Retirement Savings Plan Items You Might Have Overlooked
Retirement is something we look forward to at the end of our careers. Life after work does not look the same for everyone, but there are some often overlooked considerations. Ahead are 12 retirement savings plan details you might not have considered.
1. Healthcare Costs
Many people underestimate the cost of healthcare in retirement. It’s important to plan for insurance premiums, out-of-pocket expenses, and long-term care. Costs will vary depending on whether you retire with an employer that provides health insurance in retirement, whether you retire before you (and potentially your spouse) are eligible for Medicare, whether you have dependents that need health insurance coverage, and more. If you (and your spouse) qualify for Medicare, there are further questions like: do you need to consider a supplemental policy?
2. Length of Retirement Savings Plan Risks
People are living longer, which is great! However, this means your retirement savings plan will have to stretch out over more time. We are now seeing clients who live more years in retirement than the years they were working. Looking to plan for a retirement that could last 30 years or more is critical.
3. Inflation
The rising cost of living can erode the purchasing power of your savings over time. You’ve probably noticed that a trip to the grocery store is exponentially more expensive than it was five years ago. Therefore, it is very important to include inflation in your retirement savings plan.
4. Social Security Timing
Deciding when to start taking Social Security benefits can significantly impact your lifetime income. Delaying benefits can increase your monthly payments, though it’s not always wise. For those many years away from retirement, chances are good that there will be additional changes to social security benefits by the time you reach retirement age. It’s wise to keep that in mind and plan accordingly.
5. Tax Impact on Your Retirement Savings Plan
Work with your advisors to plan for and understand the tax implications of withdrawing from different retirement accounts. With foresight and a good schedule, you will maximize your savings. Consider the tax treatment of traditional IRAs, Roth IRAs, and other accounts. Strategically contributing to specific accounts during your working years can ensure lower tax implications from your withdrawals in retirement.
6. Diversification
Have you ever heard the term “Don’t put all your eggs in one basket”? Ensuring your investments are diversified can help manage risk. Don’t rely too heavily on any single investment or asset class.
7. Estate Planning
You worked hard for everything you have accomplished and accumulated, having a will, power of attorney, and healthcare directives in place ensures your wishes are followed and can prevent legal complications. Some circumstances may also require a trust, but by working with an estate planning attorney and financial planner, you can understand better what suits your unique situation. By putting an estate plan in place and keeping it current, you can not only make sure your assets are distributed properly, but it may also help you and your heirs to pay substantially less in taxes, fees, and court costs.
8. Debt Management and Your Retirement Savings Plan
Entering retirement with significant debt can be burdensome. Work with your financial planner to pay down debt in an effective way before retirement. Doing so can reduce financial stress and free up assets for retirement needs (and wants).
9. Lifestyle Adjustments
Consider how your lifestyle might change in retirement and plan for those expenses. Some expenses may go down; for example, you may drive less without a daily commute, putting less wear and tear on your vehicles. You may also find yourself replacing them less frequently. However, some expenses may increase. With more free time you may spend more time on a hobby or take up something new. You may wish to travel more or adopt new activities that should be considered in your retirement savings plan.
10. Retirement Savings Plan Contingencies
Preparing for unexpected events, such as market downturns or personal emergencies, can provide some peace of mind. Work with your financial planner to ensure you have a sufficient emergency fund. Discuss your risk tolerance, and make any necessary changes as you enter retirement and throughout it.
11. Pension Plan Stability
If you are relying on a pension, be aware the stability and funding status of the pension plan. We’ve seen many pensions go “belly up” over the years, so it’s important to understand your pension’s stability as well as your options prior to retiring.
12. Required Minimum Distributions (RMDs)
Be aware of RMD rules for retirement accounts to avoid penalties and plan your withdrawals accordingly. The rules have changed recently and will change again in 2033. Your financial planner and tax advisor should help keep you informed and compliant. These advisors may also be able to help you create a plan to reduce unneeded RMDs and/or provide alternative investments for RMD proceeds that aren’t needed each year.
Considering these factors can help create a more comprehensive and flexible retirement savings plan. It’s important to build a team of trusted advisors, including estate attorneys, tax advisors, and financial planners.
As always, if you have questions about this or any other financial topic, don’t hesitate to contact me.
Nichole Coyle, CFP®, CSLP®
Managing Partner, Financial Planner
2300 St. Clair Ave NE
Cleveland, OH 44114
216.621.4644 x1607 office
330.607.2213 cell
nichole@impactcfp.com
Securities and advisory services offered through Cetera Advisor Networks LLC, member FINRA/SIPC, a Broker-Dealer, and a Registered Investment Advisor.
Cetera is not affiliated with the financial institution where investment services are offered or any other named entity.
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Posted In: Saving
