When Do You Plan To Retire?
One of the biggest threats to your financial security isn’t the markets, interest rates or even your job security. It is a lack of preparation, particularly for unexpected events, that usually leaves investors reeling when markets swoon. If you haven’t protected yourself from the potential downsides in life, after all, then it’s difficult to maneuver when the unforeseen strikes.
Research shows a lack of preparation in retirement planning. According to annual surveys, 66% of those 55 years and older said they were confident they had sufficient savings to live comfortably throughout retirement. However, just 48% within the same age group haven’t figured out their retirement needs.
Knowing where you are now and knowing what you’ll need and want in retirement are important to protect your portfolio throughout your golden years. If you want to retire at 65, then age 55 is when you’ll want to start making some important decisions.
Here are the four steps you need to take today “if” you want a comfortable retirement tomorrow.
#1 At 10 years or more before retirement, you should diversify your tax exposure. You may have a large portion of your portfolio in an employer sponsored 401(k) or in IRAs. These tax-deferred accounts give you plenty of benefits now, because you’re not taxed on the contributions. At age 50 and older, you can make additional catch-up contributions that let you put away $26,000 in 2021 in your 401(k) each year. Because you’re probably going to pay a lower tax rate in retirement when you begin taking taxable withdrawals, it gives you a nice tax advantage today.
#2 When you are five years from retirement, create a health care plan. A huge expense in retirement is health care. Plan for out-of-pocket health care costs as well as long-term care. Taking advantage of a health savings account, if you’re in a high-deductible health insurance plan is a good way to save for the out-of-pocket health care expenses that won’t be covered by Medicare or your private health insurance. You can fund a HSA up to $7,100 for families ($8,100 if you’re 55 or older). Contributions are made on a pre-tax basis, so your account grows tax free, and withdrawals are tax and penalty free, if used for qualified health care expenses. You should also look at long-term care insurance.
#3 When you’re just a year from retirement, start spending as if you’re already retired. Be sure you can live comfortably, when spending at your retirement budget.
No one can see the future, but you may be able to limit the effects of shocks to your retirement savings. Adding in these lawyers of protection at least 10 years prior to retirement, can help you secure your retirement goals.
#4 Update your estate plan before you retire. Contact a certified estate tax planning specialist to review your plan today.
Call W. Bailey Smith at (949) 833-8891 (or go to yourtrustdr.com for more information).
