Getting ready for retirement? Before you can cross that bridge, you’ll need to cross some important items off your to-do list. But thanks to our work together, you might be more prepared than you think! This handy checklist of ten crucial steps can help you visualize how far you’ve come.
- Retirement Budget - understand what your income will be, and how you can confidently spend the money you have accumulated for retirement.
- Emergency Savings - prepare for emergencies by saving at least 3 months’ living expenses, and have that money easily available to you
- Tax Strategy - have a sound tax strategy to guide you through the process of spending money from both taxable and tax-deferred accounts.
- Lifestyle and Location - consider where you’ll live, both short- and long-term. Have a plan for funding a move and understand the timing involved.
- 401(k) Strategy - have a strategy for your 401(k) plan and determine the best time for you to access the money, based on your goals. (1)
- Bucket List - write down your personal goals for your retirement years. Explore your dreams, priorities and values.
- Extended Care - make arrangements in the event that you or a loved one encounters a health issue requiring full-time care.
- Estate Strategy - develop an estate approach that includes how you want your assets to be allocated, and who will handle your estate.
- Health Insurance - understand your options with Medicare and define a strategy for covering health care expenses for the long haul.
- Social Security - have a sound tax strategy to guide you through the process of spending money from both taxable and tax-deferred accounts.
If you’re not as prepared for retirement as you’d like to be, just reach out. Together, we can fine-tune these strategies so you can finish your checklist and get started on that bucket list.
(1) Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 72, you must begin taking required minimum distributions.
How Retirement Spending Changes with Time
New retirees sometimes worry that they are spending too much, too soon. Should they scale back? Are they at risk of outliving their money? This concern may be legitimate. Some households "live it up" and spend more than they anticipate as retirement starts to unfold. In 10 or 20 years, though, they may not spend nearly as much.
The initial stage of retirement can be expensive. The Bureau of Labor Statistics figures show average spending of $60,076 per year for households headed by pre-retirees, Americans age 55-64. That figure drops to $45,221 for households headed by people age 65 and older. (2)
Some suggest that retirement spending is best depicted by a U-shaped graph -- It rises, then falls, then increases quickly due to medical expenses.
But in a 2017 study, the investment firm BlackRock found that retiree spending declined very slightly over time. Also, medical expenses only spiked for a small percentage of retirees in the last two years of their lives. (3)
What's the best course for you? Your spending pattern will depend on your personal choices as you enter retirement. A carefully designed strategy using our analytical tools can help you be prepared and enjoy your retirement years.
(2.) Bureau of Labor Statistics, 2019 (3.) CBSnews December 26, 2017
COVID Related Assistance 2021
Let's reflect back on the COVID related assistance the government has created over the last year.
- March 2020 CARES Act 2020 - Coronavirus Aid Relief and Economic Security Act provided an initial round of stimulus of $1,400 per individual and $500 for qualifying child under age 17; all with income limits to receive this stimulus. Those collecting unemployment will receive an extra $600 per week and see an extension in the benefit timeframe.
- December 2020 COVID-related Tax Relief Act of 2020 - provided a second round of stimulus of $600 per individual and $600 per qualifying child under age 17; all with income limits to receive this stimulus that matched March 2020 stimulus. Unemployment benefits were extended to March 2021.
- March 2021 The American Rescue Plan Act of 2021 - provided a third round of stimulus of $1,400 per individual plus $1,400 per qualifying dependent of any age. Qualifying limits are more strict to receive this stimulus compared to the prior two. Those collecting unemployment benefits will receive a tax break and an extra $300 per week until September 2021.
Economic recovery is well on its way. No matter which political party or belief resonates with you, no one can deny there is a considerable amount of spending that has already been done and is planned for the upcoming year; as recently announced with the infrastructure spending plan. There is no clear plan as to how we will pay for everything. We can expect tax rates to rise as well as inflation rates.
A healthy savings account or cash reserve is important going forward. This will help investors from having to dip into their investment accounts to cover expenses or taxes in the near future.