Top Ten Considerations In Financial Planning For Retirement
1. SOCIAL SECURITY BENEFITS. As you and your spouse get closer to the ages where you can access the benefits, there are several options and one size does not necessarily fit all. First call? Take benefits early or wait until a “normal” time. Which is better?
Early has some drawbacks, but if you need the money, that can be a big factor. If you know you are going to live a long time, waiting could be a better choice for total dollars.
The other consideration is a spouse. Who draws what when? Various options with this as well. There are lots of twists that you may not know. For example, if you have an ex spouse and were married for over 10 years…the ex spouse can receive 50% of what you receive…which does not affect what you receive.
Social Security was never intended to carry people for 30 or 40 years. There just isn’t enough money in the pot. Will politicians tinker with the system? That’s a good question. One thing you can do is visit your local Social Security office and discuss your options.
2. HOW MUCH MONEY WILL YOU ACTUALLY NEED? Some experts say that the best guess is about 70-80% of preretirement income. Each individual will have to figure that out. Are you planning on doing a lot of traveling or will you be more of a homebody? Will you have any expenses to help your children…or your parents? Is your mortgage paid off or at least at a low level?
The biggest factor here is medical expense. Are you covered well enough? It is likely that you will need some sort of care sometime. How healthy and self sufficient will you be at 80 or 90 or 100 plus? If you need to go into a care facility, how will you pay for that? Do you have or will you need long term care insurance? Most people do not. I guess the simple solution is to be perfectly healthy right up until you die!
3. EMPLOYER’S RETIREMENT SAVINGS PLAN. Most companies have some sort of plan, even if the company does not contribute. If the company contributes to such a plan…like a matching amount…this is a no brainer. Do it to the max. But even if your company does not contribute and allows you to contribute to such a plan (like a 401K)…it is a good way to save with tax benefits. Do an automatic withdrawal and you will probably never miss it.
4. SAVINGS PLAN. Establish a plan that you are comfortable with and stay with it. Can you save 15%? That can be a goal. Developing a regular monthly savings plan will build up nicely over several years. The hardest part? Sticking with the plan. It is easy to find ways to spend money: remodel, vacations, new car. Try to find another way to take care of those things other than tapping your savings.
5. IRA ( Individual Retirement Account ). This is pretty much like an employer’s retirement savings plan only you do it yourself. There are factors with this such as age (over 50 allows more to contribute) and whether or not you are self employed. If you can participate to the max, it is probably a good idea for the potential tax benefits and this is just another way to save.
6. EMPLOYER’S PENSION PLAN. Most companies simply can’t afford to provide this idea anymore. Yet some government agencies still have plans. If you are lucky to be with a company that does have such a plan, the first thing to do is learn all about it…when it starts etc. There are still some companies or agencies where you can “retire” on full pay after only 20 or 30 years. That means, in theory, you could “retire” in your early 50s and be paid for the rest of your life…maybe another 50 years! Sign me up for that. More common may be stock options of some sort.
7. INVESTMENT MIX. No matter where you are investing…through an employer’s plan, your own IRA or anything else…you should have a good mix or diversification. Your risk level will be based on several factors, including age. We tend to be more conservative as we get older. For example, a 32 year old earning $400, 000 a year with years left of earning power may have a much higher risk level than a 60 year old nearing retirement. My book, “Don’t Invest And Forget”, stresses don’t just put money into some account and let it sit there. You or someone should be “managing” accounts according to your particular risk level.
8. TAX CONSIDERATIONS. Should you have taxable investments or tax deferred or tax free? A first thought may be to just have tax free investments. But it may be that taxable investments could earn more in your pocket than tax free investments…even after you pay the taxes. Tax deferred? The basic idea with a tax deferred investment is to pay taxes on that investment when you are in a lower tax bracket.
9. MEDICAL PLAN. This can be an overwhelming expense. Medical insurance can cover a lot, but there can be situations with no coverage. At some point we all will need some sort of long term care…because we all keep getting older. Whether or not you may need a long term care facility or specialized home care will depend upon many things.
Can a spouse or other family members help? That could be difficult if you need a lot of help. If you do have to enter a long term care facility, it can be very expensive. How will you or your family pay for that? Long Term Care insurance can certainly help, but most people do not have that type of insurance. It will be less expensive if you start a policy early. Always check the fine print for policy variables.
10. RETIREMENT OR SEMI-RETIREMENT. Just what is retirement these days? Hardly anyone just stops “working” completely when they hit a certain age, like 65. Some retirees supplement their retirement income with some other source of income such as a consultant in their field or another part time job. You will have to ask yourself…what am I going to do all day after I wake up? Do you have enough going on in life so you won’t get bored or stressed out? Will you move somewhere that may cost less money? Just food for thought.