Taking the leap from working to not working – otherwise known as retirement – is a daunting thought to many Americans. Though some have big dreams of traveling the world during retirement, most people’s goals are much more humble than that. As a fee-only financial advisor and retirement planner, my clients looking to retire are most concerned with:
- Reducing the amount of taxes they’ll have to pay
- Ensuring their healthcare expenses will be fully covered
- Making sure their immediate family, especially their spouse, is taken care of
- Making sure they are stress-free about day-to-day expenses
In this article, I dig into what your retirement plan needs to consider and include if you want to achieve these four goals before you stop working.
1. How to Reduce Your Tax Liability Throughout Retirement
My goal as an advisor is to form a strategy aiming to minimize the total amount of taxes you will pay over the duration of your retirement.
The first step is to take a comprehensive look at your investments, retirement accounts, Social Security, pension plans, and annuities. Learn how your different withdrawals and income will be taxed over time, and how they’ll affect your nest egg in retirement.
Create a tax-optimized withdrawal strategyThis planned approach involves strategically planning how and when to withdraw funds from various retirement account types and other investments. The goal is to minimize the tax impact and maximize after-tax income while preserving the overall stability of your financial plan over the long-term.
Be aware of tax bracketsUnderstanding how tax brackets affect your overall income is instrumental in making informed financial decisions. Though the topic can be complex and is subject to change, being aware can affect your overall tax situation, optimize your tax liability, and help plan for a financially secure future. Be mindful that rising statutory tax brackets across the board is a reasonable possibility for most retirees.
Monitor tax law changesTax laws are frequently updated and revised due to changes in governmental policies, economic conditions, and legislative actions. Staying informed about these changes gives you the opportunity to adjust your financial planning and take advantage of new opportunities while mitigating potential risk.
2. How to ensure your healthcare costs are covered in retirement
I can’t say it enough: Healthcare is forecasted to be the highest inflating expense category, the biggest unknown, and the greatest potential threat to derailing the success of any financial plan.
Over plan and then plan some moreDon’t assume healthcare costs are going to rise at the baseline or “core” inflation rate. Instead, break the healthcare costs out separately into its own retirement projection. Then, double the inflation rate on that category of expense to be extra cautious. Plan a 40-year model factoring in an increased rate of 5%+ each year. Then, adjust your financial plan accordingly. It’s reasonable to assume outsized healthcare costs down the road, and planning for that expense is necessary for ongoing peace of mind.
Talk with a Medicare expertAround age 65, critical (and often permanent) decisions need to be made. Be mindful of these steps and understand how they’ll affect you. Seek the help of a trusted Medicare advisor who can help facilitate the process. They can offer insight into the complexities of the Medicare program, its various parts, and the available coverage so you can make informed decisions.
“An apple a day keeps the doctor away”Watching your health is essential to a successful retirement. Engage in regular exercise, maintain a healthy diet, and invest in preventative care to manage healthcare costs and maintain overall well-being.
3. How to ensure your family and spouse are taken care of after you retire
Setting up a legacy for your family involves planning and organizing your financial and personal affairs to make sure that your loved ones are well taken care of in the event of your passing.
Inform, educate, and updateWhether it be with your spouse or your children, discuss your legacy plans openly and honestly. Make sure everyone understands the decisions you’ve made. This will help avoid confusion and potential disputes later, leaving no surprises for your loved ones during difficult times.
Work with a professionalSeek guidance from financial advisors, estate planning attorneys, and other professionals with expertise in legacy planning. They can help you navigate complexities and ensure that your loved ones’ future is secure, while providing guidance and support if it’s needed later.
Organize your assetsCompile a detailed inventory of your financial accounts, investments, properties, and other assets. Include account numbers, contact information, and any relevant login credentials. Securely share this information with your spouse or a trusted family member.
If you have more than you need, consider opening special accounts or investments. For example:
Open a 529 plan
The funds saved in 529 plan can be used to pay for qualified higher education expenses without incurring federal income taxes on the earnings or withdrawals.
- Organize some strategic gifting
Create a long-term plan to support charitable causes that align with your values and philanthropic goals. By combining financial planning and tax considerations, you can maximize the impact of your donations.
- Aggressively invest
Consider introducing higher levels of risk to investments with a longer time horizon (for example, 30-50 years) designated for your loved ones to have down the road. Some of the results could lead to higher potential returns and optimized, long-term wealth building. Proactive strategies such as tax-loss harvesting could also offer long-term tax benefits to this goal.
Be aware of estate tax lawsEstate taxes could affect the value of a deceased spouse’s estate. In the US, the federal estate tax is a tax imposed on the transfer of a deceased person’s assets to their heirs or beneficiaries.
While Missouri doesn’t have an estate tax, there are federal concerns regarding estate tax that are always changing. Without further intervention into the Tax Cuts and Jobs Act signed into law at the end of 2017, the estate tax rules are going to sunset at the end of 2025. Beyond that, it’s difficult to predict what’s going to happen with future legislation, but there’s no doubt that estate planning conversations will become a lot more prevalent in our financial planning discussions.
Talk with a planner to make sure you’re thinking about your legacy, but also ensure that you have enough left in your nest egg to make sure that you never have concerns about money.
4. How to be stress-free about money in retirement
My number one concern as a financial advisor is ensuring that my clients can live comfortably and never have to worry about money. There are a few steps they can take to ensure a worry-free financial life during your golden years.
Get organizedGetting organized for retirement involves careful planning and preparation. Set clear goals, gather documents, be prepared for important decisions, and assess your finances. Seeking guidance from trusted professionals such as a financial advisor and retirement planning expert can help you digest the information so you can feel financially secure and reassured.
UnderstandIt’s natural to feel apprehensive about retirement, but by gaining knowledge, you’ll gain peace of mind. Ask questions, voice concerns, discuss fears. By understanding key components about your assets and retirement, you’ll be able to make informed decisions and create a comprehensive retirement plan that aligns with your unique circumstances and goals.
Create an Investment PlanThis comprehensive document outlines guidelines, objectives, and strategies for managing your portfolio. It’s a visual roadmap that helps make informed and disciplined investment decisions – even during volatile times in the market.
CommunicateBe transparent with those you love. Inform and document your financial plans and other important details. Though it could lead to some challenging conversations, create honest and open discussions to ensure your wishes are understood and respected. This provides clear reference for your loved ones in the future and can make challenging times more manageable to navigate.
By being prepared, proactively managing your taxes, carefully navigating healthcare, and ensuring your loved ones are protected, you can retire confidently and enjoy the life you’ve worked so hard to save for.
Toberman Wealth is a fee-only, independent fiduciary based in St. Louis. Whether starting to invest for retirement in your 50s or actively planning for retirement in your 60s, I help people nearing a transition build a resilient retirement plan. I operate in the best interests of our clients, always, and my top priority is to help you live comfortably now, without sacrificing your financial future later.
Craig Toberman is the Founder of Toberman Wealth – a fee-only, fiduciary financial advisor based in St. Louis. He assists families and businesses with strategic financial planning and long-term wealth management. He has over a decade of experience in financial services and has crafted custom financial plans for hundreds of families and businesses.
Craig received a Bachelor of Science (B.S.) degree in Agricultural and Consumer Economics from the University of Illinois and a Master of Business Administration (M.B.A.) degree in Finance from Saint Louis University. He is a Certified Financial Planner (CFP), Chartered Financial Analyst (CFA) charterholder, and Certified Public Accountant (CPA).
Craig is a member of the National Association of Personal Financial Advisors (NAPFA), Fee-Only Network, and XY Planning Network.
Craig lives in the greater St. Louis area with his wife, Ally and son, Hank.