Before Retiring, Make Sure You've Covered These Five Bases

A hiker stands on top of a mountain looking at the view. — (Image credit: Getty Images)

It is sometimes said that planning and saving for retirement is much like mountain climbing. As you scale your way to the peak, you hope to see a glorious view of retirement on the other side.

But, just as with actual mountain climbing, you don’t get to revel in that view for long. It’s time to start your descent — actual retirement. And that’s when many people run into trouble.

The reason? They don’t have a good plan in place to make sure that the retirement savings they accumulated is able to support their retirement lifestyle — and will last the rest of their lives.

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Without a comprehensive plan, that descent can get mighty treacherous. So, what do you need to take into account as you create such a plan? Let’s take a look.

1. Make an income plan.

For most of our lives, we depend on that regular paycheck so we can pay our bills on time. When you retire, the paycheck stops, but the bills continue. That’s why it’s important to have a written income plan so you can replace that paycheck with another regular income stream. After all, Social Security typically will cover only about 40% of pre-retirement income, according to the Center on Budget and Policy Priorities. As you create your retirement income plan, you need to answer these five questions:

How much money do you have?
How much do you need?
Will it last forever?
Are you taking too much risk?
Are you overpaying in taxes?

The key with income is to come up with strategies for your savings to cover the gap between what Social Security provides and what you need. That’s where investments come in.

2. Use the bucket strategy for your investments.

Your money should be divided into three buckets: safety, income and growth.

The safety bucket is for those unexpected moments that arise in life, the emergencies we all encounter.
The income bucket provides the money to pay for your lifestyle and monthly bills. For example, you could use some of your retirement savings to purchase a fixed index annuity that would provide a steady income stream each month.
Finally, your growth bucket is where you can be more aggressive with your investments in the market since you already have your safety and income buckets accounted for.

3. Get a handle on your taxes.

Even in retirement, you will pay taxes, but there’s no reason to pay more than you truly owe. A problem many retirees encounter with taxes is that much of their savings is in tax-deferred accounts, such as traditional IRAs or 401(k) accounts. That means they paid no taxes on the income they contributed to the accounts each year — but they will pay taxes when they start withdrawing money in retirement.

One way to avert a potentially large tax blow to your savings in retirement is to do a Roth conversion now. Roth accounts grow tax-free, and you pay no taxes when you make withdrawals in retirement. You will pay taxes when you move your money from the tax-deferred account to the Roth. But it could be better to pay those taxes now, when tax rates are relatively low, rather than wait until later, when taxes could be increased.

4. Prepare for health care costs.

At age 65, you are eligible for Medicare, but not all Medicare plans are the same, so you want to study your options carefully to make sure you choose a plan that fits your needs. What is covered? What does Medicare not cover? How much are the deductibles and copays? Are your doctors in network for the plan you are choosing?

In addition, on the health care front, it’s a good idea to consider strategies for paying for long-term care. Among the options are long-term care insurance or a life insurance policy that can be converted into an income stream to help cover long-term care costs.

5. Complete your legacy planning.

Many retirees hope to pass something on to their heirs, but if you don’t do the proper legacy and estate planning, those assets may not go to them as efficiently as you would like. You could even leave them with a hefty tax bill that could have been avoided. For example, if anyone other than a spouse inherits a traditional IRA, they must withdraw all the money within 10 years, paying taxes as they do so. But if you had made a Roth conversion, they could avoid those taxes.

It’s also important to make sure your beneficiaries know where to find information about your accounts and where your passwords are stored. At our firm, we provide clients with a “survivor’s checklist” that delves into such issues, right down to what to do with any pets.

As you near retirement, it’s important to work with a financial professional who specializes in this phase of the retirement journey. Even if you already have an adviser who worked with you during the accumulation phase, that doesn’t mean they are right for the distribution phase that you are about to enter.

I liken it to this: Many of us used to see a pediatrician, but later in life, we switched doctors. There was nothing wrong with the pediatrician; he or she just didn’t serve our needs once we became adults.

The same can be true for financial professionals. The person who got you to retirement may not be the one who gets you the rest of the way.

Ronnie Blair, a member of a paid PR program, 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.

Capital A Wealth Management is an independent financial services firm that utilizes a variety of investment and insurance products. Securities offered only by duly registered individuals through Madison Avenue Securities, LLC (MAS), member FINRA/SIPC. Investment advisory services offered only by duly registered individuals through Capital A Wealth Management, LLC (CAWM), a Registered Investment Adviser. Certain CAWM registered individuals may market investment advisory services under the marketing name Kiefer Financial Services (KFS). CAWM, KFS & CAI are not affiliated with MAS. The Chartered Retirement Planning Counselor (CRPC™) Designation demonstrates the individual has met educational standards to provide advice related to retirement planning.

Investing involves risk, including the potential loss of principal. Any references to [protection benefits, safety, security, lifetime income, etc.] generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.

Please remember that converting an employer plan account to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences including (but not limited to) a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits, and higher taxes on Social Security benefits and higher Medicare premiums. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA.

Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 05/2024

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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David Domenick Jr. is a managing partner with Capital A Wealth Management. He maintains his FINRA Series 7 and 66 securities registrations and is a Registered Representative of Madison Avenue Securities LLC. He is also an Investment Adviser Representative and is licensed in life, accident and health insurance. Domenick has a Bachelor of Science degree in finance and legal studies from Indiana University of Pennsylvania.