A record-breaking 11,000 Americans are expected to retire each day in 2024, what the nonprofit Alliance for Lifetime Income has called the “year of Peak 65.” As Baby Boomers leave the workforce, it’s a reminder for anyone heading into retirement in the coming years to take stock and prepare for this exciting transition. Here are five important considerations for anyone nearing retirement.
1. How will I spend my time?
Before you retire, it’s wise to ask yourself: What do you want your retirement to look like?
Possible answers might include:
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
- Playing recreational sports like golf or pickleball several times a week
- Traveling
- Doing community volunteer service
- Working part-time in a new career or business
- Spending more time at a second home
The answers to these questions shape one’s financial plan, so the more thought you put into this, the more accurate your retirement plan is likely to be.
2. How will I manage cash flow?
While conventional wisdom is that you’ll spend less in retirement, the reality is often quite different. It’s important to realize and plan for fluid spending rates during one’s retirement years. Most of the retiring clients we work with follow a spending pattern known as the “retirement smile.”
The concept is that retiree spending follows the arc of a smile — high in the early years of retirement when one’s health is good, with increased spending on travel and leisure activities.
As one enters their 80s, spending typically declines, travel is reduced, but health care spending hasn’t yet increased. Then, in later life (late 80s and 90s), discretionary spending declines, and health care expenses increase.
3. Will I have enough money to meet my spending needs after my regular income goes away?
Most people are terrified of missing a regular paycheck and for good reason. You spend your entire life in accumulation mode, watching your net worth increase — now it's time to draw down. That means crafting a plan to replace your income as tax-efficiently as possible, while balancing market risk with long-term goals.
A key component of retirement income is Social Security, and it’s important to think through the claiming strategy that’s best for you. You can read more about this in the article When Is the Right Time to File for Social Security?
Another important cash flow consideration is how to best structure portfolio withdrawals. Planning current and future cash flows should be calibrated to balance one’s risk tolerance and income needs with tax planning to help ensure funds are drawn in the most efficient manner possible.
In some cases when you retire, your taxable income falls significantly, especially if one is deferring Social Security to age 70. This period offers a unique planning window to “fill up” lower income tax brackets either with IRA withdrawals, partial Roth conversions or capital gain harvesting, depending on your personal situation.
4. What is my plan for health insurance?
Health insurance for early retirees (those retiring before the age of 65, which is when Medicare eligibility begins) is often a costly expense. Many people rely on their employer for health insurance. When they retire early, they lose this coverage and must find alternatives, which can be expensive and less comprehensive.
Private health insurance can be expensive, especially for those in their early 60s. This age group is generally more likely to have health issues than younger people, leading to higher premiums. If you retire before age 65, you need to have a plan for health insurance. COBRA may be appealing (although often expensive) as a short-term solution or bridge to Medicare. In some cases, retirees can manipulate income for a few years to qualify for Affordable Care Act coverage before becoming Medicare-eligible. This strategy often requires assistance from a financial or tax planner.
5. What’s my plan for long-term care?
The reality is we all must plan for what will happen if we can no longer care for ourselves or live independently. Just some of the considerations around aging are:
- Will you age in your home or in a continuing care retirement community (CCRC) or assisted care facility?
- Who will provide your care, and what will it cost?
- Can you “self-insure,” or will you purchase long-term care insurance (LTCI)?
- If LTCI is appealing, when should you buy it, and what policy features should you get?
The bottom line: There's a LOT to consider when planning for your retirement. Planning ahead is not only wise, it will likely save you time and money over the long term.
Related Content
- Five Things I Wish I’d Known Before I Retired
- Retirees’ Anti-Bucket List: 10 Experiences You Don’t Want
- Do You Have at Least $1 Million in Tax-Deferred Investments?
- Nervously Nearing Retirement? Four Do’s, Four Don’ts and One Never
- To Create a Happy Retirement, Start With the Three Ps
-
How the New $250 Visa Integrity Fee Could Impact US TravelersA new $250 visa integrity fee will soon be levied on some visitors to the US. The ripple effect could impact Americans, too.
-
Dow Leads as Health Care Stocks Merck and Amgen Gain: Stock Market TodaySecond-quarter earnings season remained top of mind Tuesday, with Coca-Cola and GM among those reporting.
-
Are You a Doormat at Work? The Hidden Cost of Excessive People-PleasingI talked to the author of the upcoming book 'Fawning,' and she explains how the 'fawn' response can lead to blurred boundaries, difficulty asserting needs and a loss of self, with serious emotional consequences like anxiety and PTSD.
-
A Guide to Personalizing Your Retirement Plan for Maximum ImpactThis strategy challenges conventional retirement rules of thumb by combining traditional savings, home equity and annuities to provide higher income and liquid savings and help cover long-term care costs.
-
How Advisers Can Rev Up Sales With MedicareHelp boost your revenue stream by integrating Medicare solutions into your financial practice for long-term client value and profits.
-
Take It From a Tax Attorney: This Is a Magic Multimillion-Dollar Tax-Saving StrategyThe qualified small business 1202 stock exemption is a $10 million exclusion that seems too good to be true and is often overlooked.
-
What Would You Like to Leave Behind? A Financial Planner's Guide to Family Wealth DiscussionsCommunicating about your assets and plans for passing them on increases clarity while preventing surprises and family disputes.
-
Seven Financial Considerations When Downsizing for RetirementWith prices going up on everything, you may be looking for a cheaper place to live. To truly evaluate costs, take a hard look at taxes and intangibles.
-
I Have Plenty of Money: Why Do I Need a Long-Term Care Plan?Long-term care planning, whether through insurance or self-funding, is crucial not only for financial protection but also to preserve family relationships and reduce the emotional and logistical burdens on loved ones.
-
Three Steps for Evaluating a Downsize in Retirement: A Financial Planner's GuideUnless you think things through, you could end up with major (and costly) regrets. To make the right choice, base it on the three keys to retirement happiness.
