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
-
Essential Tech Tools for Managing Your Home and Finances While TravelingStay secure and stress-free on the go with the best tech tools for managing your home, bills and security from anywhere.
-
Certified Pre-Owned Cars Explained: Benefits, Warranties and PitfallsCertified pre-owned cars – thorough inspections, extended warranties and peace of mind. Learn what to look for.
-
Late to the Retirement Savings Party? Five Tips for 2025If you did a poor job saving for retirement last year, don't despair. There are ways to build your nest egg in the new year.
-
The Wrong Money Question to Ask After Trump's ElectionIf you're wondering what moves to make with a new president moving into the White House, you're being dangerously shortsighted. Here's what to do instead.
-
10 Reasons to Leave Your Heirs a Roth IRAIncluding a Roth IRA in your estate plan has clear tax advantages, which can be passed along to your heirs for years to come. But if passed down incorrectly, your heirs won’t reap the full benefits.
-
The Cheapest Places To Retire in the USWhen you're trying to balance a fixed income with an enjoyable retirement, cost of living is a crucial factor to consider.
-
Social Security and Medicare Funding: Is the Sky Falling?Social Security and Medicare are slowly running out of money, but what does that mean for the retirees counting on them? Actually, it's not all bad news.
-
What We Need to Do to Protect Retirees' Financial SecurityCognitive decline and aging in general put older retirees at risk of losing their financial security when they're the most vulnerable. What can be done?
-
Financial Planning: Sisters Should Be Doin' It for ThemselvesMore and more women are ringin' on their own financial bells (with apologies to Aretha Franklin and Eurythmics) — but that demands a robust financial plan.
-
Seven Ways Retirees Can Crush Holiday Debt in the New YearHere's how to get rid of that holiday debt you racked up.
