Becoming hyper-focused on only one aspect of a project is rarely a good approach. A racecar driver who only focuses on speed and ignores strategy likely won’t win many races. A carpenter who only hammers in nails won’t build strong structures.
The same is true of retirement planning. If you zero in on your portfolio and nothing else, you could possibly miss out on some major factors that can make a significant difference in your retirement and, ultimately, your bottom line.
Let’s look at some advanced strategies that can help cover blind spots in your planning and better position you to help maximize your retirement and make your money last.
Strategy #1: Long-Term Care
The statistics speak for themselves here: Most Americans ages 65 and up will need long-term services at some point. We might not all end up living in a care facility, but many long-term care insurance policies also cover in-home care, which many of us will need at some point.
You might be able to move around OK, but food preparation, bathing, trips to the bathroom, cleaning, and other fine motor activity can often require assistance. Home health spending has gone up $111 billion since 1980 for a variety of reasons, making it a huge industry that most of us could require at some point.
Long-term care insurance can help relieve family tensions and headaches when you reach the need for it. We’ve seen this tension many times as advisors: families fighting over whether to put a loved one in a facility or keep them at home, and how to pay for it. Having a solid insurance plan in place can help simplify a complex, emotional situation ahead of time.
Strategy #2: Planning for Unexpected Deaths
There are no guarantees in life, and usually the best we can do is prepare well. The third leading cause of death in the U.S., after heart disease and cancer, is unintentional injuries or accidents. Unexpected deaths are part of life, whether we like it or not, so it behooves us to make them part of a financial plan. Here are a few ways to help alleviate the burden in the event of an unexpected death.
A Current Will
Make sure your will is up to date, not only with your assets but your family structure as well. Blended families are the new normal for many Americans today, and that could change the way your estate is distributed. Make sure you talk with your advisor and attorney to get your will to match up with your life.
Life Insurance
Life insurance can be a low-cost way to help your family take care of expenses and make the transition to life without you a little easier. Many providers now offer a hybrid of long-term care and life insurance, which helps alleviate the use-it-or-lose-it mentality of traditional long-term care policies.
Information Under Lock and Key
Make sure your information is accessible and current regarding financial and other matters. In our experience, most of the time, one spouse is more informed on financial matters than the other. If that spouse dies, the remaining person often comes to us scared or uncertain about what to do with their assets–and many don’t even know what assets they have.
Make sure everything possible, from the password on your phone to the key for a safety deposit box, is accessible and available to your spouse or another trusted family member. They will also need to know the PIN number for your bank account and contact information for your financial advisor in the future.
Strategy #3: Tax Efficiency
Now we move on from death to taxes–the other “sure thing” in life. Taxes can be a huge drain on your retirement funds, and you need to be proactive about planning for them.
If you’re around retirement age, you’re at a pivotal point to make tax decisions. After age 59½, you can start withdrawing from your retirement funds without penalty, but you’ll still have to deal with taxes. Should you convert your retirement account to a Roth? When should you take Social Security, and are you paying attention to tax liability there? You must start taking required minimum distributions (RMDs) at 73 if born before or in 1959 or at 75 if born after 1959—how will you minimize the tax bite?
There can be a lot of questions to answer at this point in life—roughly between age 60 and 70—that will help you create a tax-efficient plan that fits your lifestyle. It’s more than just tossing information into tax software and crossing your fingers for a refund.
Using Qualified Charitable Donations, which may already be a part of your planning, is one way to help reduce your tax footprint. Bunching these for a few years at once is another strategy an advisor can help you with. The time and energy it takes to see an advisor can be a small investment compared to the money and hassle you can save in future years.
Strategy #4: Supplementing Your Income in Retirement
Statistically, people are more afraid of running out of money in retirement
than they are of dying. And the fear is not without merit in many cases. If you retire at 62 and live to 92, that’s 30 years you have to cover! Many people are living longer thanks to better (and sometimes much more expensive) healthcare.
Keep in mind that Social Security is only meant to replace about 40% of your income at most, which is far less than most of us can live on.
Your investment accounts could also run into a bear market. That might not be as painful to your portfolio at 45, but what if you’re 62 and just about to retire?
In the “fragile decade”— five years before and after retirement — your portfolio is especially vulnerable to loss, and you may experience a shift to a post-paycheck lifestyle. A major cut into your 401(k) or IRA could affect your whole retirement plan.
All that to say, supplementing your income in retirement isn’t something you should impulsively dismiss. You’re also going to need something to fill your days. This is one of the most common questions we hear as advisors: What do I do with my time now?
Find something you’re passionate about, or at least a hobby you love. Many retired people supplement their income by working on golf courses or becoming tour guides. Owning and maintaining rental properties is another strategy. Just make sure you enjoy handiwork or know someone who does!
Plan for Tomorrow, Today
Retirement planning seems more complex than ever, and the world is changing quickly. These are just a few steps you should take into consideration to make a comprehensive plan. Talk with one of our advisors today to learn how we can help you plan for the life you want to live in retirement.
