Considerations When Building a Retirement Plan

If you’ve invested years in growing your retirement savings, it’s natural to want to protect those hard-earned assets. Despite your diligent savings efforts, unexpected financial challenges are always a possibility. But with careful preparation, you can establish a plan that helps provide peace of mind as you approach your golden years.

In this blog, we’ll explore the advantages of crafting a retirement plan that aligns with your unique needs and goals and employing the appropriate strategies. Here’s what you should keep in mind.

Having a Plan

Sounds obvious, right? Yet 56% of Americans say they’re not on track to comfortably retire.

A retirement plan is the foundation for turning your dreams into reality. This first step is about more than just daydreaming; it’s about setting concrete goals and defining your priorities. Why is this starting point so crucial? Because it provides you with direction and purpose. It’s like planning a cross-country road trip: you need to know your destination before you hit the road. 

Similarly, it would help to have a destination before your retirement journey begins. How do you want to spend your golden years? Downsizing to live closer to family or setting sail across the Florida Keys to live a life of luxury? Or maybe somewhere in between? This personal vision motivates you and helps you make informed financial decisions to achieve your desired retirement lifestyle. 

Let’s look at some key factors to keep in mind as you craft your retirement plan.

Funding Your Retirement

Understanding your current and expected expenses, and how they align with your retirement vision, is your next big consideration. 

As we just covered, thinking deeply about the life you want to lead during your retirement years is an important step in your long-term plan. Setting clear goals and intentions can help you set priorities to help reach those goals, and funding that dream is a big part of that.

Once you determine your “retirement number” (how much you need to save to achieve your desired lifestyle goals), you’ll need a 360 degree view of all your income sources. These can include:

  • Regular Contributions: Consistently contributing to retirement accounts like your 401(k), IRA, or other investment vehicles is crucial. These contributions have the potential to grow over time, helping you accumulate a significant nest egg.
  • Diversified Investments: Diversified investments can provide a reliable source of income during retirement. Your financial advisor can help design an income strategy that aligns with your needs. You can also learn how to include diversification strategies in your retirement tax planning
  • Social Security and Pensions: Understand how Social Security benefits work and when it’s most advantageous to start collecting them. Delaying benefits can lead to larger monthly payments. If you’re fortunate to have a pension, evaluate your pension options, including lump-sum payouts or structured income streams.

Risk Management 

From market volatility to longevity, retirees face a slew of risks in their golden years. Understanding the risk factors that can come between you and your ability to retire (both how and when you want) is an important step toward meeting your retirement goals.

The term “risk management” can be a bit of a buzzword, but it’s really just a structured approach to addressing risks.  The most common among them are outliving their savings, high medical bills and unexpected costs, such as major home repairs. When it comes to investing, the risk-reward ratio is a mathematical calculation used by investors to measure the expected gains of a given investment against the risk of loss.

Risk management is best understood not as a series of steps, but as a cyclical process in which new and ongoing risks are continually identified, assessed, managed, and monitored. This provides a way to update and review investment planning strategies as new developments occur and then to take steps to help protect your nest egg.

Retirement planning means finding the best way to help protect the life that you’d like to be living after you stop earning income from employment. And Risk Management should be a big consideration of every retirement income plan.

Factor In Health Care Costs

As mentioned, healthcare costs are an overseen consideration that can devastate your retirement income.

It’s essential to consider healthcare expenses, which tend to rise as you age when planning for retirement. A 65-year-old retiring this year can expect to spend an average of $157,500 in health care and medical expenses throughout retirement. It’s important to account for these costs when estimating your retirement budget. Here are just some of the key components to factoring healthcare into your retirement plan: 

  • Long-Term Care: 70% of people 65 and older will need long-term care in the next few years. This can include in-home care, assisted living facilities, or nursing homes. These services can be extremely costly, so it’s wise to investigate long-term care insurance options or set aside funds.
  • Medicare Coverage: Understanding your Medicare options is crucial. Medicare consists of parts (A, B, C, and D), each covering different aspects of healthcare. Enroll in the appropriate parts based on your needs, and be aware of open enrollment periods and any changes in coverage.
  • Health Savings Account (HSA): HSAs allow you to save money tax-free and use it for qualified medical expenses. In 2023, you can contribute up to $3,850 if you have health coverage just for yourself or $7,750 if you have coverage for your family. At age 55, individuals can contribute an additional $1,000.
  • Insurance Planning: As the American lifespan increases, retirement funds now need to last longer than ever, and may need to cover increased medical costs. Long-term care insurance is intended to offset expenses like in-home care, assisted living, adult daycare, hospice, and other specialty facilities that aren’t covered by health insurance or Medicare.

Have An Estate Plan

It’s a common misconception that only the uber wealthy should have an estate plan–this couldn’t be further from the truth. Regardless of your age or financial status, considering estate planning can help protect your family by managing your financial assets and healthcare decisions during your lifetime and after passing. Here’s a deeper look into why estate planning is crucial for everyone planning for retirement:

  • Asset Distribution: A central component of estate planning is creating legal documents such as wills, trusts, and powers of attorney. These documents are vital in determining how your assets will be distributed upon your passing. Having a well-crafted estate plan allows your assets to go to the individuals or organizations you care about rather than being subject to state intestacy laws.
  • Life Changes: Life is dynamic, and significant events such as births, deaths, marriages, divorces, or changes in financial circumstances can have a profound impact on your estate plan. It’s crucial to regularly review and update your estate plan to reflect these changes. Failing to do so can lead to unintended consequences and disputes among beneficiaries.
  • Minimizing Taxes: Estate planning also encompasses strategies to minimize estate taxes, ensuring that more of your assets go to your heirs rather than the government. Proper planning can help you take advantage of available tax exemptions and deductions.

Having an up-to-date estate plan can help provide peace of mind, knowing that your affairs are in order and your loved ones will be cared for by your wishes. By collaborating with a Fiduciary advisor with experience in estate planning, you can help to effectively identify tax-efficient strategies to help minimize your tax burden and help ensure the distribution of your assets aligns with your needs.

Working With A Fiduciary Advisor

Last but not least, working alongside a financial professional such as a Fiduciary advisor can help you set realistic goals and expectations for your retirement. Planning for retirement isn’t a set-it-and-forget-it task. Life keeps changing, markets go up and down, and your goals may evolve. That’s why regularly reviewing and adapting your retirement plan with your chosen advisor is crucial.

At Johnson Wealth and Income Management, our CEO and President, Matthew P. Johnson, has helped hundreds of families across Iowa and Southern Minnesota build and manage financial success since 1999. Matthew and his talented team concentrate on teaching clients about income-focused investing and helps them in crafting a well-thought-out retirement plan. With a financial advisory firm like Johnson Wealth and Income Management by your side, you can help stay on the right financial track and make the necessary adjustments to secure your dream retirement.

Last Thoughts

Choosing the right retirement lifestyle is a personal journey that requires careful consideration and planning. With the right financial knowledge and guidance, you can work towards achieving all your financial goals to help build a “worry free” retirement.

Johnson Wealth and Income Management can thoroughly assess your financial situation, identify potential risks, and help you create a personalized plan tailored to your unique needs.

Ready to get started? Contact us today to schedule your complimentary retirement consultation.


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