Imagine waking every day with life just as you want it, except you no longer have to work. Your desired retirement lifestyle might be only a dream now, but you can make it your reality when you properly plan for retirement.
Your retirement depends on more than just saving money. The lifestyle you want to maintain requires a detailed strategy to get you to it and through it. Speaking with a wealth manager or financial planner at Laurel Wealth Planning can move you closer to your retirement dream.
Here’s how to plan for retirement to get the lifestyle you want.
Building a Plan for Retirement
The key to your retirement is developing a plan early and not waiting until you’re ready to retire. Here are seven steps to planning the retirement you’ve earned.
1. Create a Vision of Your Retirement
This sounds simple, but building a comfortable retirement requires you to create a mental picture of what it looks like. What might your day-to-day routine be? Do you plan to move or travel? Are you going to support your children or a charity? What routines, passions, or connections will give your life purpose and fulfillment in retirement?
Clarity about your retirement can guide your financial planning with a financial professional to experience the retirement you want.
2. Account for All Sources of Income
You may lose your primary source of income at retirement, so how can you get money? To account for all your retirement income, make a list:
- 401(k)s, IRAs, and other investment accounts
- Pensions and annuities
- Social Security benefits
- Savings accounts
- Business income
- Real estate
Understanding the rules about withdrawals from each type of account can help you avoid penalties.
3. Plan for Retirement Spending
Before you retire, it is critical to know how much you spend. Wealth Manager Mallory Kretman explains, “Knowing where your money goes—and what it will take to maintain your lifestyle—can be the difference between financial security and shortfall.” Develop a spending plan to account for household expenses, debt payments, and other projected expenses in retirement. A spending plan or budget can also help you see where you might need to make adjustments.
“Once you’ve built a budget for day-to-day living,” Mallory continues, “don’t overlook the larger, one-time expenses that can add up quickly. How much do you hope to spend on travel each year? Are there home renovation projects on your wish list? Do you envision making gifts to your kids or grandkids? Folding these into your spending plan is just as important as covering the everyday basics.”
4. Understand Tax Implications on Withdrawals
Planning for the different ways your withdrawals might be taxed can reduce your tax liability in retirement, helping you stretch your savings. While distributions from a Roth IRA are tax-free, traditional IRAs and 401(k)s are taxed as ordinary income. You also may have long-term capital gain taxes on investments, and a portion of your Social Securities benefits may be taxed based on your overall income.
5. Prepare for the Unexpected
Unexpected events—like a health crisis or major home repair—can derail your retirement plans, forcing you to lower your expectations. Here are some issues your financial professional can help you prepare for:
- Health and long-term care insurance
- An emergency fund of six months to a year of expenses
- Investment risk
- Inflation
Factoring these issues and risks into your plan can keep stress at bay in retirement.
6. Phase Your Withdrawals
Depending on your retirement age, you may need your money to last 18 or 25 years or longer. Think about the income you’ll need in phases:
- Phase One: Pre-Social Security. Depending on when you choose to start your benefit, there may be a gap between your retirement date and the onset of Social Security. During these “gap” years, it often makes sense to draw from your IRA or 401(k) to meet spending needs.
- Phase Two: Social Security. Once Social Security benefits begin, many retirees find they can scale back withdrawals from their IRA or 401(k), relying more heavily on guaranteed income from Social Security to cover core expenses.
- Phase Three: Required Minimum Distributions (RMDs). Starting in the year you turn age 73 (or 75 beginning in 2033), the IRS requires you to take annual minimum withdrawals from tax-deferred retirement accounts like traditional IRAs and 401(k)s. Depending on the size of these accounts and how much you’re already withdrawing annually, RMDs may result in higher annual distributions—and higher taxable income—than in previous years.
Your goal is to maintain a steady stream of income across your retirement.
7. Review Your Retirement Plan
When you create a retirement plan, it doesn’t just sit on the shelf. Revisiting it yearly with your financial professional allows you to alter your vision of retirement, update life changes, and adjust your withdrawal strategy. The review can help you stay on track for retirement.
Consulting a financial professional can help you with decisions on your ideal retirement.
Talk to Laurel Wealth Planning About Retirement Planning
How well you maintain your desired retirement lifestyle lies in the details of how you plan for retirement. Start early to give yourself the retirement you want later. Laurel Wealth Planning can guide you in planning a retirement that you feel confident in.
To schedule a complimentary meeting, email laurel.wealthplanning@laurelwealthplanning.com or call (952) 854-6250. Find out whether we’re the right financial advisor for your wants and needs.
The foregoing content was prepared by Indigo Marketing Agency with verbiage, opinions and/or financial commentary input provided by Laurel Wealth Planning.
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