, nursing homes and long-term care insurance all have experienced exponential inflation compared to the official consumer price index.
What to do? Over plan and be prepared to adjust.
College expenses: Investing for children’s college without sacrificing your retirement is a balancing act. It sounds cliché to say “Start saving early,” but it is also critical to save separately for both even though it means less at a time for each.
Assign categories of savings to separate accounts and maintain a hands-off retirement account. As a teenager, I started my envelope system. One envelope for “save to spend,” i.e. car insurance, repairs. etc., “save for big things,” i.e. spring break, new television, etc., then “save to save.”
As an adult, be a college investor, a retirement investor and an emergency savings investor.
Global market environment: We are seeing low interest rates, renewed market volatility and slow global growth. This makes matching time horizons with the correct investments even more critical. Aim for consistent returns through diversification. As life changes, so should your overall investment strategy.
Have a reserve of money markets or short-term CDs equal to three to five years of living expenses. This means you will not be forced to sell when the market is down. It will also give you more confidence to ride out market volatility.
Don’t make investment decisions based on intuition. Focus on critical thinking and logic.
Tax planning: Baby boomers are the first generation to have had 30 (or more) years to save in tax deferred vehicles like 401ks and IRAs. While tax deferred investments are a valuable option, the tax ramifications must be evaluated along with other income during retirement.
Make tax planning a priority before you get to retirement to allow for the most flexibility.
Retirement lifestyle: So many things can impact how much an individual or couple need to maintain the desired standard of living during retirement. Make plans and a corresponding budget to meet those needs. Avoid carrying or incurring debt during retirement and have a savings mindset.
Establish a retirement budget, plan toward that and then stick to it during retirement.
Family business: If you have a family business, the success (or failure) of the business can swing retirement planning dramatically. Families rarely keep their money and families together for more than three generations – how do you beat the odds?
Talk to a professional about succession planning.
Communication and vision: Family members, including spouses, may or may not share your plan or vision for your retirement. Discuss these items and include the various roles different family members may hold such as power of attorney, advanced healthcare directive, etc. For example, if your adult child has an expectation that you will provide workweek childcare for your grandchildren at no charge, and you plan to traverse the country in an RV, a discussion needs to occur.
Talk about your plans with your family and loved ones.
Addressing these key factors in advance will help reduce the risk of derailing your retirement. Also, find an outside advisor who can provide objectivity and understand your goals and family dynamics.
Sharon Miller Pryse, chairman and founder of The Trust Company, may be reached at firstname.lastname@example.org.