Key considerations for creating successful retirement plan
Feb. 13, 2023
This paid piece is sponsored by Eide Bailly LLP.
A version of this article first appeared on EideBailly.com.
Planning your retirement can be a daunting task, especially considering life expectancy rates are increasing, there is an abundance of information at your fingertips and the possibilities seem endless.
Adding structure to the thought process can provide you with clarity and direction — and can help you answer some important questions: What if you live to 100? Will your retirement benefits last that long? Are you prepared for unexpected scenarios? What will you do if things do not go according to plan?
To ensure you are creating a holistic plan that covers your bases, focus on these key aspects of retirement:
Retirement benefits
As you get closer to retirement, it is important to understand the benefits available to you and how to best utilize them. For example, knowing when you are going to start taking Social Security or pensions is important because it affects all other aspects of your retirement.
Make a list of all retirement benefits and income you plan on utilizing. This includes both defined benefit plans and defined contribution plans such as:
- 401(k) plans
- 403(b) plans
- IRAs
- Profit sharing or stock bonus plans
- Employee stock ownership plans
- Cash balance plans
- Simplified employee pension plans
Investment considerations
How you manage investments depends on your age, your risk tolerance and your investment goals. While it is wise to have traditional tax-deferred plans and investments, those returns depend on the market and are not guaranteed. In addition, distributions from traditional retirement plans will be taxed based upon current income tax rates, which change over time.
You should think about a 30-year retirement just like you would think about a 30-year career. We encourage you to work with an investment adviser to ensure you are setting yourself up for success and choosing the right investments.
Health care and other unexpected costs
Life can be unexpected, and you cannot always foresee medical emergencies. You want to ensure that if an unexpected medical expense arises, you can financially recover. It is advised to set aside an emergency fund equaling at least six months of annual income.
As you get older, you also may need to modify your home to accommodate limitations. These modifications could include installing grab bars in the bathroom to aid in mobility, widening doorways, installing ramps or lowering cabinets or countertops to make them more accessible. Insurance may not cover these accommodations, so it is important to factor them into your retirement plan.
Insurance policies
The insurance you should invest in during retirement depends on several factors, including what you are trying to protect and your net worth. Remember that as risky as it is to not have insurance, it is equally as risky to pay for insurance that is not right for you.
Depending on your income and goals, life insurance can play a useful role in a diversified retirement plan. A life insurance policy can be an excellent alternative to a Roth IRA for high-income individuals because:
- Roth IRAs have maximums, currently around $6,000 per person.
- Qualifying life insurance policies have no maximums on savings per year.
- Roth IRAs have income limits excluding or limiting those with over $198,000 joint income.
- Qualifying life insurance policies do not have income limits.
Additionally, life insurance plans have no early termination policies or penalties for distributions before the age of 59, and those distributions can come out tax-free if your plan is designed appropriately. Retirement plans typically have strict rules and penalties for such activity. An insurance professional will be able to guide you in the right direction in deciding what insurance is best for your needs.
Planning your estate and legacy
It is not easy to talk about and plan for what happens to your estate after you are gone, but it is important for your loved ones to know what your wishes are.
Estate planning is the process of anticipating and arranging for the management and disposal of your estate during your life, as well as at and after death, while minimizing gift, estate, generation skipping and income tax. A will is part of the estate plan.
Some of the most important reasons for estate planning are to:
- Pass property to the intended beneficiaries.
- Alleviate burdens of surviving family members.
- Protect assets from unintended recipients.
Working with your legal and financial advisers on your estate plan will help ensure the process goes smoothly and nothing important gets missed.
The key to a successful retirement
There’s no one-size-fits-all approach to retirement. Working with legal and financial advisers helps ensure a cohesive retirement and estate planning process, resulting in a holistic plan that covers all your retirement bases.
We encourage you to do the following:
- Know your retirement goals.
- Work with a team of advisers to create a plan.
- Continually review your plan, and make changes when necessary.
- Enjoy your retirement.
- Meet regularly with your adviser to ensure your plan is up to date.
Are you ready to create a successful retirement plan that is unique to your situation? The Eide Bailly wealth planning team is here to help.
