Planning for retirement can be a daunting task for anyone, regardless of your income level.
You may be intimidated by how you’ll maintain your current lifestyle when you’re no longer working – or have concerns about leaving the right legacy for your beneficiaries or cherished charitable organizations. Yet amid these concerns, many people tend to delay retirement planning as they build or grow their business and prioritize other objectives.
“A lot of the individuals we work with spend their life focused on their craft,” says Oneika Cassanova, CFP®, vice president and Private Wealth Advisor at U.S. Bank Private Wealth Management. “They’ve been so dedicated to their profession that they often haven’t spent time thinking of what’s next.”
John Campbell, senior vice president and managing director for U.S. Bank Private Wealth Management, echoes that sentiment. “Oftentimes, people we meet with are so busy tending to the needs of their business or career and end up putting off their own retirement needs,” he says.
But to meet your long‑term goals and leave the kind of legacy you want, it’s important to start planning for retirement well before it arrives. Here are seven strategies to help you work toward maintaining your lifestyle during retirement.
1. Build a vision for your retirement lifestyle
Start by envisioning what you want this next phase of your life to encompass – and don’t be afraid to get detailed about your goals and desires. For example, if you currently take a few big trips per year, will you want to maintain or increase that level of travel? Maybe you want to be able to help your children or grandchildren pay for college or leave behind a charitable legacy.
“When we have these initial goal‑setting conversations with clients, we often find that their main concerns extend beyond just themselves into their family and the type of legacy they want to leave behind,” Cassanova says. “They want to find ways to maintain their lifestyle and the lifestyle of their family without hindering any charitable organizations they also want to support.”
This is where speaking with a financial professional pays off. They can help you brainstorm what your ideal retirement looks like – and help you balance living your ideal lifestyle while still supporting the people and causes you care about.
2. Know where your money is coming from
Campbell and Cassanova both note that to work toward maintaining the lifestyle you want in retirement, it pays to take a solid financial inventory. Your primary income may go away upon retirement, but do you have a comprehensive understanding of the income sources you’ll start to pull from once you’re no longer working? List every source of income you’ll have, such as:
- IRAs and 401(k)s
- Regular bank/savings accounts
- Health savings accounts (HSAs)
- Social Security benefits
- Life insurance
- Business interests, especially if you’ll be selling
Also, consider any specific rules or timelines around when you can begin withdrawing from each specific source.
3. Know where your money is going
Equally important as listing your income sources is listing your debts and projected expenses during retirement. While unexpected events do come up, list every expense you can plan for, including monthly household expenses and debt payments like a mortgage.
“As simple as it sounds, a budgeting spreadsheet allows you to clearly lay out the expenses you’ll be carrying into retirement and what you currently spend your money on,” says Cassanova. “Listing those known, fixed expenses allows you to see how much you can spend on your big-picture goals and desires.”
4. Understand potential tax implications
Campbell acknowledges that while accumulation planning is important — asking yourself how much you need to save for retirement — distribution planning is an equally important consideration that not everyone considers.
“Distribution planning takes into account the impact of taxes on different sources of income, which will determine how much of your assets will be preserved or depleted in retirement,” he notes. “Ask yourself: is this asset taxed as ordinary income, as long‑term capital gain or is it tax‑free? Your accumulation plan should include tax‑diversified source of retirement income. Remember that it’s not just what you earn; it’s what you get to keep after taxes.”
Campbell stresses that if you can factor in tax implications for withdrawals during your planning, you’ll enjoy a more secure retirement.
5. Factor in unplanned events and risks
Although it’s not that pleasant, it’s also important to think of potential risks that could drain your retirement income, such as market volatility or the cost of long-term medical care.
For example, it’s ironic that the time when you’ll stop earning money in the traditional sense is also the time in your life when you have a higher chance of facing costly medical expenses. Statistically, close to 70 percent of people who turned 65 in 2019 will need long-term care at some point in their life – making it something you need to plan for.
Though you may consider self-insuring, it’s important to realize that long-term costs are significant. The median yearly cost for assisted living, for example, is roughly $45,000 a year. Nursing home care can range from $86,000 to nearly $100,000 a year. Offloading that liability to a third party is where traditional long-term care insurance (LTCI) comes in. LTCI can help you mitigate the risk of draining your retirement savings due to a chronic illness or medical problem.
6. Plan your retirement income withdrawal in phases
Just like you can’t predict what medical expenses may arise, you also can’t predict what will happen with the markets during your retirement. “Let’s say you retire at age 65,” says Campbell. “You will likely have at least 18 years of life expectancy. Most people don’t plan for that long period of life post-retirement. Inflation, increased healthcare expenses and market volatility during this long stretch could impact your available reserves.”
Because of this, Campbell recommends viewing retirement — and specifically your investments — in phases. This can help you manage your portfolio and lifestyle expenses more strategically. “Think of phase one of retirement as taking you from 65-75,” he says. “You’ll have sources of income begin to come in, such as pension income, Social Security and required minimum distributions from qualified retirement plans and IRAs. Once you start hitting your mid-70s, that’s your phase two, when you start to access your longer-term investments, as well.”
Revisit your investment regularly to make sure you’re planning for the short- and long-term phases of your retirement.
7. Review plans yearly
Lastly, retirement planning in general is far from a set-it-and-forget-it task; a yearly check-in is recommended to make sure your plan is on track.
“You might create a plan at the onset of retirement and then realize over the coming years that your desires have changed,” says Cassanova. “We are able to check in with the goals you established and make sure that nothing has changed. And if it has, it’s our job to help you adapt to those changes and revise the plan, providing you with a better idea of what the road forward is.”