Retirement planning has always been an important undertaking, but in today’s economic climate, it is more important than ever. With pension plans disappearing and market volatility rising, individuals must take charge of preparing their retirement strategy.
However, effective retirement planning is not for the faint of heart. It requires diligence, know-how, and the ability to make decisions for uncertain future decades. Thankfully, adhering to a few core principles and working with a retirement planning consultant can help put you on the path to retirement readiness.
The Foundation: Retirement Preparedness
In past generations, many workers could count on generous pensions provided by their employers upon retirement. This removed much of the planning burden from the individual. However, these traditional pensions have now gone almost completely extinct. According to the Bureau of Labor Statistics, only 13% of private sector employees can access defined benefit pensions today.
The responsibility to save and plan for retirement rests almost entirely on the individual. This shift makes thoughtful, strategic retirement planning no longer an option but an absolute necessity. Without preparation, you risk facing retirement without adequate income to maintain your lifestyle.
Pillar 1: Clear Retirement Goals
Simply wanting a “comfortable” retirement is too vague a goal. You must clearly define and quantify what your ideal retirement encompasses.
Ask yourself questions such as:
- Do you plan to travel regularly?
- Will you maintain your current home or downsize?
- Will you relocate to a lower-cost-of-living area?
- What activities and hobbies do you hope to pursue?
Envision your perfect retired life, then assign estimated costs to each component. Account for healthcare, housing, travel, entertainment, hobbies, and other relevant expenses. Make sure to factor in inflation, as today’s costs will rise substantially over a 20-30 year retirement. Revisit and adjust your quantified retirement vision bi-annually. Having clarity of purpose helps ensure your savings align with your dreams.
Pillar 2: Individual Growth Strategy
Simply socking away cash in a savings account won’t cut it for retirement savings. You need your nest egg to grow above the inflation rate. A thoughtfully constructed strategy can provide growth potential while mitigating risk. Simply diversifying investments is not a guaranteed way to grow or protect your retirement. It’s important to understand where you put your money to work and the risks you could face. Work with a retirement planning consultant to build a customized portfolio. Your life isn’t cookie-cutter, your retirement plan shouldn’t be either. It should be tailored to you. Select smart investments with consistent, compounded growth to combat inflation’s effects.
Pillar 3: Steady and Sustainable Income Streams
In retirement, growth takes a back seat to income generation. Rather than selling off principal, you need assets producing steady cash flow. Annuities and certain life insurance policies offer ways to create an ongoing income stream. With whole life insurance, you can take tax-free loans against the policy’s cash value, often earning 4-9% annually. This provides liquidity in retirement without selling equities or tapping principal. Work with a retirement financial advisor to incorporate insurance products and annuities into your overall plan to cover fixed expenses in retirement.
Other options include:
- Part-time work – Many retirees work part-time in retirement, whether in the same field or a new pursuit, to earn supplemental income.
- Pension income – While traditional pensions are less common, some retirees still receive pension payments from a former employer.
- Social Security – Social Security retirement benefits provide monthly income based on your earnings history. Maximizing your benefit can be part of the strategy.
- Rental income – Owning investment property you can rent out can provide rental income streams in retirement.
- Dividends – A portfolio focused on dividend-paying investments can generate steady dividend income.
- Retirement account withdrawals – Systematically taking distributions from 401Ks, IRAs and other accounts is common, within allowable limits.
Pillar 4: Planning for Rising Healthcare Costs
Healthcare expenses in retirement can easily derail the best-laid plans. With medical costs outpacing general inflation, this area requires diligent preparation. Evaluate Medicare coverage options like Medigap or Medicare Advantage to handle copays and deductibles. Also, consider long-term care insurance to cover potential nursing home or in-home care. Be sure to account for healthcare premiums, copays, medications, procedures, and other costs in your retirement budget. Work with your financial advisor to stress test your savings, ensuring adequate funds even in ill health. Stay vigilant of inflation’s impact on medical costs.
Pillar 5: Entering Retirement “Bad Debt Free”
Some people believe that ALL debt is bad. Well, is that true? Let’s look at this scenario: if you own an apartment building which produces a sizable profit for you each month, well above the mortgage and expenses on it, would you consider that mortgage debt to be bad?
No. Why? Because it allowed you to purchase the property and create cashflow. Using financing or debt responsibly for income producing assets like real estate that you can leave to future generations is good.
What you want to get rid of is “bad debt.” When someone uses credit cards to buy things they can’t afford or take expensive trips that burden them later, that’s an example of bad debt. None of those create cashflow for you. Carrying bad debt into retirement severely impedes cash flow, forcing you to service liabilities rather than rise above inflation. In retirement you want to “bad debt free” but filled with assets that provide cashflow. That cashflow can increase to handle inflation without you drastically changing the lifestyle you’re accustomed to.
Pillar 6: Establishing an Emergency Cash Reserve
Despite best efforts, unexpected costs invariably arise. Build an emergency cash reserve equal to 12 months of expenses to handle unforeseen events without derailing your finances. With inflation’s tendency to drive costs higher, ensure your reserve keeps pace. Set aside funds in liquid accounts like money market, high-yield savings or cash value life insurance, maintaining easy access. Periodically review the adequacy of your reserve as your retirement expenses change. This backstop helps you weather rough times.
Pillar 7: Seeking Guidance from a Trusted Financial Advisor
Retirement planning is complex, requiring wisdom and expertise. Partnering with an experienced financial advisor provides invaluable support. They will get to know your unique situation and goals, providing tailored guidance to help you reach them. A trusted advisor stays abreast of changing market conditions and new products, ensuring your plan remains nimble and optimized. They will track your progress and adjust to counteract inflation and other threats. With your future in expert hands, you can enter retirement with confidence. Consider setting up a consultation with M Wealth Group’s accomplished advising team today.
Pillar 8: Creating a Lasting Legacy
Your retirement and estate plans are interconnected, so consider your legacy wishes too.
- Name beneficiaries for assets like retirement accounts and insurance policies.
- Draft powers of attorney and healthcare directives.
- Review estate documents regularly to keep pace with changing family circumstances, asset values, and tax laws.
- Consult an estate planning attorney when appropriate.
While providing for heirs, don’t neglect your own retirement needs. Find an optimal balance, then communicate plans clearly to avoid disputes. With proper planning, you can take care of your loved ones long after you’re gone.
Guided by Martin and Chelsea Matthews, M Wealth Group stands as an oasis for clients amidst the desert of retirement planning complexities. Their commitment ensures retirement planning isn’t just about wealth accumulation but also about preservation, especially in the face of challenges like inflation.
Do your retirement pillars stand firm? Fortify your future with our guidance. We offer a complimentary review of your retirement plan. Let our expertise guide you to a customized and protected retirement! Begin Your Journey with M Wealth Group Now →
Note: For a detailed, tailored plan, we typically work with clients with at least six figures in retirement savings or nearing that milestone.