Navigating the path to retirement can sometimes feel like you’re trekking through a maze without a map. As an experienced financial advisor, I’ve witnessed firsthand the value of asking the right questions before taking that monumental step into your golden years. With the proper inquiries in hand, you can chart a course that aligns seamlessly with your ideal retirement.
How you prepare for retirement is as unique as you are, and clarity is paramount as you enter this new chapter. So, before you take the leap, let’s delve into 20 pivotal questions that can illuminate your path, ensuring you retire with confidence and a clear vision of the life ahead.
1. How Much Do I Need to Retire?
This is undoubtedly the golden question of retirement. Unfortunately, there’s no one-size-fits-all answer. However, there are some general metrics everyone needs to consider to get closer to “their number.” These include:
Desired Lifestyle: This is fundamental. If you want a luxurious retirement, traveling frequently and dining out regularly, you’ll need more money than someone who plans to live modestly. To estimate, try to calculate a range of how much you’d spend each month living your desired retirement lifestyle. Also, be sure to calculate your monthly living expenses (i.e. food, water, shelter, etc.), so you have a baseline of what you must have in retirement.
Sources of Income: In addition to your savings, it’s essential to factor in all potential income sources during retirement. This could include Social Security, pensions, rental income, dividends from investments, or even part-time work. Each of these can contribute to your monthly income, reducing the strain on your savings. Ensure you have a good grasp on these sources, as they will play a pivotal role in determining how much you need to save.
Retirement Time Horizon: This represents the estimated number of years you’ll be in retirement. Starting with average life expectancy and adjusting based on personal health and family history can give you a ballpark figure. For instance, if you plan to retire at 60 and anticipate living till 90, your retirement time horizon is 30 years. This timeline will influence how much you need to save, how your investments are structured, and your withdrawal strategy.
Inflation: Remember that the purchasing power of money decreases over time due to inflation. You might need $40,000 today, but 20 years from now, that might need to be $60,000 or more to maintain the same lifestyle. You will need prudent investments to mitigate against the effects of inflation on your nest egg’s purchasing power.
Current and Projected Tax Situation: Your tax bracket, both now and anticipated in the future, can have a significant impact on your retirement finances. Different retirement accounts offer tax advantages either when you contribute or withdraw. Being cognizant of your tax situation will allow for more strategic planning, ensuring that you maximize your post-tax retirement income and benefits.
2) When Do I Plan to Retire?
Deciding “when to retire” is both a personal and financial decision. Begin with your individual goals and understand that the choice to retire early or later largely depends on your vision for retirement. Assessing your financial preparedness is vital, and your target retirement age should reflect the state of your savings and investments.
For example, if your aim is to retire sooner rather than later, a large boost in saving and investing may be critical. Ultimately, retirement isn’t just about leaving work, but entering a rewarding and financially stable phase. Together, we can set a strategy to achieve your optimal retirement start date.
3) Do I Plan On Stopping Work Altogether?
Retirement means different things to different people, and it doesn’t necessarily mean stopping work altogether. We like to think of retirement as a new set of options to spend time as you move to this new season of life. You might find that reducing your work hours or transitioning to a consultancy role can offer a balanced approach. This way, you can enjoy more leisure time while still keeping a foot in the professional world.
Continuing some form of work after retirement can be financially rewarding. Even a modest income can lessen the pressure on your retirement savings. Staying employed can also offer perks like health care or professional connections during this transition.
Additionally, retirement is a chance to pursue passions, whether through part-time work, volunteering, or launching a small business related to a hobby. Ultimately, the decision is personal, and whether you switch roles, halt work, or chase a new project, it’s crucial to choose paths that ensure satisfaction and security in your retirement.
Please Note: To provide some perspective on the financial benefits of continuing work: For every $1000/month earned from working, it’s equivalent to having an additional $300k saved, assuming a 4% rate of withdrawal. This supplementary income can reduce the reliance on your capital, allowing it to work more efficiently for you, while you enjoy your chosen activities.
4) With My Family History and Personal Health, How Long Might My Retirement Need to Last?
As you approach retirement, you need to start thinking about how long it may last. While average life expectancy gives some guidance, your personal situation matters most. Your family history may indicate a longer retirement expectancy, or hereditary health issues might highlight the need for your plan to incorporate preventive care costs to maximize your retirement years.
Additionally, your personal health habits, like regular exercise and nutrition, may shape the need to prepare for a longer retirement. Yet, even the healthiest of us can face unexpected medical costs. While we can’t predict retirement length exactly, combining family and personal health histories can help tailor a more on-target strategy.
Please Note: It’s always best to err on the side of too long than not long enough. Assume your retirement will go the distance!
5) What Debts Do I Have, and How Do I Plan on Handling Them in Retirement?
Debt and retirement—it’s a topic that comes up often and for good reason. When envisioning retirement, most people hope for a landscape free of financial burdens. Knowing exactly what debts you have (and what interest rates they hold!) and crafting a strategy to handle them can make your retirement more serene and manageable. Common debt sources include:
- Mortgages
- Car Loans
- Credit Cards
- Student Loans
- Personal Loans
While it’s tempting to dive into retirement debt-free, you have to balance this desire with your overall financial health. Together, we’ll weigh the pros and cons and put the right plan in place.
6) What Will My Medical Expenses Be, and How Can I Cover Them?
Navigating medical costs in retirement is crucial. While exact future medical expenses vary, a typical retired couple may need $315,000 for healthcare during retirement, not including long-term care.1 Medicare, available at 65, covers many needs but has associated costs (i.e. premiums, deductibles, and potential out-of-pocket costs) and doesn’t cover everything.
Many choose supplemental insurance, such as Medigap, to bridge coverage gaps. Additionally, a Health Savings Account (HSA) offers a tax-efficient way to save for medical expenses. An HSA offers tax-deductible contributions and tax-free growth and withdrawals. Additionally, after 65, HSA funds can even be used for non-medical expenses without penalty.
7) Have I Considered Potential Long-Term Care Needs?
Medical care, including healthcare costs, is expensive, and it’s only getting pricier. If you were to need assisted living or skilled nursing care down the road, the costs could easily drain your savings. Having a plan in place helps ensure you can get the care you need without burdening your loved ones or wiping out your hard-earned nest egg.
Believe it or not, 70% of individuals who reach the age of 65 are likely to require some type of long-term care in their lifetime.2 That’s a substantial number. Whether it’s because of a chronic illness, cognitive impairment, or just the challenges of old age, many of us will need help with daily activities at some point.
By considering long-term care needs now, you’ll provide yourself and your family peace of mind. It’s one less uncertainty hanging over your golden years. Think of it as a safety net—hopefully, you won’t need it, but it’s comforting knowing it’s there. While we all hope to stay healthy and independent, it’s better to be prepared. As a team, we can create a strategy that offers security and serenity for your future.
8) Where Am I Looking to Settle Down?
Deciding where to retire involves balancing personal desires with financial realities. Your chosen location affects your costs of living, healthcare, and social experiences. Whether you dream of beachside living, mountain retreats, or being near family, each comes with distinct financial considerations, from taxes to housing and healthcare costs.
Ultimately, the ideal retirement place isn’t just about money but where you’ll thrive. Together, we’ll ensure your location aligns with both your happiness and your financial roadmap.
Please Note: For those contemplating Utah – the Beehive State – there’s much to love. As a long-term resident myself I can attest to its breathtaking landscapes, reasonable cost of living, great healthcare systems, and exciting city life. That said, it’s not for everyone. If you’re interested check out my list of 21 Pros & Cons of Retiring in Utah.
9) Do I Plan On Traveling Extensively During Retirement?
Many envision retirement as a time for global exploration. If traveling extensively is your goal, it needs a unique focus in your retirement strategy. Beyond just ticket and hotel costs, travel involves unforeseen adventures and expenses. Determining whether you’re leaning towards long annual trips or shorter, frequent journeys will shape your financial approach.
Additionally, consider travel insurance, especially health coverage as you age. If you maintain a home, factor in its upkeep costs during your absence, or ponder downsizing or alternative living options. Realizing your global travel dream in retirement is achievable with both enthusiasm and planning. Let’s align your finances with this grand adventure, ensuring you’re as prepared for this journey as you hope to be.
10) What Streams of Income Will I Have in Retirement?
Planning for retirement often feels like assembling a jigsaw puzzle, and each stream of income is a unique piece that helps complete the picture. Understanding where your money will come from is essential to ensure you have a comfortable and sustainable lifestyle in retirement. Below, are some common retirement income sources you might tap into:
- Social Security
- Retirement Accounts
- Pension Income
- Rental Income
- Investment Dividends
- Part-Time Work
- Annuity Payments
Outside of these typical streams, there are personal savings and investments, which can be a mix of stocks, bonds, or private equity. We can work together to ensure your income streams are offering enough cash flow for your retirement peace of mind.
11) When Will I Take Out Social Security?
The earliest you can start receiving Social Security benefits is age 62. However, if you wait until your full retirement age (FRA), which varies based on your birth year, your monthly benefit will be larger. For example, if your FRA is 67 and you start at 62, your benefit could be reduced by about 30%.3
On the other hand, if you delay past your FRA, you’ll earn delayed retirement credits, which can increase your monthly benefit until age 70. For every year you delay after FRA, your benefit could increase by 8%.4
Ultimately, the right time to take out Social Security depends on your financial needs, health, and lifestyle goals. It’s essential to consider how this decision meshes with your broader retirement planning. Remember, this is about strategizing for the best outcome tailored to your personal situation. Together we can devise the strategy that’s right for you.
Please Note: Another factor to consider when strategizing is the benefit available to your spouse, especially in light of their age and health. Their entitlement can influence the overall dynamics of when and how you should opt for your benefits.
12) How Will I Protect My Nest Egg?
Protecting your nest egg is perhaps the topmost priority in retirement. How you will do so will depend on your unique situation. That said, there are always standard pillars of defense you can look to put in place. These pillars include:
Diversifying Your Portfolio: You’ve heard the saying, “Don’t put all your eggs in one basket.” The same holds true for your nest egg. Spreading your investments across different asset classes, like stocks, bonds, and real estate, can help cushion against the volatility of the market. Remember, while higher risks might offer higher returns, they can also lead to larger losses. By diversifying, you can strike a balance that’s right for you.
Keeping an Emergency Fund: Life has a way of throwing curveballs, and it’s no different in retirement. By setting aside 6-12 months of living expenses in an easily accessible account, you can handle unexpected costs without dipping into your primary nest egg. This way, you avoid selling investments during a market downturn or incurring penalties for early withdrawals.
Reviewing and Adjusting Regularly: Your financial landscape in retirement isn’t set in stone. Costs change, and so do investment climates. By regularly reviewing your portfolio and financial plan, you can make necessary adjustments. This not only helps protect your nest egg but ensures it continues to grow, even in retirement.
Planning for Inflation: Your assets MUST grow with you through retirement to keep pace with inflation. Often, it can feel safe to keep the majority in low-growth (i.e. low-risk) investments, but without enough growth to counter the effects of inflation, you jeopardize your nest egg and the stability of your retirement.
Partnering with a Trusted Advisor: Protecting your nest egg isn’t a one-time activity; it’s an ongoing journey. By teaming up with a trusted financial planner, you get the benefit of expertise tailored to your unique situation. They can provide insights, suggest adjustments, and be your financial compass, ensuring that your hard-earned savings see you through your golden years. You’ve worked hard for your nest egg; let’s make sure it works just as hard for you!
13) How Will I Spend Down My Nest Egg?
The fear that you’ll run out of money – that’s every retiree’s biggest concern! Determining how you will spend down your nest egg is essential in addressing it. Below, we’ll explore some tried-and-true strategies to manage your retirement savings wisely:
Determine Your Withdrawal Rate: To begin, you’ll want to establish a sustainable withdrawal rate from your nest egg. Many individuals begin with the “4% rule,” where they take out 4% of their retirement portfolio’s worth in the initial year and subsequently adjust that sum for inflation in the subsequent years. However, your ideal rate might be higher or lower based on your unique financial needs and market conditions.
Determine which Account to Tap into First: An effective withdrawal strategy requires understanding how various accounts are taxed differently. By being strategic about which funds to use initially and which to let grow, you can minimize your lifetime tax liability throughout your retirement years.
Prioritize Your Expenses: When you retire, certain expenses might decrease (like work-related costs), while others might increase (like healthcare or leisure activities). List out your expected monthly expenses, and ensure the essentials—housing, food, healthcare—are covered first. With what’s left, you can allocate towards hobbies, travel, or other non-essential activities you’ve been dreaming about.
Reassess and Adjust: Your nest egg isn’t static. It will fluctuate based on market conditions, unforeseen expenses, and changes in your lifestyle. Schedule regular check-ins (annually or semi-annually) to ensure you’re on track. If the market isn’t doing great or if you’ve had higher-than-expected expenses, you might choose to withdraw less. Conversely, if things are looking rosy, you could consider treating yourself a bit more or even investing in new opportunities.
14) How Will I Handle Sequence of Returns Risk?
Understanding the “sequence of returns risk” is crucial as you start your retirement. It refers to the risk of encountering low or negative returns early when withdrawing from retirement funds. If the market drops just as you start withdrawals, your savings might deplete faster than expected. Two portfolios with the same average returns can end up with substantially different values over time, depending on the order of the returns.
To navigate this risk, diversify your portfolio to spread out potential risks. Be adaptive with your withdrawals during market lows, adjusting rather than sticking to a fixed percentage. Also, think about a cash buffer or bonds to draw from during market downturns, avoiding the sell-off of investments. Sequence of returns risk can seem daunting. But with a financial thinking partner, you can strategize for a smoother financial journey throughout retirement.
15) Does an Annuity Make Sense For Me?
Annuities can serve as a retirement safety net, delivering consistent payouts over a designated period or lifetime. While they provide reassurance for some, it’s vital to compare this guaranteed income against potential returns from other investments. Annuities vary: immediate ones pay quickly, deferred pay later, fixed have set rates, and variable rely on market performance. Each caters to distinct financial objectives and risk profiles.
However, be wary of fees and surrender charges; some annuities have high costs or significant penalties for early withdrawals. It’s essential to understand these details and gauge costs against benefits. Whether or not an annuity makes sense for you will depend on your individual needs, risk tolerance, and retirement goals.
Please Note: The market is rife with predatory annuity products. I’ve encountered numerous retirees who have been misled. While annuities can be beneficial in specific circumstances, they are frequently portrayed as a one-size-fits-all solution or a risk-free investment. This isn’t always the case. They often come with hidden costs and their features can change based on the fluctuations of their underlying investments, adding complexity. Before proceeding, make sure you’re informed. You’re welcome to schedule a free call to discuss annuities further.
16) Is My Estate Planning Paperwork Completed?
Having your estate planning documents in order is like setting up a road map for your loved ones – it provides clear guidance on your wishes and can save a lot of stress during already challenging times. Together, we can ensure your intentions are clear and well-documented for the future benefit of those you care about. Key documents to prioritize include:
Durable Financial Power of Attorney: This document allows someone you trust to handle your financial affairs if you’re unable to do so.
Medical Power of Attorney: Here, you’re appointing someone to make healthcare decisions on your behalf if you’re incapacitated.
A Will: This lays out how you’d like your assets distributed after your passing. It also allows you to name guardians for any minor children.
A Trust: This is a fiduciary relationship in which you give another party authority over the handling of your assets. This can help transfer and protect your wealth as it moves to future generations. It can help spare your loved ones the expensive and complex legal process of probate.
17) Am I Emotionally and Mentally Prepared to Retire?
Entering retirement is both a financial and emotional journey. As we chart your financial path, consider your emotional readiness for this next phase. It’s common to feel excitement and apprehension. Preparation involves visualizing daily activities, hobbies, and relationships to foster a fulfilling routine.
Don’t overlook planning how you’ll utilize your newfound time and financial independence. Balancing financial and emotional preparations ensures a holistic approach to a joyful retirement.
18) Will I Have a Support System of Friends and Family?
As retirement approaches, beyond finances, your emotional and social well-being is paramount. The influence of friends and family on your happiness can’t be understated. If you’re considering relocating, it’s crucial to balance the appeal of a new place with proximity to loved ones or potential new connections. A beautiful locale can’t always replace meaningful interactions.
If you’re staying local, assess potential changes in your social circles and access to community activities. Prioritize nurturing and expanding your relationships. As you transition into retirement, reflect not just on the place but also on who accompanies you in this new chapter.
19) How Do I Plan to Stay Healthy and Active in Retirement?
Maintaining health in retirement boosts well-being and offers financial benefits. Prioritizing physical activity, whether through golf, home dancing, gardening, or another activity can keep you fit and socially engaged. Nutrition is pivotal; invest in fresh foods and allocate funds for regular health check-ups.
Mental well-being is just as important. Stimulate your mind with activities like reading or puzzles, and foster social ties through clubs or family interactions. Meditation can be restorative to your mind (and the rest of your body!), and journaling provides introspection and a legacy of wisdom for future generations.
20. How Can I Get Help With Retirement?
At Snowpine Wealth, we understand that the path to retirement is filled with more than the occasional retirement question, tough decision, and apprehension. You don’t have to navigate this on your own. As your dedicated CFP® professional, specializing in financial planning for people entering retirement, I’m here to not only guide you to retirement but to stand beside you throughout it.
As your financial thinking partner, I’m committed to understanding your unique financial landscape and tailoring solutions that best fit your goals as they evolve, as we’ve done successfully with our clients over the years. For every question or scenario you have, I’m here to discuss, analyze, provide resources, and devise strategies,
Whether it’s a question about a new investment opportunity, the impact of market fluctuations on your savings, or even budgeting for a dream vacation in your retirement years, I’m here to provide clarity. You can continuously bounce your thoughts off me, ensuring that the decisions made align perfectly with your financial goals and personal aspirations.
Together, we’ll navigate every twist and turn, making certain your retirement journey is both rewarding and secure. Don’t hesitate to get your retirement rolling! I’m here to help you get started as soon as you’re ready. Just schedule a complimentary introduction call with me.
– Ryan Smith CFP®
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Advisor. Fixed insurance products and services not offered through Commonwealth Financial Network®.
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