Tips to Fine-Tune Your Retirement Planning
Summary: Your retirement years can be the fresh start you deserve, and achieving this dream is possible if you plan well.
Time flies faster than we can imagine. One minute it’s your first day at a full-time job, the next minute you’re contemplating retirement, wondering where all that time went.
For some of us, retirement planning begins as soon as we start earning a regular paycheck. We contribute to our 401(k), open IRA accounts and diligently put away savings for the future.
But here’s the thing: retirement planning isn’t a set-it-and-forget-it deal. It’s an ongoing process that requires regular check-ins and adjustments as life throws its curveballs.
And considering that Americans live on average 20 more years after retiring, you want to make sure you update and fine-tune your plan as much as you can, so you can get all the comfort you need at the right time.
But, how do you ensure you’re on the right path? Let’s explore all the ways you can fine-tune your retirement planning with these retirement tips.
Key considerations with retirement planning
Life expectancy
Retirement planning is a good test of the expression, “age is just a number.” Financial professionals describe the chances of enjoying an extended lifespan as a longevity risk. Surprisingly, an online survey by the Society of Actuaries revealed that almost 60% of American women and 45% of men underestimated their life expectancy by at least five years.
Understanding your life expectancy is crucial because it helps you better plan and tweak your finances to support a longer-than-expected retirement. Consulting with a financial professional can help you create a plan that addresses longevity risk, ensuring your assets last throughout your lifetime.
Healthcare costs
As you plan for retirement, be aware that healthcare expenses can eat into your retirement savings significantly. Explore options like health savings accounts (HSAs), Medicare plans and long-term care insurance to mitigate these costs. Additionally, maintain a healthy lifestyle to reduce the risk of expensive medical issues later on.
Inflation
Inflation erodes the purchasing power of your retirement savings over time. Consider a diversified portfolio to help mitigate the impact of inflation on your overall portfolio. Periodically review your investment portfolio to ensure it’s keeping pace with inflation.
Market volatility
Economic downturns can wreak havoc on your retirement portfolio. Because the market is unpredictable, it’s important to diversify your investments across different asset classes to spread risk. Consider working with a financial professional to develop a resilient investment strategy.
Top questions to answer to fine-tune your retirement planning
Before you retire, it’s essential to ask yourself some key questions to ensure you’re on the right path.
1. What are my retirement goals?
Define what you want your retirement to look like. Do you want to travel, pursue hobbies, or spend time with family? Having clear goals will help you determine how much money you’ll need to save.
2. How much income will I need in retirement?
Calculate your anticipated expenses in retirement, including housing, healthcare and leisure activities. This will help you estimate how much income you’ll need to cover your costs. Don’t forget to factor in inflation and investment returns when determining the amount you need to save.
3. When do I want to retire?
Decide when you want to retire and how many years you have left to save. Consider factors like your desired lifestyle in retirement and your health when determining your retirement age.
4. What are my sources of retirement income?
Identify all potential sources of retirement income, including Social Security, pensions, retirement accounts and other investments. This will help you create a comprehensive retirement income plan.
If you don’t have a pension, buying annuities, also known as longevity insurance, can make for a guaranteed monthly check. Remember that annuities are complex financial products, so proper guidance is essential.
5. Have I considered healthcare costs?
Factor in healthcare expenses, starting with alternative plans before age 65, such as private health insurance or marketplace plans. After age 65, you’ll need to explore Medicare options and any supplemental coverage that fits your needs. Additionally, consider long-term care insurance to if you need additional comprehensive coverage throughout retirement.
Expert Tips to Fine-Tune Your Retirement Planning
Now, let’s explore expert retirement tips to fine-tune your retirement planning:
1. Prepare for early retirement
While the debate around raising the retirement age rages on, the reality is that many workers are taking a different, perhaps unplanned path to retirement.
According to a 2022 Retirement Confidence Survey by the Employee Benefit Research Institute, most workers plan to retire at an average age of 65. But the survey shows that most ended up retiring at 62.
This indicates that many individuals end up retiring earlier than planned. One reason for this discrepancy is unexpected health issues.
To account for potential health-related delays or early retirements, there may be a need to regularly assess your desired retirement age based on health status, career trajectory and financial readiness.
If you’re considering retiring earlier than anticipated, assess the impact on your retirement savings and income. Delaying retirement allows continued accumulation of Social Security credits, while retiring later enables investments to grow further and reduces the years relying on savings.
2. Keep an eye on your tax liability
Retirement income planning involves understanding the tax implications of various income sources at both federal and state levels. While some sources like life insurance proceeds and disability benefits are typically tax-free, others like traditional IRA and 401(k) withdrawals are taxed upon distribution.
Roth IRAs offer tax-free withdrawals in retirement, but additional income could subject your Social Security benefits to taxation. Explore tax credits and deductions applicable to retirement savings contributions, such as the Saver’s Credit, to optimize your tax strategy.
Tax laws are subject to change, impacting retirement savings and income. Stay informed and seek professional guidance to minimize taxes and maximize retirement income.
3. Plan for changes in marital status
Divorce or the loss of a spouse can have significant financial implications for retirement planning.
If you experience a change in marital status, update your retirement plan to reflect your new circumstances. In case of divorce, you may need to divide assets, adjust alimony or child support payments and update beneficiary designations. Work with a qualified attorney to manage the division of assets, including retirement accounts, pensions and real estate.
The death of a spouse, on the other hand, can reduce household income, trigger survivor benefits or life insurance payouts and necessitate adjustments to retirement goals and expenses.
After the death of a spouse, review beneficiary designations on retirement accounts and insurance policies to ensure they align with your current wishes.
In any case, see if you need to adjust your retirement savings goals and investment strategy to account for changes in income, expenses and long-term financial security.
4. Strategize Social Security timing
Social Security benefits play a vital role in many retirees’ income streams. However, the age at which you start claiming benefits can have a significant impact on the amount you receive each month.
According to the Social Security Administration, your full retirement age (FRA) is between 66 and 67, depending on your year of birth.
Claiming benefits before your FRA results in a reduced monthly payment, while delaying benefits past your FRA can increase your monthly payment by up to 8% per year until age 70.
To maximize your Social Security benefits, carefully consider factors like your life expectancy, other sources of retirement income and spousal benefits.
Delaying benefits may be advantageous if you are planning for a longer retirement, or if you have other sources of income to draw upon in the interim. Conversely, claiming benefits early may be necessary if you’re in poor health or need supplemental income to cover expenses.
Also, keep in mind the retirement earnings test if you continue to work while receiving Social Security benefits. Excess earnings may result in a reduction of benefits.
5. Recalibrate your investment portfolio
Your investment portfolio is a critical component of your retirement strategy. You need to adjust it regularly to ensure it is still in line with your goals and risk tolerance. It helps to periodically review your portfolio’s asset allocation, diversification and performance to help ensure that your investment and savings portfolio remains on track to meet your long-term objectives.
Consider factors like market conditions, economic outlook and your personal risk tolerance when making adjustments to your investing. For example, if you’re nearing retirement, you may gradually shift towards more conservative investments to protect your principal and minimize volatility.
On the other hand, if you have a longer time horizon, you may maintain a higher allocation to stocks to capitalize on growth opportunities. In addition, be mindful of fees and expenses associated with your investments, as high costs can eat into your returns over time.
Compare the fees of different investment options and vehicles to the benefits you’ll receive to determine which choice is best for your situation. It also helps to work with a financial professional to help review your investment portfolio and investment profile.
6. Maximize retirement account contributions
If your employer offers a retirement plan like a 401(k) or 403(b), contribute enough to take full advantage of any employer matching contributions.
Utilize catch-up contributions too. Once you reach the age of 50, you become eligible to make additional catch-up contributions to certain retirement accounts.
If you don’t have access to an employer-sponsored retirement plan or want to supplement your savings further, consider opening an Individual Retirement Account (IRA). Traditional and Roth IRAs offer tax advantages and flexibility in investment choices.
These accounts offer significant tax benefits, allowing your savings to grow tax-deferred or tax-free until withdrawal during retirement.
7. Do some scenario planning
Flexibility is key to successful retirement planning, as unforeseen events and changing circumstances are inevitable. According to a survey by the Employee Benefit Research Institute, 1 in 5 retirees have experienced at least one major unexpected expense in retirement.
It’s daunting to consider that unexpected expenses may likely come, so be prepared to adjust your retirement plans as needed in response to life events, economic conditions and personal priorities. Consider working with a financial professional to help you scenario plan and adjust your retirement plan accordingly.
Maintain an emergency fund to cover unexpected expenses and avoid tapping into your retirement savings prematurely. Take a step further to consider alternative sources of income in retirement, such as part-time work, rental properties, or freelance opportunities.
Secure your future with a better retirement plan
Your retirement years ought to be serene and enjoyable. And fine-tuning your retirement planning can help you achieve the financial preparedness and security that you want.
By addressing key issues, answering critical questions and implementing expert tips, you can optimize your retirement plan and enjoy the fruits of your labor during your golden years.
Start planning today to secure a brighter tomorrow. At Mutual of Omaha, we remain committed to providing resources that can help you live fuller lives.
FAQs on fine-tuning your retirement planning
Q1: Market volatility can be scary – how do I get through it?
Navigating market volatility involves identifying your risk tolerance and building a diversified portfolio suited to your goals and time horizons. A financial professional can guide you through a series of questions and scenarios to assess your risk tolerance and make suitable recommendations.
Doing so can help you better withstand market fluctuations and stay on track with your retirement goals.
Q2: What are the best retirement accounts for saving?
Tax-advantaged accounts like IRAs and 401(k)s offer significant benefits for retirement savings. While contributing the maximum allowable amount each year is ideal for maximizing savings and tax benefits, it’s important to recognize that not everyone can achieve this immediately.
Starting with contributions that fit your current budget and gradually increasing them over time can be a more manageable approach. Even small increases in contributions periodically can significantly impact your savings in the long run, without causing undue strain on your finances.
Adjusting your contributions gradually allows you to adapt to changes in your financial situation and steadily increase your savings potential over time.
Disclosures:
All investing involves risk, including the possible loss of principal and there can be no assurance that any investment strategy will be successful.
Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.
Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.
Not all Mutual of Omaha agents are registered representatives or financial advisors.