If you’re gearing up for retirement, it’s important to build a road map for your lifestyle and finances during this new chapter. Too often, people jump into retirement with a loose plan for their money and assume that it will sustain them throughout their years as a retiree.
However, there’s so much more to think about when you retire - and your planning needs to go beyond a one-time budget or cash flow analysis. Taking the time to ask yourself these four questions can help to set you up for success both now and several years into retirement.
The first (and possibly most important) question to ask yourself before you retire is: What type of lifestyle do I want in retirement? Your retirement lifestyle will determine everything from your budget to how you want to create a tax-efficient income strategy, so it’s important to be as specific as possible when thinking about how you want life to look as a retiree.
Lifestyle questions in retirement cover a lot of ground, and many retirees look at this as an opportunity to “revamp” parts of their pre-retiree lifestyle they may not have enjoyed. Planning your retirement lifestyle should include:
You’ve spent a lot of years building a retirement savings, and it can be tough to start thinking about that savings as an income source in retirement. That’s why it can be helpful to start building an income plan well ahead of when you retire. Your retirement income will likely come from a few different places:
Creating a retirement income plan means having a strategy for when you’ll start to take Social Security, how you’ll receive pension benefits, and what it means to take tax-efficient withdrawals from your retirement savings accounts. It may also mean reorganizing your investment plan in your retirement savings accounts to create different savings “buckets” that will extend the life of your savings throughout retirement.
In a perfect world, you’ll be able to start creating a retirement income strategy 5-10 years before you actually retire. However, if you feel like you’re running behind with your planning, you can always partner with a financial planner to help get on track.
Once you have an idea of your retirement lifestyle and income strategy, you can take a second look at your expenses and budget. Does it look like your retirement income will cover your “bucket list” items? How about daily living expenses? If it’s looking like you might be a little bit short, you might need to reevaluate your current expected living expenses and recreate a budget that fits your expected income.
If you’re finding that your expected income won’t quite cover your living expenses, you might look to trim areas that will have the biggest impact on your recurring expenses. For example, focusing on paying down your debt before retirement (including a mortgage) can free up a significant amount of cash flow. Alternatively, you might think about:
Some of these options will have a big impact on your budget, while others will trim a small, recurring expense. Both paths will help you to reduce expenses and stretch your retirement income.
Creating a retirement plan isn’t a one-and-done activity. Unfortunately, may pre-retirees view retirement planning as a one-time event. This can be problematic when retirement income needs change, you encounter an unexpected ongoing expense (like a medical condition that requires continual treatment, including long-term care), or if investment values decline in the event of a market crash.
Your financial plan going into retirement should be created with the idea that it needs to support you through the best of times and the worst of times. This might mean creating a financial contingency plan for worst-case-scenarios, or regularly “stress testing” your retirement plan to make sure it stands up under the pressure of potential economic downturns.
Do you feel overwhelmed by building a retirement plan that encompasses your money and your lifestyle? Get in touch with us today. We’re happy to walk through your current retirement strategy and help you to make adjustments that will set you up for long-term success throughout retirement.
Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.
"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.