Have you ever read a book that allowed you to choose your own path? You can either go left or right, open the door or keep it closed, you can decide the route the character takes. This interactive version of storytelling allows each reader to go on their own adventure within the text, choosing for themselves the journey and the ending.
Retirement planning can be thought of in this way. Designed by each person, no two retirement plans will look exactly the same but they should have a common goal: to make your retirement a happy one.
There are so many factors that go into retirement. It is one of the biggest changes and challenges you will have to face in your adult life. One of those components is saving up enough money. We hear it all the time that people don’t have enough saved for retirement and that you have to save with fervor and diligence to be prepared.
While that is sound advice, there are more aspects to retirement planning than just saving. One of the most important being lifestyle. What will your day-to-day look like? Where will you live? How will you get your money?
Talking about retirement planning without factoring in lifestyle is like saving up for a trip, buying a plane ticket and arriving with no luggage, housing, or plan for transportation. A plan is an integral part of the journey.
I’d like to walk you through 3 key pillars of retirement planning to help you feel confident in your plan and how to execute it.
Have you thought about how you want to live in retirement? Maybe you want to move to California and take over a vineyard and winery, perhaps travel around the world to volunteer, or maybe you seek a quiet street close to your family.
It is important to think realistically about your desired lifestyle in retirement because it will impact you mentally, physically, and financially. If you want to move, have you factored in moving costs or the type of property you are interested in? Location is just one of the many components intertwined in lifestyle. There is much more for you to think about:
These questions are tough, but they are also pertinent to your retirement plan. It is ok if you do not have all of the answers right away, just start thinking about them. The longer you give yourself to think through and try out what you really want, the more likely you will be happy with your choice.
When you are constructing your ideal retirement lifestyle, think through these important questions.
When your lifestyle is aligned with your goals and values, you are setting yourself up for success in retirement.
The second pillar we will cover is cash flow. Your cash flow will change dramatically when you retire. You won’t rely on a bi-weekly paycheck from your employer anymore, and will start tapping the hard-earned retirement savings you’ve built up over the course of your career.
The time has come to take money out of the:
Your methods for attaining cash in retirement will change and that is something you need to plan for. Remember that some accounts like your 401(k) and Traditional IRA have required minimum distributions (RMD) that you must withdraw each year to comply with IRS regulations.
When talking about cash flow, it is also important to consider how taxes will impact you in retirement. Most of your retirement accounts like your 401(k) and Traditional IRA were funded with pre-tax dollars meaning that all distributions will be taxed as income. This is an important thing to remember when taking your yearly RMDs as it might impact your tax bracket. Interested in learning more about how to utilize your 401(k) when you retire, check out my post on that topic! Talk with your financial advisor about your specific situation.
The third and final pillar I’d like to discuss is your health in retirement. While you are busy saving and planning your big trip to Hawaii, you might not think to add more money to your Health Savings Account (HSA) or consider options for healthcare after you retire.
Medical costs are one of the most expensive things to prepare for in retirement. Even a healthy couple, on average, will spend about $250,000 on medical expenses alone in retirement. This is a huge number, which means it is something you need to prepare for.
The best way to prepare for your health costs is to factor it into your savings plan. Be sure to contribute money to your HSA each year to help accumulate wealth for medical costs. It is also important to think about the type of health insurance you will need. Check out Medicare and offers from private insurance companies to see what is and is not covered to give you a better idea of the expenses you could have.
The most important part about retirement is you. It is about your goals, values, and desires for your life and how you want to live it. Through a strong savings regimen and a healthy planning strategy, you will set yourself up to choose your own path to and through retirement.