Retirement is a significant milestone, often accompanied by a mix of excitement and apprehension. As we transition into our golden years, it’s crucial to approach retirement with a well-prepared plan to ensure financial stability.
Here are some important aspects of retirement planning to keep in mind:
1. A thorough appraisal of expenses and budgeting
Taking a hard look at your budget now in your working years and creating a future budget are fundamental steps in retirement planning. You must define your current expenses and project the future costs you’ll have when you’re no longer earning a salary. Include your ongoing expenses, such as mortgage payments, car loans, dining and lifestyle needs.
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.
Some retirees find themselves spending more money due to increased leisure activities. As some like to say, “Once you retire, every day is Saturday.” If we think about our spending habits, we tend to spend more on Saturdays, whether that's trips to Home Depot, the grocery store or restaurants. You want to work to create a realistic budget for retirement that accurately reflects your lifestyle.
2. The 4% rule and alternative withdrawal strategies
A commonly discussed guideline in retirement planning is the 4% rule, which suggests that retirees can withdraw 4% of their retirement savings annually without running out of money. There are many nuances to this approach, but in general, it looks at a 60/40 (60% bonds, 40% stocks ratio) portfolio and how it projects over a 30-plus-year retirement.
An alternative to the 4% rules is the “guardrails approach,” which allows for flexible withdrawals based on market performance. This method involves adjusting spending when the market is down and enjoying more spending when the market is up. Both the 4% rule and the guardrails approach aim to ensure financial longevity, but personal preferences and risk tolerance play a significant role in choosing the right approach.
3. Extra sources of retirement income
Social Security and pensions are traditional sources of retirement income, but they may not cover all your expenses. Having additional retirement income sources can be helpful if retirement savings are not enough.
One example is owning rental properties. Renting out a paid-off property can provide a steady income stream and help mitigate inflation’s impact. At the same time, be careful of the risks of a rental property. Make sure you have the proper insurance and that it’s a property that won’t go vacant for long stretches of time.
4. Health care and long-term care planning
Health care costs are a significant concern for retirees. Fidelity reports a married couple should set aside over $300,000 for retirement health expenses. If you are still preparing for retirement, using health savings accounts (HSAs) can be a great way to save for your future health care expenses.
5. Maintaining emergency funds
Maintaining an emergency fund is essential to handle sudden, unexpected expenses. Get a high-yield savings account or a money market fund to ensure that emergency funds are earning interest. This financial cushion can cover sudden costs like home repairs or medical bills, preventing retirees from accumulating high-interest debt.
Also, keep a designated amount for emergencies in your savings account. One rule of thumb is to save three months’ worth of your normal living expenses. Doing so can help you cover one of those unwelcome surprise expenses.
Preparing for retirement requires careful planning and ongoing adjustments. Regularly update your retirement plans and seek professional guidance to navigate the complexities of retirement finances. By understanding your retirement needs well ahead of retirement and planning for them accordingly, you can enjoy your golden years with confidence and financial security.
Dan Dunkin contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Related Content
-
How Much Does Your Car Model Cost to Insure?Car insurance rates vary by make and model. Find out if your car is raising or lowering your premium.
-
Six Ways to Pay Off High-Interest Debt (and Still Save for the Future)Get out of debt and reach your goals sooner by starting with a well-thought-out plan.
-
Vaccines Medicare Covers for FreeThe U.S. is experiencing an outbreak of measles and is on track to have the most whooping cough cases since 1948; these vaccines Medicare covers for free can keep you safe.
-
Four Takeaways From Filing Your Taxes to Boost Your Financial FutureNow that another tax season is in the rearview mirror for most of us, what lessons can you take from what you learned about your finances to plan for the future?
-
Customer Services are Strained at the SSA. You Should Plan Around These Federal HolidaysIf you have a question or need information from a federal agency, check the federal holiday schedule to make sure you get your business done before they close.
-
How to Store Your Financial Documents the Right WayHaving mountains of financial paperwork take over your home can be frustrating. Here's how to get the mess under control while still having your essential information at your fingertips.
-
First 100 Days: Trump's Impact on Your FinancesHere are some opportunities to consider regarding investing, interest rates and tax cuts as the financial landscape shifts under the new administration.
-
What Would Happen if You Put Your Tax Refund in an IRA?Not only could you get a tax break, but the compounding effect over 35 years could turn the average refund into nearly $14,000.
-
Six Reasons to Disinherit Someone and How to Do ItWhether you're navigating a second marriage, handling an estranged relative or leaving assets to charity, there are reasons to disinherit someone. Here's how.
-
Most of the Money in IRAs Comes from a Surprising SourceAmericans don't typically stash money in IRAs from contributions. Here's how most people fund their IRAs, according to a new study.
