5 Things Every Retirement Plan Should Include

Picture of Annrose Isaac CPA, CFP®, MBA
Annrose Isaac CPA, CFP®, MBA
retirement planning

Retirement planning can feel like a daunting prospect. There are many variables to consider and steps to take along the way. It is important to start planning early so you can find a path forward, especially because you know how important it is to get it right. However, if you’re getting started and wondering about the things every retirement plan should include, we’re here to help.

There will always be some measure of uncertainty when planning for the future, but there’s a lot you can do to help yourself prepare today. Read on for the top five things you should consider when retirement planning.

1.    Make an Income Plan

If you’re in your prime earning years, you should also ask yourself these two critical retirement questions: how much money will I need, and how will I get it?

Thinking ahead to your retirement can help you answer both and shape your investment strategy, too. Once you get started investing in your highest earning years, your money has one job: to grow. When you’re ready to retire, it has a few more jobs to do: provide you with an income, pay taxes, and support your lifestyle.

This is why an income plan is absolutely one of the things every retirement plan should include. Without one, you risk running out of money.

Here are some of the major considerations you should keep in mind:

  1. Get a grasp on your guaranteed sources of income in retirement, namely a pension, Social Security, etc.
  2. List any retirement investment or savings accounts like a 401(k), IRA, or Roth versions of both.
  3. Take a close look at your lifestyle, and whether your income can support it. If you like how you live, you’ll likely need roughly 60% to 80% of your pre-tax, pre-retirement income to keep things as they are.

This isn’t an exhaustive list, but these three considerations are a smart place to start.

SEE ALSO: Effective Strategies for Early Retirement


2. Make the Most of Your Social Security

There’s no one right way to maximize your Social Security benefits. If you’re looking to help you and your spouse pick the right claiming strategy, the main consideration is choosing a plan that’s right for you. Married couples have more options for claiming Social Security benefits than single people, and there’s a lot on the line. Research estimates that choosing the wrong claiming strategy could cost couples as much as $250,000 in lost benefits over the course of a lifetime.

A financial advisor can help you figure out the approach that fits your lifestyle. One quick tip is that if you and your spouse were born on January 1, 1954, or earlier and are both of full retirement age, you can elect to claim spousal benefits while letting your own continue to grow. Called “restricted filing,” this option also lets you switch to the higher benefit after age 70. If you were born on January 2, 1954, or later, however—you’re out of luck on this strategy.

3. Consider Optimal Tax Strategies

You’d think that less income would equal fewer taxes in retirement, but that’s not always the case. The culprit: taxes from tax-deferred accounts like 401(k)s and IRAs. Reducing those can help you retain more money when you need it most. When you’re planning, don’t forget that there’s a required minimum distribution for tax-deferred accounts that begins at age 72.

One of the best secret weapons for retirement tax savings is converting any of your tax-deferred funds to a Roth 401(k) or Roth IRA. The amount you convert will be taxed, but only in the year it’s converted. After that, Roth accounts allow your retirement savings to grow tax-free and you’ll avoid any taxes when they are withdrawn.

No one wants to face a hefty up-front tax bill, which is why some shy away from Roth options. However, having a long-term vision can help you avoid a lifetime of tax-related stress and expenses. And remember, Roth conversions are just one strategy you can use. An experienced financial advisor, like a member of the team here at Wade, can help you determine the best strategy for you.

4. Estimate Future Medical Expenses

Healthcare costs can take a big chunk out of your retirement savings, even if you’re on Medicare. Anticipating what your future medical expenses could be can help you come up with a plan.

Whatever those costs are, a health savings account (HSA) can help to counteract them. HSAs allow you to contribute funds pre-tax, which then have the potential to grow and be withdrawn tax-free, as long as they are used for qualified medical expenses. Use this strategy when you’re earning to plan for retirement because those enrolled in Medicare can’t make any new contributions to an HSA.

If you need an additional way to cover costs that Medicare doesn’t, you might want to consider long-term care insurance. The premiums may not be universally affordable, but some may find that having a policy that at least covers a portion of the anticipated costs may be beneficial.

SEE ALSO: Tips for Creating a Multigenerational Estate Plan


5. Estate Planning Particulars

A proper estate plan goes beyond end-of-life asset planning to cover other contingencies if you’re unable to make your own medical, financial, or life decisions. These particulars can help your loved ones handle things with care and transition smoothly.

Make sure you cover the estate planning basics:

  • Power of attorney: The person who can manage your financial affairs if you’re unable
  • Health care proxy: Someone you trust to make medical decisions if you’re incapacitated
  • Living will: A plan that covers whether or not you would like medical intervention if you’re terminally ill and unable to make choices

Having these items in place can take a big burden off of your loved ones when they have to make hard decisions.

Final Thoughts on Things Every Retirement Plan Should Include

The above things every retirement plan should include should help you get started as you build a plan for your financial future.  At Wade Financial Advisory, we know that the decisions you make today can help you live your best tomorrow. If you’d like retirement planning or other financial guidance from an experienced team, please reach out to us today.

This communication contains the opinions of Wade Financial Advisory, Inc. about the securities, investments and/or economic subjects discussed as of the date set forth herein. This communication is intended for information purposes only and does not recommend or solicit the purchase or sale of specific securities or investment services. Readers should not infer or assume that any securities, sectors or markets described were or will be profitable or are appropriate to meet the objectives, situation or needs of a particular individual or family, as the implementation of any financial strategy should only be made after consultation with your attorney, tax advisor and investment advisor. All material presented is compiled from sources believed to be reliable, but accuracy or completeness cannot be guaranteed. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENTS BEAR RISK INCLUDING THE POSSIBLE LOSS OF INVESTED PRINCIPAL.

Wade Financial Advisory, Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at www.advisorinfo.sec.gov. Please contact Wade Financial Advisory, Inc. at (408) 369-7399 with any questions.

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