*The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.
Editor’s Note: This article is the final installment in a 3 part series about saving for retirement. We hope you find it useful; if you haven’t read the first two articles, you can find them on our website!
Retirement: It’s Here!
For the last two months, we’ve taken a sequential look at saving for retirement: how to start, especially if you’re new to the savings game, and how to continue to grow your investments into middle age. In this final article, we’ll cover some important steps for when you’re ready to retire.
If this topic is applicable to you, congratulations! You’ve worked, probably at various jobs, for your entire adult life and it’s finally time to cash in your nest egg and enjoy yourself with your family and friends. For many, retirement can be an uncertainty on the horizon. For you, especially if you’re reading these articles and have taken retirement savings seriously, retirement will be a joyful new chapter full of adventure.
First Things First: Don’t Forget to Celebrate!
Like with any major life event, there’s a lot to do around your retirement. There are accounts to cash out, people at work to say goodbye to, desk to empty. But first things first: don’t forget to take a step back and celebrate your accomplishments! Whether it’s a shindig with family and friends or simply taking a breather and smiling to yourself at a career well worked, it’s important to recognize your successes. Take a few minutes to reflect, and to get excited for what’s next.
Formulate a Withdrawal Strategy
For the purposes of this article, we’ll assume that you have been saving for retirement. (If you haven’t, it might be helpful to go back to the first installment in this series.) The first financial step you will need to take when you’re ready to retire is to determine how much money you will need each month to live and be comfortable. As The White Coat Investor points out, a Safe Withdrawal Rate (SWR) of around 4% per year is typically enough to last you through retirement, including an increase each year to account for inflation. The bottom line is that your retirement portfolio needs to be 25 times bigger than that 4% number, which will include all your spending for the full calendar year. Please consult the The White Coat investor article linked above for an explanation of The Trinity study, which compiles research on portfolio durability and smart withdrawal, and much more.
Safe Withdrawal Rates can get complicated quickly based on whether you are spending from increase in portfolio value or dipping into your principal, and many other factors, but just know that 4% is a baseline suggestion rather than a hard and fast rule. As with everything related to personal financial planning, your situation is different from everyone else’s and requires a unique approach. A First Light Financial LLC advisor can help you determine your withdrawal strategy and give you personalized advice and information. Don’t hesitate to reach out today!
Consider Your Pension
There are multiple potential income streams in your retirement, not just what you’ve saved in investment accounts. One such possibility is a company pension. Before you officially retire, make sure to talk to someone who works in HR or Accounting at your company and see if you are eligible for a pension in retirement. If you have been at the same job for some amount of time, you are likely already aware of whether you’ve been paying into a pension or not. If you have been, you will have flexibility with how to use that pension – depending on the type of pension and funds it supports. Investopedia has a helpful breakdown of pensions here, covering “defined benefit plans,” “defined contribution plans,” and more.
Social Security (Gulp!)
If you follow the news cycle, you may feel some uncertainty regarding your future social security. Well rest easy: for now, at least, it is still the recommendation of most financial advisors to delay taking Social Security payments for as long as possible, up to the age of 70. If you need the money eventually, you can cash out as soon as you retire. But the funds you will receive, and the longer they will stretch into your retirement journey, will increase the longer you wait. There are plenty of exceptions to this rule; for a comprehensive breakdown of the confusing world of Social Security, we recommend this book by Mike Piper, CPA.
Prioritize Paying off Debt
It’s an issue we’ve hammered home over the course of this series, but we’d be remiss not to mention debt one final time. Pay down credit card debt, home mortgages, outstanding student loans for you or your children, medical debt, etc. as quickly as possible. The more debt you carry, the more interest you rack up, and it can seriously cut into your money flow during retirement. As founder Dr. Jim Dahle of The White Coat Investor points out in this excellent retirement primer, it may also be a good idea to buy that new car or other expensive purchase before you retire. “Lowering the ratio of fixed expenses to variable expenses,” he writes, “[A]dds flexibility to any retirement plan…” If your expenses in retirement are mostly static, that is a large chunk of money set aside immediately from your monthly income flow that you can’t really touch. But if month to month expenses come and go, you’re more prepared for financial comfort on your set income streams.
Don’t Forget About Healthcare
The older you get, the more healthcare you will need: it’s an unfortunate fact of living. If you have a Health Savings Account (HSA) or comparable account for medical expenses, do a quick review with a trained professional to make sure it lines up with expected expenses. The last thing you want is for a surgery or treatment to come out of left field and interrupt your income flow in retirement. Medical expenses could end up being some of your main expenditures in later years, so plan accordingly and keep money for them in a different account like an HSA. An advisor from First Light Financial LLC is available today to review expected health expenses and provide guidance on your different savings accounts.
We would advise you to look into government-funded Medicare, but with a cognizance of what it does and does not cover, as Kiplinger points out here. If eligible, we can help you decide if Medicare is the right option for you. Kris Money, Partner and Financial Planner at First Light Financial LLC, is Medicare-licensed and available to answer all of your questions if you choose that path.
Please note: If you decide against Medicare, you will need to choose another form of health insurance if you don’t want to share costs and pay out of pocket. There are plenty of options for insurance in retirement, especially if you are a veteran, so talk to an advisor about what you may be eligible for.
Estate Planning
If you have investment properties, or have started your estate planning process, retirement is a good time to review your various properties and consider hiring a manager to take care of them for you. If real estate is going to be an additional stream of income into retirement, make sure to calculate that into your budget going forward. If you need assistance with estate planning or managing a real estate portfolio, First Light Financial LLC is here to help.
Looking for an experienced wills and trusts attorney to help you and your family prepare for end-of-life decisions? We can provide a list of local firms specializing in estate planning if you are interested.
Working Part Time?
Many folks retire and continue working part time or as scaled back contractors or even in freelance roles. If you have an additional source of income from a part time job in retirement, make sure to factor that into your financial planning. Consider speaking with an advisor to discover how a part time job might affect your benefits package as well. If you are using retirement to volunteer more or contribute time or resources to a charity, thank you for your service!
Continue Saving
Just because you’re about to retire doesn’t mean you need to immediately stop saving, investing, and making wise financial decisions. If you need every single cent of your retirement income for living expenses, that’s one thing, but if you have some left over at the end of every month, consider reinvesting it for your future and fiscal prudence. Just because you have money doesn’t mean you need to spend it – even if you should treat yourself after a long career of working hard – and foregoing a few small vanity buys every once in a while to ensure long-term financial viability can be a worthy trade-off!
How First Light Financial LLC Can Help
If you’ve made it this far and are about to retire – or have retired recently – congratulations! You’ve finally made it to the point you’ve been looking forward to for quite some time. Just because your career in the workforce is over doesn’t mean smart financial decision-making comes to an end. Keep investing when you can, make good decisions with your money, and talk to a First Light Financial LLC advisor today about all the options for withdrawals and getting the most out of your various accounts.
Thanks for reading, and we’ll see you next time for a brand new topic!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.