Efficient Retirement Planning Before And After You Retire

Shawn Plummer

CEO, The Annuity Expert

It’s never too early to start planning for retirement! This guide will discuss the different stages of retirement planning and what you need to do to be prepared. Each stage presents unique challenges, so it’s essential to be aware of them. We’ll also provide helpful tips on making the most of your retirement years! By the end of this personal finance guide, you will have a retirement plan that guarantees retirement security for the rest of your life.

Most Common Retirement Accounts Offered

When it comes to retirement planning, there are several different options to choose from. Some employers offer 401(k) plans, while others may offer pensions or annuities. IRAs are also a popular option. So, what are the most common retirement plans offered?

401(k)

401(k) plans are employer-sponsored retirement savings plans that allow employees to save and invest pre-tax dollars (tax-deferred basis) for their future. Employees can choose to have their contributions deducted from their paychecks, and many employers offer matching contributions. 401(k)s are a great way to save for retirement, but they have some limitations. For example, 401(k)s typically have high fees, early withdrawal penalties, and an annual contribution limit.

IRA

IRAs are individual retirement accounts that can be opened by anyone with earned income. There are two main types of IRAs – traditional and Roth.

  • Traditional IRAs offer tax-deferred growth, meaning you won’t pay income taxes on your investment earnings until you withdraw the money in retirement.
  • Roth IRAs offer tax-free growth, meaning that you won’t pay taxes on your investment earnings at all.

IRAs have contribution limits and income limits, but they offer more flexibility than 401(k)s regarding investment options and withdrawal rules. Investors can claim a tax deduction on the retirement contribution to a traditional IRA. However, Roth IRAs are not tax deductible.

Pension

Pensions are another type of retirement account that is offered by some employers. Pensions are usually defined benefit plans, which means that the payment you receive in retirement is based on your years of service and salary history. Pension income can be a great way to supplement your other retirement savings, but they are becoming increasingly rare.

Annuity

Annuities are contracts between you and an insurance company. You make a lump sum payment or series of payments, and in return, the insurance company agrees to make periodic payments to you for a specified period of time. Annuities can be a good option for people who want guaranteed income in retirement.

Several different retirement plans are available, each with its own set of benefits and drawbacks. The best account for you will depend on your individual circumstances and financial goals.

The Stages Of Retirement

Most people think of retirement as a time to kick back and relax. And while it’s true that retirement can be a time of leisure and recreation, it’s also important to understand that retirement usually progresses through three distinct phases. 

  1. Go-Go Years: The first phase, known as the go-go years, is characterized by a sense of freedom and exploration. Retirees often have more time on their hands than they know what to do with. As a result, they often Fill their days with travel, hobbies, and social activities. 
  2. Slow-Go Years: The slow-go years can be a tough adjustment for many people. While you might still be able to do all the things you were doing before, now it takes a little more energy to do them.
  3. No-Go Years: No-go years refer to the time in your life when you can no longer live independently. This may be due to a physical or mental health condition or aging. During this time, you may need to hire someone to help with tasks such as cleaning your house and grocery shopping. You may also need support from a nurse or family member.

How To Start Planning For Retirement

The first step in retirement planning is to identify your retirement income sources. This includes not only your current investment portfolio and assets but also any anticipated assets, such as inheritances or the sale of a business.

It’s also important to consider when you want to start receiving Social Security retirement benefits and how much they will be. The timing is critical; otherwise, you could run into significant financial problems in the future.

Another critical factor is healthcare. How will you pay for health insurance coverage during retirement?

Finally, don’t forget about income taxes. Employees can typically make pre-tax contributions to their retirement accounts (401(k), Pensions). Still, they may owe an income tax on those accounts when they withdraw the money in retirement because these employer-sponsored retirement plans grow tax-deferred.

Individual retirement accounts (traditional IRA) also will be taxable income too.

The Biggest Factors Regarding Retirement Income

When planning for retirement, there are a few key factors to remember.

  1. Firstly, healthcare costs continue to rise at a rate faster than inflation, so it’s essential to factor in enough money to cover these eventualities.
  2. Additionally, when you decide to take social security retirement benefits can significantly affect your retirement income – so it’s worth seeking professional advice to explore all your options.
  3. Finally, inflation is an unpredictable but ever-present factor that can erode the value of your assets over time, so it’s important to account for this when planning your retirement budget.

These three things can help ensure a comfortable and enjoyable retirement.

How To Create A Financial Plan For Retirement

Regarding budgeting for retirement, there are a few key factors to remember.

  • First, you’ll want to consider how much retirement income you’ll need to maintain your current lifestyle. This can be tricky to determine, as expenses can change over time due to inflation. However, a good rule of thumb is to aim for 75% of your current annual pre-retirement income.
  • Once you have a target number, you can start thinking about allocating your retirement savings.

For most retirees, a combination of an annuity with a lifetime income rider and Social Security payments is the most efficient way to create a financial plan. Both tools offer guaranteed monthly income for life, which can help to cover your basic living expenses.

By sticking to a budget and planning, you can ensure that your golden years are gratifying.

How To Prepare For Retirement

Retirement planning is a process that requires careful thought and consideration. There are many factors to consider, but one of the most important is your financial situation. The following tips will help set up a pre-retiree for success, 1 year, 2 years, and five years before retiring.

  • If you own a home, try to pay off your mortgage before you retire. This will reduce your monthly expenses and give you one less bill to worry about.
  • Don’t take money out of your retirement savings to pay for your children’s education. Instead, start saving early and regularly contribute to a college savings plan or a similar savings account.
  • Pay attention to the debt you take on as you approach retirement. Try to pay off any outstanding loans or credit card debt before you retire.
  • Review your life insurance coverage to see if you need more coverage. A good rule of thumb is to have coverage equal to 10 times your annual income before retirement.

But ultimately, the amount of coverage you need will depend on your circumstances. By taking these steps, you can set yourself up for a more secure and comfortable retirement.

Retirement Planning Tips

As you near retirement, it’s more important than ever to ensure your savings are on track. Fortunately, you can take a few simple steps to boost your retirement savings with these financial strategies.

  • Free Money: If your company offers a 401(k) with a solid contribution match (4-7%), take advantage of the free money up to the maximum match. Fixed index annuities also offer premium bonuses (up to 11%) that mimic the company contribution match, making them an attractive option for a retirement savings account. 
  • Reduce Taxes: As you approach retirement, it’s essential to consider how you can minimize your tax liability. One way to participate in tax advantages is to invest in post-tax retirement plans such as Roth IRAs. With a Roth IRA, your withdrawals will be tax-free in retirement. Another option is to purchase a non-qualified annuity. With a non-qualified annuity, only the interest earned is taxable, not the principal investment. 
  • Lower Risk Tolerance: One of the most critical aspects of retirement planning is diversifying your portfolio. Diversifying means you should not put all your eggs in one basket. Instead, you should spread your retirement money across various investments, such as stocks, bonds, and real estate. Investing money this way will help to mitigate the risk of any one investment losing value. Additionally, adjusting your risk tolerance as you age is essential for financial security. Remember that diversification does not guarantee loss; however, it is a powerful retirement planning tool that can help you manage risk and protect your hard-earned savings.

The Distributing Phase In Retirement Planning

The distributing phase in retirement is when you transition from saving to using your retirement savings to cover your living expenses. This usually occurs after you retire from your full-time job.

Many retirees think of the distributing phase as the “draw-down” phase, when you begin withdrawing money from your 401(k), IRA, pension, mutual funds, or other retirement plans. Under this method, you would gradually reduce the amount of money you withdraw each year, adjust for inflation, and hope that your retirement account lasts throughout your entire retirement. However, this method is flawed and can leave you without enough retirement money to cover your expenses.

A more effective way to manage the distribution phase is through annuities. Annuities are insurance policies that provide a guaranteed income stream for life. This means that you will receive the same monthly payments from the insurance company even after your account value has run down to zero. Annuities can give you peace of mind during retirement and help ensure you have enough money to cover your expenses.

When To Plan For Inflation For Retirement

For many people, retirement is the time to kick back and relax. However, it’s important to remember that costs only go up over time, so it’s essential to plan for inflation from the moment you retire.

  • One way to do this is to take Social Security Benefits at full retirement age; this will help support long-term care costs in your seventies, eighties, and nineties.
  • Another option is to invest in an annuity with an increasing lifetime income rider; this will ensure that your retirement paycheck keeps pace with inflation, helping you maintain your purchasing power throughout retirement.

You can help ensure that your golden years are truly golden by taking a few simple steps.

The Biggest Retirement Mistakes

There are a few retirement mistakes that can affect your golden years negatively.

  • One retirement planning mistake is collecting Social Security benefits too early. If you need long-term care, this will bite you later, and Medicare doesn’t cover the costs. The United States government says retirees over 65 have a 70% chance of needing care later in life.
  • Another big mistake is not planning for inflation. Costs always go up, and your lifestyle will only suffer if you don’t plan for it.
  • One of the biggest mistakes is not having life insurance. If something happens and you don’t have life insurance, your family could be left with a substantial financial burden.
  • Finally, taking on too much risk with your retirement savings is a mistake. If you can’t afford to lose money, you shouldn’t be exposing it to risk.

All these mistakes can hurt your retirement, so it’s important to be aware of them!

What Expenses Decrease During Retirement?

As people enter retirement, their spending patterns often change.

  • One significant expense that typically decreases during retirement is housing. Older adults are more likely to own their homes outright and may downsize to a smaller home or apartment that is easier to maintain.
  • Other everyday expenses that may go down in retirement include transportation, as seniors are more likely to rely on public transportation or stay close to home.
  • Additionally, retirees may spend less on clothes, as they no longer need to maintain a work wardrobe.

For many people, these reductions in expenses can free up money to save for travel, hobbies, and other activities that provide enjoyment in retirement.

The Biggest Misconception About Retirement Planning

The biggest myth about retirement planning is that you must save millions of dollars to retire comfortably. In reality, with the right annuity plan in place, you can retire at a fraction of what most financial advisors, media outlets, or publications say you’ll need. Additionally, you’ll reduce the risk of losing and running out of money.

Example #1

For example, let’s say you’re 65 years old and have $1,000,000 saved up for retirement. With an annuity with a lifetime income rider, you could generate an annual income of $63,000 – a 6.3% withdrawal rate. Most financial advisors recommend withdrawing 4% or less annually from your investment portfolio to “safely” maintain it and not run out of money.

Example #2

Another example is a 50-year-old with $1,000,000 wanting to retire at age 65 could generate $147,000 annually for the rest of their lives with an annuity.

You can estimate your immediate or future payments with our free annuity calculator. Then use the Social Security Administration benefits calculator.

What Should I Do If I Realize Now Is Not A Good Time To Retire?

If you’re nearing retirement and suddenly realize it’s not the right time, don’t worry – you’re not alone. There are several reasons why people choose to delay retirement or continue working even after they’ve retired.

  • One option is to delay your retirement date by a few years. This will give you time to save more money and hopefully compensate for any shortfall in your retirement income.
  • Another option is to continue working part-time during your retirement years. This can help to supplement your income and may even allow you to keep your health insurance benefits.

Why is Financial Planning For Retirement Critically Important?

Retirement planning is critically important for several reasons.

  1. First, if you don’t plan carefully, you may pay more taxes than you need to.
  2. Second, without careful planning, you may run out of money before the end of your retirement.
  3. Third, if you don’t plan carefully, you may decrease the quality of your life in retirement.
  4. Fourth, if you don’t plan carefully, you may need long-term care services, but you can’t afford them, leaving your final years a nightmare instead of an enjoyment.

For all these reasons, it’s crucial to contact us to ensure that you are taking the necessary steps to secure a comfortable retirement. Please don’t wait until it’s too late to start planning and saving!

Next Steps

If you’re like most people, you may be a little unsure of where to start when it comes to retirement planning. That’s why we’re here – to help you assess your current situation and develop a personal finance plan to ensure a comfortable retirement. But don’t wait until it’s too late! Contact us today for a free consultation and quote.

We look forward to helping you achieve your retirement goals.

How To Plan For The Various States Of Retirement. Retirement Planning Strategies

Frequently Asked Questions

What is the biggest expense in retirement?

For most people, healthcare and medical expenses are the biggest expense in retirement. This is especially true if you require long-term care at some point. Long-term care can be very expensive and not covered by traditional health insurance or Medicare. There are a few ways to pay for long-term care, including long-term care insurance and long-term care annuities.

How can you estimate the amount of money you will need during retirement?

While knowing exactly how much you will need is challenging, there are a few ways to get an estimate for your finances. One option is to use a retirement calculator. Another option is to speak with a financial advisor. They can help you to assess your current savings and create a retirement plan.

Is 45 too late to start saving for retirement?

It’s never too late to start saving for retirement. Even if you’re 45 years old, you can still make catch-up contributions to your retirement account and benefit from the power of compound interest.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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