Once you’ve set out a financial plan, you might think all the hard work has been done. But keeping on top of the progress you’re making and ensuring it’s still suitable is essential for getting the most out of your assets.
You’ve made it to retirement, the golden phase of life when you can finally relax and pursue hobbies, travel, spend time with loved ones, and embrace a slower pace. However, being retired doesn't mean the end of your financial planning.
It's crucial to continue managing your finances even after you bid farewell to your days in the workforce. In this blog, we will explore why retirement is not the end of financial planning– but a new beginning. Follow us as we dive into some helpful strategies to make your retirement last longer. Here’s what you need to know.
Changing Financial Landscape
While retirement may bring some financial stability through your savings, it also introduces new challenges. Your income may decrease, but expenses can still fluctuate. It's essential to evaluate your financial situation and make necessary adjustments. Review your retirement savings, investment portfolios, and any additional sources of income.
One excellent resource is taking advantage of your required minimum distributions (RMDs). If you're like most retirees, you have a 401(k) or IRA. With RMDs, you must begin taking distributions at age 73. These distributions are counted as taxable income when you take them. Since they're taxable, any changes you make can impact how they're taxed–affecting your retirement income. RMDs have positives and negatives; reviewing them annually is important to see what adjustments you need.
And it's not just the financial landscape that evolves. Life happens, and with life comes substantial changes such as marriage, divorce, maybe a second marriage, death, relocating and so on. This highlights the need to continually review and adapt your ongoing plans throughout your lifetime.
Working alongside a financial advisor or Fiduciary can be beneficial. They can help you actively monitor and manage your finances. You can adapt to the changing landscape and ensure a secure financial future.
Budgeting for Retirement
Creating a well-structured budget becomes even more critical during the retirement phase. Take stock of your expected expenses, including healthcare, housing, leisure activities, and travel plans. Additionally, it is crucial to account for the impact of inflation on your finances. Inflation is an ever-present factor that can erode the purchasing power of your retirement funds.
The ideal inflation rate is around 2%. When inflation exceeds this figure, the Federal Reserve (Fed) may raise interest rates to slow down the economy for the next few months. The Fed has a dual mandate of keeping inflation low and employment high to ensure the maximum number of people working in the country. As of May 2023, the US inflation rate stands at 4.05%.
Awareness of inflation trends and adjusting your financial strategies become even more important in retirement. By periodically reviewing and updating your cash flow, you can ensure that your retirement remains on track, despite potential inflationary effects. By meticulously planning and tracking your spending, you can make decisions that enable your retirement funds to last throughout your lifetime.
Investment Strategies
Retirement necessitates a shift in investment strategies. While seeking more stable and low-risk investments is natural, balancing risk and return is crucial. Consider incorporating investments that offer steady income, such as bonds or dividend-paying stocks, into your portfolio. These options provide a regular income stream to supplement your retirement funds. However, it is essential to evaluate the risks associated with these investments and ensure they align with your risk tolerance and financial goals.
This is where, once again, regularly reviewing and rebalancing your portfolio is vital to adapt to changing market conditions. Market fluctuations can impact the composition of your investments over time, potentially throwing off the original asset allocation. You can maintain and align the desired risk level with your retirement goals by periodically rebalancing your portfolio.
Consult with a financial advisor to reassess your investment portfolio and align it with your retirement goals.
Healthcare Considerations
Healthcare expenses tend to rise with age, making planning for medical costs during retirement essential. Some states are more expensive than others. In Connecticut, healthcare costs have been subject to annual rate hikes, with individual health plans experiencing an average increase of more than 20% and small group plans seeing a rise of approximately 15%. Insurance companies point to the escalating cost of healthcare services as the primary driver behind these increases. The continuous rise in healthcare expenses underscores the importance of factoring in these costs when planning for retirement and selecting appropriate insurance coverage to protect against financial burdens.
Research and compare healthcare plans, including Medicare options, to determine the best coverage for your needs. Account for potential out-of-pocket expenses and consider long-term care insurance, which can protect your assets in a health crisis. You can safeguard your retirement savings and minimize financial stress by factoring in healthcare costs.
Estate Planning
Retirement offers an opportune time to review and update your estate plan. Take stock of your assets, including property, investments, and insurance policies. Consider creating or updating your will, designating beneficiaries, and establishing a power of attorney or healthcare proxy. Additionally, explore strategies to minimize estate taxes and ensure a smooth transfer of assets to your loved ones.
In Connecticut, it's essential to be aware of estate tax considerations. Connecticut imposes an estate tax on both resident and nonresident estates if the value of their Connecticut taxable estate exceeds $9.1 million. By exploring strategies to minimize estate taxes, such as gifting assets during your lifetime or utilizing trusts, you can help protect your legacy and maximize the assets you pass on to your loved ones.
Working with a financial advisor with experience in Connecticut's estate laws, you can ensure that your estate plan is up-to-date, legally sound, and aligned with your wishes. Regularly reviewing and updating your estate plan as life circumstances change is essential to reflect your evolving goals and protect your legacy for future generations. By engaging in comprehensive estate planning, you can protect your legacy and provide for future generations.
Work With a Trusted Financial Advisor
Working with a trusted financial advisor is crucial for navigating the complexities of financial planning significantly beyond retirement. A knowledgeable and experienced advisor can provide valuable insights, guidance, and personalized strategies to help you achieve your financial goals. They can assess your unique circumstances, analyze your risk tolerance, and create a tailored plan that aligns with your aspirations.
At Agemy Financial Strategies, our financial advisors and Fiduciaries can offer objective advice on investment options, estate planning, tax optimization, and other critical financial decisions. With their knowledge and ongoing support, you can feel confident that you are making informed choices and maximizing your financial well-being now and in the future.
Final Thoughts
Retirement doesn't mark the end of financial planning; it signals a new phase that requires careful management and proactive decision-making. You can navigate retirement and secure your financial well-being by assessing your financial situation and adapting your investment strategies.
At Agemy Financial Strategies, we understand the importance of continued financial planning and offer the tools to help you confidently embrace this new chapter. Our team is dedicated to providing personalized retirement strategies tailored to your goals and aspirations.