Retirement is a significant milestone, often accompanied by a mix of excitement and apprehension. As we transition into our golden years, it’s crucial to approach retirement with a well-prepared plan to ensure financial stability.
Here are some important aspects of retirement planning to keep in mind:
1. A thorough appraisal of expenses and budgeting
Taking a hard look at your budget now in your working years and creating a future budget are fundamental steps in retirement planning. You must define your current expenses and project the future costs you’ll have when you’re no longer earning a salary. Include your ongoing expenses, such as mortgage payments, car loans, dining and lifestyle needs.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Some retirees find themselves spending more money due to increased leisure activities. As some like to say, “Once you retire, every day is Saturday.” If we think about our spending habits, we tend to spend more on Saturdays, whether that's trips to Home Depot, the grocery store or restaurants. You want to work to create a realistic budget for retirement that accurately reflects your lifestyle.
2. The 4% rule and alternative withdrawal strategies
A commonly discussed guideline in retirement planning is the 4% rule, which suggests that retirees can withdraw 4% of their retirement savings annually without running out of money. There are many nuances to this approach, but in general, it looks at a 60/40 (60% bonds, 40% stocks ratio) portfolio and how it projects over a 30-plus-year retirement.
An alternative to the 4% rules is the “guardrails approach,” which allows for flexible withdrawals based on market performance. This method involves adjusting spending when the market is down and enjoying more spending when the market is up. Both the 4% rule and the guardrails approach aim to ensure financial longevity, but personal preferences and risk tolerance play a significant role in choosing the right approach.
3. Extra sources of retirement income
Social Security and pensions are traditional sources of retirement income, but they may not cover all your expenses. Having additional retirement income sources can be helpful if retirement savings are not enough.
One example is owning rental properties. Renting out a paid-off property can provide a steady income stream and help mitigate inflation’s impact. At the same time, be careful of the risks of a rental property. Make sure you have the proper insurance and that it’s a property that won’t go vacant for long stretches of time.
4. Health care and long-term care planning
Health care costs are a significant concern for retirees. Fidelity reports a married couple should set aside over $300,000 for retirement health expenses. If you are still preparing for retirement, using health savings accounts (HSAs) can be a great way to save for your future health care expenses.
5. Maintaining emergency funds
Maintaining an emergency fund is essential to handle sudden, unexpected expenses. Get a high-yield savings account or a money market fund to ensure that emergency funds are earning interest. This financial cushion can cover sudden costs like home repairs or medical bills, preventing retirees from accumulating high-interest debt.
Also, keep a designated amount for emergencies in your savings account. One rule of thumb is to save three months’ worth of your normal living expenses. Doing so can help you cover one of those unwelcome surprise expenses.
Preparing for retirement requires careful planning and ongoing adjustments. Regularly update your retirement plans and seek professional guidance to navigate the complexities of retirement finances. By understanding your retirement needs well ahead of retirement and planning for them accordingly, you can enjoy your golden years with confidence and financial security.
Dan Dunkin contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Related Content
-
How Blended Families Can Navigate FinancesIf you’re planning to become part of a blended family, consider these financial issues as you and your spouse start a new life.
-
Will lower mortgage rates help the housing market?The Kiplinger Letter As mortgage rates slowly come down here's what to expect in the housing market over the next year or so.
-
The Rule of 55: One Way to Fund Early RetirementThe Rule of 55 lets you access your retirement funds early. When paired with other strategies, it could help you kiss the office goodbye.
-
Here's How to Find Your Way Out of the Inherited IRA MazeTo navigate complex rules on inherited IRAs and RMDs, start by breaking down key terms and common scenarios. A clearer picture of your next steps will emerge.
-
What Could the Election Mean for Social Security and Medicare?With the presidential election just days away, here's a look at Harris vs. Trump on Social Security and Medicare.
-
Five Ways the Election Could Change Your RetirementFrom taxes to Social Security and beyond, the election could change your retirement depending on which candidate wins. Who takes the House and Senate also matters.
-
Should You Move Your 401(k) to an IRA Once You Hit 59½?Some 401(k)s allow for in-service withdrawals at age 59½, opening up greater investment options. Here are three reasons for taking the plunge.
-
Collar Investing Strategy Can Help Protect Your Nest EggHere are some key considerations for using the collar strategy of put options and covered calls to safeguard your wealth in retirement.
-
Understand Your ESOP Benefit: The Diversification OptionYou can sell your shares back to the company during your employment years, called diversification in ESOP terms. What are the pros and cons?
-
Women's Wealth Growing: How to Handle It Like a ProEven as women play catch-up because of the gender pay gap and caregiving responsibilities, they're winning financially.
