How to Plan for a Confident Retirement After Your Paycheck Stops

An older woman looks serene as she sits in an armchair and looks out the window.

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Many Americans eye retirement with trepidation. The years that should be a time to relax, travel, start a hobby or hang out with the grandkids are a source of anxiety for many.

According to an AARP survey, 61% of Americans worry they won't have enough money to fund their retirement.

In some cases, there is a reason for uneasiness. Most of us spend our lives depending on a regular paycheck to meet our needs and wants. As long as we're working, that paycheck shows up and provides a sense of security.

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The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

When we retire, though, the paycheck stops, and something must replace it. Social Security helps, but while Social Security supplements our income needs in retirement, it doesn't provide enough to completely replace that salary.

On average, Social Security will replace about 40% of your annual pre-retirement earnings.

The trick then becomes to make up at least part of the difference, and that's where apprehension nudges its way into people's lives. They look at their retirement savings or investments and don't like what they see, as the numbers don't add up to what they feel they will need.

This is especially deflating because retirement also comes with financial challenges. Unexpected expenses crop up. The market can take a dive, putting a dent in your portfolio.

Health problems potentially lead to large bills, and if you retire before you turn 65, you will need to arrange for health insurance until you qualify for Medicare.

Also, you may need long-term care at some point in your life, a costly expense that can drain your finances.

Putting a plan in place

So, how do you avoid becoming one of those retirees or people approaching retirement who are uptight about finances?

You can help reduce at least some of that worry by putting a plan in place so that, when you arrive at retirement and your paycheck disappears, you are positioned with better odds of flourishing.

Here are just a few of the steps you can take to potentially create a more confident retirement:

Deciding when to claim Social Security can make a tremendous difference in how it affects your retirement. The full retirement age for most people these days is 67, but you can take Social Security as young as 62.

Be warned, though: If you claim it that early, you will receive a reduced monthly benefit for life. You can also postpone claiming Social Security until you are 70 and boost the amount of your benefit in the process.

At first glance, the answer might seem simple: Delay until 70 and get the largest amount. But other factors can come into play, such as your personal financial needs, health and family.

Determining when you should claim your benefit can be complicated, so it's good to consult with a financial professional who can help you review the options and make an informed choice.

2. Create other income

Social Security helps with your retirement income, but you need additional sources as well. One thing to keep in mind: Different income sources are more attractive in different economic environments.

For example, a fixed index annuity may be a good choice in a down market. It provides a monthly income and the insurance company that issues it guarantees a fixed interest rate. You are also protected against loss of your principal.

The downside is that a fixed index annuity generally has caps that limit how much you can gain. That can be detrimental in a strong market when such options as mutual funds or exchange-traded funds (ETFs) could be the better alternative.

3. Plan for long-term care

About 70% of those who live to 65 will require some form of long-term care at some point, and such care is pricey.

For example, the median annual cost of a semi-private room in a nursing home is $111,325, according to the Genworth and CareScout annual cost-of-care survey. A private room is $127,750.

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One option for paying for this is long-term care insurance. Once again, a financial professional can discuss with you what to consider when planning for the possibility of long-term care.

Ask for help with retirement planning

Certainly, there is plenty to consider as you plan for retirement. That's why it's a good idea to seek assistance from a professional who understands the potential challenges and the options available to you to help you avoid them.

Then, with a solid plan in place, you can spend more time focused on enjoying the new adventures and opportunities that retirement brings.

Ronnie Blair 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.

Insurance products are offered through the insurance business Golden Years Financial. Golden Years Financial is also an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. AEWM does not offer insurance products. The insurance products offered by Golden Years Financial are not subject to Investment Adviser requirements.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Clark Smith has over 30 years of experience. He began his career in the financial services industry in 1990 with Dean Witter Reynolds. He received his Series 65 License in 2020 and is the Founder and President of Golden Years Financial.