Let’s be honest—you’ve been dreaming of retirement for most of your working life! Hopefully, you’ve also been planning and saving for your retirement throughout your working life. If you want your retirement dreams to become a reality, you need to start planning early and set savings and investment goals to ensure you have the income to fund those dreams.
Even if you’re behind with your retirement planning, there are still ways to catch up with your savings. That’s why we’ve assembled this helpful retirement planning checklist to help set your goals and secure your financial future for your retirement years.
Essential Components of a Retirement Plan
When you’re ready to walk away from the job, you want to be confident you have the funds to live on—and not just enough to get by but to fund the retirement you’ve been dreaming of.
Here are some common retirement savings and investment options to have in your plan:
Employer-Sponsored Retirement Plans
Whether a company pension plan (increasingly rare), a 401(k) (private employers), 403(b) (non-profit employer), or a 457 Plan (government employers), these plans help you save and invest a portion of your salary pre-taxes toward your retirement. Ensure more money for retirement by contributing the highest percentage/maximum amount you can from your paycheck now. If your employer offers matching contributions, know your vesting schedule and any contribution requirements to get all that you can.
Individual Retirement Accounts
Even if you have an employer-sponsored retirement plan, you can still open an Individual Retirement Account (IRA). A traditional IRA is tax-deductible, and your investments grow tax-deferred—you pay no taxes on the money contributed until you withdraw it as retirement income. A Roth IRA is the opposite—your contributions are made with after-tax dollars and your withdrawals and earnings in retirement are tax-free. The Roth IRA is the better choice if you expect to be in a higher tax bracket with your retirement income than you were while working.
Savings and Investments
Think beyond employer-provided plans and IRAs to diversify your income in retirement by diversifying your savings and investments. Spread your savings across taxable and tax-free accounts and look at investments across different risk levels.
Here are some savings and investment options to consider in your retirement plan:
- Annuities are “financial insurance,” in which you make payments (either as a monthly premium or a lump-sum) to the holding institution that then issues return payments at a fixed or variable rate over a specified period of time. Immediate annuities provide regular income payments immediately based on a lump-sum investment. You can choose the rate, timeframe, and payment duration based on your financial needs to ensure a source of income for the remainder of your life.
- Brokerage accounts are how you invest in various securities, including stocks, mutual funds, bonds, and exchange-traded funds. These accounts offer the most flexibility (there are no limits on how much you can buy, contribute, or withdraw), diverse investment options, and potentially the greatest profits. However, they come with the greatest risks and without any FDIC insurance or tax protections—all interest, dividends, profits, and gains are subject to taxes.
- Cash accounts keep your money safe and accessible, with savings accounts providing instant access to your cash and Certificates of Deposit (CDs) allowing you to earn a fixed interest rate by locking in your money for a specified term, with your investment insured by the FDIC. You will pay taxes on the interest earned.
Social Security Benefits
With brokerage account investments and 401(k) plans susceptible to stock market fluctuations and company pension plans virtually non-existent today, Social Security is one of the few sources of income that retirees can count on for the rest of their lives. How much you earn from Social Security is based on your 35 highest years of income. The more you earn (and pay in Social Security taxes) while working, the higher your benefits will be.
Ensure you’re getting the maximum Social Security benefit payout when you:
- Wait until Full Retirement Age (FRA) to claim your benefits, between age 66 and 67, depending on birth year.
- Delay claiming your benefits to earn delayed retirement credits of up to 8% per year, every year you delay claiming Social Security beyond your FRA up until age 70.
- Compare your benefits to your spouse’s, as depending on how long you worked and paid into Social Security, it may be better to claim spousal benefits instead of your own if you are eligible and based on your spouse’s work record.
- Know your tax liability, as you will have to pay federal income tax on your Social Security benefits (as high as 85% of your benefit!) based on your combined annual income.
Calculate Your Retirement Needs
To know how much to save for retirement and in what kind of accounts, you need to look at your retirement goals and needs. This can be the difference between saving enough to get by with your current budget and home versus saving enough to travel the world before you settle into retirement in a warm and sunny locale.
Calculate your retirement “needs” by establishing your lifestyle preferences, housing location, healthcare needs, and other personal goals to ensure you can afford to live your golden age dreams.
Here are some key areas to consider in your retirement plan:
Housing Costs
Do you plan to stay in your current home, downsize, or finally buy that dream home? Factor in expenses such as mortgage or rent, property taxes (which can change with your age and/or relocation), insurance, and maintenance.
Healthcare Costs
Your healthcare needs and expenses will increase as you age, so it’s essential to budget for your future medical care. Start by looking at what Medicare covers in retirement and then budget for what you’ll have to pay out of pocket toward healthcare—premiums, deductibles, copayments, and long-term care, which is not covered by Medicare.
Cost of Living Expenses
Beyond the big-ticket items of housing and healthcare, you want to budget for the daily staples—food, clothing, transportation, utilities. Calculate your current expenses and consider how they might change in retirement. Also consider that one of the biggest impacts to cost-of-living expenses is inflation. Depending on how close you are to retirement, this could greatly impact your budget, as higher prices and higher interest rates will take more out of your retirement income.
Taxes
Look at the amount and sources of your retirement income—Social Security benefits, pensions, withdrawals from retirement accounts, and investment income. Will it put you into a higher tax bracket? What sources are tax free? Which are taxable upon withdrawal or face penalties for early withdrawals? This is another reason why you want to have diverse sources of income, coming from both taxable and tax-free accounts, so you can understand and plan for your tax burden in retirement.
Emergency Funds
Having to withdraw funds due to an emergency can add to your tax burden. Plan an emergency fund with sufficient cash reserves (money you can access without penalties) to cover living expenses for at least three to six months.
Retirement Lifestyle Goals
You’re making this retirement plan to ensure you can live your retirement dream–whether it’s finally taking that trip to Europe, hitting the road in an RV, becoming a full-time artist, or whatever else you’ve been dreaming of all these years. Everything listed above is what you have to have to live. What do you want to have to thrive in your retirement years? Plan for it now!
Work with a Medicare Specialist for Your Healthcare Planning
Creating the ultimate retirement plan means you can maintain your desired lifestyle and standard of living for the entirety of your retirement years without worrying about depleting your savings too quickly. You want your income to last as long as you do, but it can be easy to underestimate just how much you’ll need. According to the Fidelity Retiree Health Care Cost Estimate, an average married couple that retired in 2023 at age 65 needs to have saved approximately $315,000 just to cover their healthcare expenses in retirement.
Securing the best healthcare coverage at the best price and planning for your future care needs are crucial to securing your financial future. We know there’s so much more you want to do in retirement besides pay for healthcare! That’s why the Wandacare Team is here to help you navigate your healthcare options. Our knowledgeable Medicare Advisors can guide you toward the best healthcare plan for your ultimate retirement plan.
Start building your future with Wandacare today!
