Every retirement plan should include these 5 points


Life expectancy is longer today. Interest rates are low and inflation is rising again. Taxes are expected to rise in the next few years. Will the stock market continue its steady rise? You can hope but who knows? Volatility could be part of that long-term equation.

All of these factors lead to financial uncertainty in the future and make retirement provision more complex. With that in mind, here are five key elements in preparing for retirement:

1. Get an income plan

How much money do you need and where does it come from?

These are two very important questions. As you enter your prime working years, it is important to think ahead about how much income you will need in retirement. Then invest accordingly.

When you work, investing is pretty easy. Your money just has to grow. When you retire, your money will need to generate income, pay taxes, and grow to support your lifestyle. Investing becomes much more nuanced and even more difficult once you start generating income.

As you near retirement, here are some steps to get you started on an income plan:

  1. List all of your guaranteed sources of retirement income – social security, annuity, an annuity with a guaranteed minimum amount, etc.
  2. List retirement and investment accounts, such as B. a traditional IRA, 401 (k), Roth IRA, or Roth 401 (k).
  3. Ask yourself if your expected income will meet your expenses and desired lifestyle. Remember, a general rule of thumb is that when retired, most people will need to replace around 60 to 80% of their pre-tax income in order to maintain their lifestyle.

2. Maximize your social security income

To maximize Social Security benefits for you and your spouse, you need to understand which of the estimated 567 separate married couples claim strategies is right for you. Sometimes it makes sense to start out with social security while growing your nest egg. For others, it makes sense to invest in so that your social security benefits continue to grow until you reach full retirement age (usually around 67) or until you reach the maximum benefit level (age 70) before taking advantage of the benefits.

Important note: If you and your spouse were born on January 1, 1954 or earlier and both have reached full retirement age, you can claim spouse benefits and continue to grow your own benefits. At the age of 70 you can switch to the higher performance. The strategy is an option called “restricted filing” and is not available to people born on January 2, 1954 or later.

3. Explore your tax strategies

Taxes surprise many retirees because it is widely believed that if they had less income than they earned during their working years, taxes would be significantly lower in retirement. Many retirees find this is not the case. An important part of your planning strategy is lowering taxes on funds withdrawn from tax-deferred accounts such as 401 (k) s or IRAs.

Mandatory minimum payouts for tax-privileged accounts start at age 72, so it is important to have a plan well in advance.

An effective strategy is to convert tax-deferred funds into a Roth IRA or Roth 401 (k). The conversion amount is taxable in the year of conversion, but the advantage is that these Roth accounts allow your retirement assets to grow tax-free and are not taxable when you withdraw them (provided you are 59½ years or older and have owned a Roth for at least 5 years). at least five years). Don’t let pre-tax accounting stop you from moving your retirement savings from taxable accounts no matter when you transfer them to tax-free accounts. It’s about not being myopic at the expense of a tax time bomb in retirement.

Roth IRA conversions are just a strategy to prevent your Social Security from being taxed. If your provisional income is between $ 25,000 and $ 34,000 (for single parents) or between $ 32,000 and $ 44,000 for joint applicants, then up to 50% of your Social Security will be taxable. If your provisional income is higher, up to 85% of your benefits may be taxable. These additional taxes can force you to pull more money out of your nest egg to support your lifestyle.

4. Forecast your medical costs

Health care remains one of the largest items of expenditure in retirement. Many people assume that Medicare will pay for all of your health care costs in retirement, but it doesn’t. One way to prepare is to sign up for a health savings account (HSA) that some employers offer. By paying into an HSA, you can save pre-tax dollars (and potentially collect employer contributions) that have the potential to grow and are tax-free in retirement when used for qualified medical expenses. For 2021, the regular HSA contribution limit is US $ 3,600 for individual coverage (US $ 3,650 in 2022) and US $ 7,200 for family insurance (US $ 7,300 for 2022). Those enrolled in Medicare cannot make new contributions to an HSA.

Another way to fill the gap not covered by Medicare is through long-term care insurance. While long-term care insurance premiums are not affordable for everyone, an alternative is to take out life insurance with the option of adding a long-term care insurance tab.

5. Plan your estate

Estate planning isn’t just about how you want your wealth to be distributed after death. It’s about preparing for contingencies, if you can unable to make your own financial or medical decisions. It’s about a smooth transition for your loved ones in managing your affairs.

One of the most important elements of an estate plan is a will; Granting power of attorney, which gives the person you designate the authority to manage your financial affairs if you are unable to do so; a healthcare agency that authorizes a person you trust to make medical decisions on your behalf; and a living will, a statement as to whether you would like life sustaining medical intervention if you become terminally ill and unable to communicate. Take the hard decisions away from your children by following the legal guidelines in the estate plan. Work with an attorney to make sure you are getting the correct estate planning materials for your situation.

For something as important as your financial future, it is important to work with a finance professional. Everything in the plan should be coordinated – taxes, social security, income planning, and investments. Your advisor needs to understand your overall financial picture, how the elements like taxes and income generation are related, and how they can help you meet your retirement goals.

Dan Dunkin contributed to this article.

These materials are provided for general information and educational purposes. Echelon does not provide investment, tax or legal advice. The information presented here does not relate to any individual’s circumstances. As far as this material is concerned with tax matters, it is not intended or written to be used by a taxpayer and cannot be used to avoid penalties imposed by law. Every taxpayer should seek independent advice from a tax professional based on his or her circumstances.

Co-Founder, Echelon Financial

Chris Wilbratte has been in the financial services industry for 30 years and is a co-founder of Echelon Financial in Austin, Texas. He received his BBA in Finance and Marketing from the University of Texas.

The appearances at Kiplinger were mediated through a PR program. The columnist received assistance from a public relations firm in preparing this article for submission to Kiplinger.com. Kiplinger was not compensated in any way.


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