How to Plan for a Comfortable Retirement

By Steven Calabrese

When do you begin planning for retirement? Now is a good time to start. If you do not have a plan, it’s time to get started. The more time you have until retirement, the more wealth you can accumulate. We will present some options to consider.

Education

As we move into other finer aspects of preparing our long-term financial plan, we once again must understand all of our potential options. Preparing a long-term financial plan must include retirement planning, regardless of the amount of time until you hit retirement age. The retirement age will differ for everyone. The paramount question to ask yourself is: Did I do my homework?

Learn what you need to have a successful retirement. One’s age does not matter, except the further away from your retirement age, the more time you have to get your plan in order. Your plan will require periodic reviews to assess if you are on target. Adjustments must be made so that you can hit your goals and have a comfortable retirement.

What follows are some aspects you must address as you move closer to that magic age. This is not meant to be an all-inclusive list but a starting point for assessing where you are and where you want to go.

Budget

Thought you were done with developing a budget? In retirement, a budget is more important than in pre-retirement as a guide to tell your money what to do. If you need help putting together a budget, see our article “How to Create a Budget for Success” at https://www. quadcitiesbusinessnews.com/how-tocreate-a-budget-for-success/.

If you operate with a budget, this will require you to make some adjustments. The first question to ask yourself is: What do I not need in retirement?

Do you have two cars? Will you still have two cars? Insurance will be less with one car. Repairs could also be less. If you are no longer commuting, gas will be less.

What about life insurance? Are you still going to carry some? Is it necessary?

Go through your budget and ask if this expense will continue or how will this be different. With your retirement budget hot off the press, we now know what you will need to have a nice, comfortable retirement. Will your income support the budget or do you need to cut some expenses? Perhaps additional income besides the ones you have planned in retirement may be necessary. Be diligent. Make changes as assumptions become clear.

Taxes

This is a tricky topic to navigate. Tax laws are always changing. Unfortunately, we can only address what we know. Different states have different laws regarding retirement income and social security. Be careful, as taxes can and will reduce your disposable income. Perhaps you live in a state that has no state income tax or one that does not tax retirement income.

Sales tax is another tax you may look to avoid. A few states do not have state sales tax. In addition, if you stop working, Social Security and Medicare tax will not be paid by you.

As you begin to draw on your retirement nest egg, certain portions will be taxed by the federal government. For example, any withdrawals from your traditional IRA, 401K, etc., will be taxed by the federal government. In addition, you will be required to take RMD (required mandatory distributions) from traditional tax-deferred retirement funds. Any funds in Roth retirement, along with the earnings, can be withdrawn tax-free. Any pension you receive will be taxable.

As you can see, taxes can and will have an impact on your planning as well as your potential income.

Home Purchase

How is home ownership part of a retirement plan? Very simply, if your mortgage goes away, your housing costs are reduced. The costs needed for maintenance, electricity, insurance and HOA fees now become your housing costs.

If you are entering retirement renting or paying a mortgage, then your costs will be higher. Eliminating your mortgage before retirement and not renting will increase your disposable income. Either way, this could have a big impact on the budget.

If you have been following and building your financial plan, then you should have this under control.

Investing

Planning for this time by funding your retirement accounts at a level of 15% of your income will afford you to have accumulated a handsome nest egg. Retirement is what you have been planning for over these years.

Where is your nest egg? Do you have a traditional, Roth, 401(k), 403(b), 457, or pension? Some may even have a taxable investment account.

It’s time to review your portfolio.