When you think about retirement, you may picture relaxing trips with your spouse, luxurious lunch dates with friends, and having more free time for your hobbies, but are you carefully considering the financial aspects of retiring? For instance, have you considered if you’ll have enough money to maintain your lifestyle, how you’ll fund your anticipated travel, and what happens if you get sick and need to pay for health care costs? Unfortunately, only half of Americans have calculated how much they need to save for retirement – leaving many people woefully unprepared for what’s ahead.
Here are 10 critical questions to consider before you retire:
1. What do you need to maintain your standard of living? The amount you’ll need in retirement depends on multiple factors, including your age (the younger you are, the more money you’ll likely need), your lifestyle, your monthly expenses, and your financial portfolio. Use a cash flow sheet to outline your monthly budget, including mortgage, property taxes, groceries, insurance, healthcare, etc. Then add expenses like travel and entertainment, as well as any big expenses – like college tuition or home renovations – that you may have coming up. Calculate how much you spend per month and determine how you’ll fund the necessary expenses as well as the “fun money” you’ll need for travel, dining out, entertainment, etc.
2. Can your asset base support your lifestyle? Experts predict that most people will need 70 to 90% of their income to maintain their lifestyle when they retire. Understand that Social Security is only intended to replace approximately 40% of the average salary, so you’ll need additional guaranteed income sources. Create a financial plan, looking at your assets and anticipated spending. While some of your expenses (like commuting costs and professional clothing) may decrease after retirement, other costs (like medical expenses and travel) may increase. Set a budget so you’ll know what you can realistically afford to spend per month – and see if that budget will cover your preferred lifestyle. Your plan must be flexible enough to withstand any financial “curveballs” you may face. For instance, what if you get sick and need to pay extensive medical bills? Or what if your septic system fails and you need $20K to replace it? Work with a financial professional to develop a realistic – yet flexible – financial plan.
3. What’s your guaranteed income? Since Social Security will replace less than half of your pre-retirement salary, you should have other guaranteed income streams coming in each month. That could be from pension, rental properties, dividends from investments, or something else, like the sale of your business.
4. What’s your spouse’s guaranteed income? Similarly, your partner should have guaranteed monthly income that’s not based entirely on Social Security.
5. Have you reviewed a financial model of your retirement years? At Guyton/Forge, we use models for each client, determining how much money they need to live on. We’re meticulous about analyzing their expenses, using a worksheet. We figure out what they spend on their mortgage, groceries, haircuts, gifts, dining out, and so forth. And we look at what they have coming in for income, whether that’s a salary, Social Security, pension, etc. And we figure out how use the assets to generate income to meet each client’s expense needs throughout their retirement.
6. What are your family legacy objectives? The largest intergenerational wealth transfer in recent history is predicted to occur over the next two decades. During The Great Wealth Transfer, Boomers are expected pass along trillions of dollarsto their children and grandchildren, making legacy planning even more essential. Discuss goals, expectations, and logistics with your financial advisor and your family. Review your financial plan to determine what’s realistic for you to transition to your family in terms of money, business, and/or other assets. Also, be sure you understand the changing estate tax planning rules, since the current rules will expire at the end of 2025. Experts predict that, due to these changes, more people will need to pay Federal estate taxes, and the amounts they’ll need to pay may also increase dramatically. Therefore, if your facts and circumstances warrant, you may want to consider gifting strategies to transfer asset appreciation out of your estate, reduce estate taxes, and pass along some assets to your loved ones.
7. Do you plan to travel and/or help your children? Work with your financial advisor to determine whether it’s feasible for you to travel, or help your children or grandchildren pay for college or a down payment for a house. The 70 to 90% income threshold (mentioned above) often isn’t enough to spend on “extras” like second homes, travel, and other discretionary spending. If you’re determined to travel, help your children, or make other large purchases, ensure that you have the assets to cover your own costs before you elect to give it away.
8. Do you have any unplanned major expenses? Have you promised to pay for a wedding or college tuition? Does your house need a new roof? Include these anticipated expenses on your cash flow document. Also, understand that healthcare costs often increase in retirement. A recent study showed that older couples may need as much as $184,000 to $383,000 for medical expenses alone, depending on their Medicare coverage.
9. How long will you stay in your house? Consider whether you plan to live in your home for the foreseeable future, or if it’s more realistic to downsize to a smaller place, move to a 55+ community, or transition to an assisted living facility.
10. How will you deal with health care costs? Healthcare costs are often one of the biggest expenses during retirement. The cost of insurance and medical care can be extremely expensive, and may be financially draining if you’re not properly prepared. In case of any unexpected emergencies, maintain access to cash, whether it’s in a bank, a reserve equity line, or a life insurance policy.
These questions might feel uncomfortable to think about, but it’s an essential part of retirement preparation. Work with a trusted financial advisor to ensure that you have the proper plan – and assets! – so that you can maintain your preferred lifestyle in retirement. If you’re looking for a financial advisor, let’s talk about how the Guyton Forge team can help you achieve – and exceed! – your financial goals.
At Guyton-Forge, we offer the experience of a big firm with a small town feel. We customize our approach (and our advice) to meet each client’s specific situation, needs, and goals. We’re proud to do things differently – it’s part of what sets us apart as a friendly, high touch practice. We offer extensive experience and knowledge, creating strong, long-term relationships with our clients.
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 160 GOULD STREET, SUITE 310, NEEDHAM MA, 02494, 781-4494402. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Guyton-Forge is not an affiliate or subsidiary of PAS or Guardian. Life insurance offered through The Bulfinch Group Insurance Agency, LLC, an affiliate of The Bulfinch Group, LLC. The Bulfinch Group, LLC is not licensed to sell insurance. CA Insurance License Number – 0A96200. Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. 7169273.1 Exp 10/26
