Think of retirement as a mountain peak. You spend years climbing the mountain (working, saving, investing) in order to reach the summit (retirement). During this period, known as the accumulation phase, your focus lies in growing your nest egg. However, did you know that in both retirement and mountaineering, the real danger lies in the descent?
Once you reach your retirement summit, you must begin your downward journey, living off your accumulated resources, while safely navigating obstacles like inflation, taxes, and longevity. Just as you would not summit Mt. Everest without some careful foreplaning, you should not enter retirement without a thoughtfully crafted plan.
So where do you start? If you are unsure about what retirement planning actually consists of, the list below will give you an idea of what you will need to consider as you prepare to reach this next milestone. This list in not exhaustive, nor does it provide every detail; and unless you are a retirement expert, your best course of action should include the assistance of a professional to help you navigate the course. Just as it would behoove you to hire a qualified mountain guide if you were a novice climber.
With that, below are the six key factors to consider when planning your retirement:
- Investment portfolio allocation – You do not stop being an investor the day you retire; however, your investment mix will likely look different than it did when you were 30. You will want to make sure your investment portfolio is allocated appropriately for this next phase of your life.
- Healthcare – Retiring before 65 (Medicare eligibility) means figuring out what to do about health insurance, which can be both difficult and expensive. Neglecting to account for this cost can be harmful to a smooth retirement transition.
- Income – Often retirement income sources do not all start at once making a sound retirement income strategy critical. This not only enables you to identify where your income will come from each year, but also affords you the ability to take advantage of tax opportunities, or simply be as tax efficient as possible.
- Social Security – Your Social Security benefit does not have to begin immediately upon retirement, and often should not if you hope to optimize your benefits. We have written many articles on Social Security – it is that important.
- Pension – If you have a pension (lucky you), you will need to determine the best time to take it and which, if any, survivor option is best for your situation.
- Retirement accounts (distributions) – Dipping into retirement funds before 59 ½ will result in early withdrawal tax penalties. There is typically forgiveness in a 401(k) if you leave your job after age 55, as well as other strategies that may help you to avoid the penalty. Beyond when you can start taking distributions, though, it is critical to ensure you are safely and wisely tapping into your nest egg so that your savings will last as long as you do.
A comprehensive retirement plan will not only take all of these into consideration, it will account for taxes, inflation, and a range of potential investment results. I recommend you review your plan frequently both before and after retirement.
Prior to retirement, think of your plan as your compass, always pointing you in the right direction. After, it is your map; providing the important details of your course allowing you to move forward without incident or setback. Most importantly, think of your Financial Advisor as your guide – a seasoned professional here to help you navigate unfamiliar terrain, seeing you through from summit to safety.
Megan Nichols, CFP®
Financial Advisor
