Preparing Your Retirement Plan for the New Year

As the new year approaches, it’s the perfect time to reassess your retirement plan to help ensure it aligns with your long-term financial goals and the evolving economic landscape.

Whether you’re approaching retirement or already enjoying your golden years, a well-crafted financial strategy is essential to help preserve your lifestyle and secure the future you’ve envisioned.

In this blog, we’ll guide you through key steps to help you prepare your retirement plan for the upcoming year, offering practical insights and important considerations to help you stay on track.

Disclaimer: This blog is intended for general educational purposes only and should not be considered as specific financial, tax, or investment advice. The information provided is for informational purposes and is not intended to recommend specific products, services, or strategies.

1. Review Your Current Retirement Plan

Before making any changes to your retirement plan, taking a step back and assessing your current situation is essential. Look at the following aspects of your plan:

Retirement Goals: Are your goals still the same? Retirement priorities can shift over time, whether it’s the desire to travel more, support family members, or pursue hobbies and passions. Make sure your retirement goals are clearly defined and realistic for your current life stage.
Asset Allocation: Review how your assets are allocated. While you may have a diverse portfolio, assessing whether your asset allocation still aligns with your risk tolerance and goals is important. Different phases of retirement may require different strategies, so consider how you plan to adjust in the coming years.
Tax Strategy: High-income earners often face more complex tax scenarios in retirement. It’s crucial to evaluate your tax strategy, including tax-deferred accounts (like IRAs and 401(k)s) and tax-free options (like Roth IRAs). The new year might bring changes in tax laws, so staying informed is essential for helping optimize your tax situation in retirement.
Estate Plan: Make sure your estate plan is up to date, including wills, trusts, and powers of attorney. Life changes—such as the birth of a grandchild or the passing of a loved one—can impact your estate planning needs. Revisit your estate planning documents to help ensure they reflect your current wishes.

2. Revisit Your Investment Strategy

As you approach retirement, reviewing and adjusting your investment strategy to prioritize capital preservation, income generation, and risk management is important. While growth opportunities remain important, balancing your portfolio to align with your future income needs is a common consideration for retirees.

Diversification: A well-diversified portfolio can help manage risk by spreading investments across different asset classes, such as stocks, bonds, real estate, and alternative assets. Diversification may help reduce the impact of market volatility on your overall portfolio.
Fixed Income: Fixed-income investments, including bonds and annuities, are often used to generate a stable income stream during retirement. Exploring these options may help provide additional financial stability, depending on your specific retirement needs and goals.
Liquidity Needs: Retirement often requires greater liquidity to cover unexpected expenses, such as medical emergencies or large, unplanned purchases. In retirement planning, a portion of your portfolio must be easily accessible without significant penalties or losses.
Inflation Protection: Inflation can erode purchasing power over time, making it critical to consider strategies for mitigating its effects. Many retirees explore options such as Treasury Inflation-Protected Securities (TIPS), real estate, or other assets that historically perform well during inflationary periods.

3. Reevaluate Your Debt Strategy

As you approach retirement, managing debt becomes increasingly important. While many high-net-worth individuals may not carry traditional consumer debt like credit card balances, other forms of debt, such as mortgages, business loans, or loans against investment properties, may still play a role in your financial situation. Here are a few strategies to consider:

Mortgage Management: If you have a mortgage or outstanding loans on your property, evaluate whether paying off those debts before retirement is a priority. The decision largely depends on your overall financial picture. Some retirees prefer to enter retirement with no mortgage debt to eliminate monthly payments, while others may choose to invest the cash elsewhere if the returns outweigh the cost of interest.
Refinancing Options: Refinancing might make sense if your mortgage carries a high interest rate or your financial situation has changed significantly. With fluctuating mortgage rates, refinancing could potentially lower your monthly payments or adjust your loan term for greater flexibility. Weigh the pros and cons, including any fees involved, and consult with an advisor to help ensure the decision aligns with your retirement goals.
Business and Investment Property Debt: For those with business interests or investment properties, managing debt effectively is crucial for helping maintain liquidity. Consider whether carrying debt into retirement is viable, and explore refinancing options that align with your retirement goals.
Debt Repayment Strategies: If paying off debts is a priority, develop a repayment plan that helps minimize interest and maximizes cash flow. Consider strategies such as focusing on high-interest debt first or paying down smaller debts to build momentum.

4. Maximize Tax-Efficient Withdrawals

As you enter retirement, your withdrawal strategy is one of the most important aspects of your financial plan. Developing a tax-efficient strategy is essential to help minimize the taxes you pay on your retirement income. Here are some general approaches to consider:

Withdrawal Sequence: Withdrawing from taxable accounts first may help grow tax-advantaged accounts (like IRAs and 401(k)s). This approach can help preserve your tax-deferred savings for longer periods.
Tax-Deferred Accounts: Withdrawals from tax-deferred accounts are typically taxed as ordinary income. This may be an efficient strategy if you expect to be in a lower tax bracket in retirement. However, if you anticipate higher tax rates, consider consulting a financial professional about potential Roth conversions during years with lower taxable income.
Roth IRAs: Qualified withdrawals from Roth IRAs can be tax-free, making them a valuable tool for retirement income. Depending on your income and tax situation, consider the potential benefits of converting some traditional retirement assets into Roth IRAs during years of low taxable income.

5. Plan for Healthcare Costs in Retirement

Healthcare costs are one of the largest expenses in retirement, and as medical technology improves, those costs continue to rise. According to Fidelity, a 65-year-old retiring today could spend $165,000 on health care in retirement. These expenses include Medicare premiums, co-pays, and out-of-pocket costs. To prepare for these expenses, consider the following:

Medicare Enrollment: Review your Medicare options carefully to help ensure you’re enrolled in the plan that best fits your needs. Understand what Medicare covers and whether you may need additional coverage, such as Medigap or Medicare Advantage plans.
Long-Term Care Insurance: Although long-term care is a sensitive topic, it’s important to understand the potential need for assisted living, home care, or skilled nursing care. Consider whether long-term care insurance might be a good fit for your retirement plan, and explore ways to fund these potential costs.
Health Savings Accounts (HSAs): If you’re still working and eligible for an HSA, it can be a powerful tool for saving for healthcare expenses. HSAs may also provide tax advantages that help you manage healthcare costs pre- and post-retirement.

6. Prepare for Estate Taxes and Wealth Transfer

For wealthy retirees, estate taxes can be a significant concern. While the estate tax exemption is currently high, it’s important to be aware that it could change in the future. To address estate tax issues, consider strategies like:

Gifting Strategies: The annual gift tax exclusion allows you to transfer wealth to family members or charitable organizations without incurring gift taxes. This can help reduce the taxable value of your estate.
Trusts: Trusts can help effectively control how your assets are distributed after death. Irrevocable trusts, in particular, can help reduce estate taxes by removing assets from your taxable estate.
Charitable Giving: Charitable giving is another strategy that can help reduce estate taxes. Charitable remainder trusts (CRTs) or donor-advised funds (DAFs) allow you to make contributions to charity while maintaining some control over how and when the funds are distributed.

7. Consider Inflation-Proofing Your Retirement Plan

Inflation can significantly impact retirees, especially those on a fixed income. The Federal Reserve has been taking measures to manage inflation, but it’s still crucial to include strategies to protect your retirement from its effects.

Many investors consider including assets such as stocks, real estate, and TIPS, which are more likely to outperform inflation.

Final Thoughts

As you prepare your retirement plan for the new year, it’s important to take a comprehensive approach to reviewing your strategy. Regularly revisiting your retirement plan can help you stay on track to meet your long-term goals, even as your circumstances and the economy change.

CKS Summit Group is here to help guide you through the retirement planning process. Our experienced team can provide you with the educational resources you need to create a retirement plan that addresses all aspects of your future, from healthcare costs to taxes, estate planning, and more.

Frequently Asked Questions (FAQs) About Retirement Planning

When should I start planning for retirement?
You should start planning for retirement as early as possible. The earlier you begin, the more time you have to take advantage of compound interest, tax-advantaged accounts, and market growth. However, even if you’re starting later in life, it’s never too late to create a retirement plan tailored to your needs.
How much money do I need to retire comfortably?
The amount varies based on your desired lifestyle, healthcare needs, and expected life expectancy. A common rule of thumb is to aim for 70% to 80% of your pre-retirement income annually. Consulting with a financial advisor can help you determine a personalized savings goal.
What are some strategies for managing healthcare costs in retirement?
To manage healthcare costs, consider enrolling in Medicare at the right time, purchasing supplemental insurance (like Medigap or Medicare Advantage), and contributing to a Health Savings Account (HSA) if eligible. Additionally, long-term care insurance may be a helpful tool to cover potential extended care expenses.
How can I make my retirement savings last?
A key strategy is developing a withdrawal plan that balances your income needs with preserving your savings. This includes determining the most tax-efficient withdrawal sequence and adjusting your spending based on market conditions. Diversifying your portfolio and considering guaranteed income sources may also help.
What’s the difference between a traditional IRA and a Roth IRA?
A traditional IRA offers tax-deferred growth, meaning contributions may be tax deductible, but withdrawals are taxed as income in retirement. A Roth IRA provides tax-free growth, meaning contributions are made with after-tax dollars, but qualified withdrawals are tax-free. The right choice depends on your current tax situation and expectations for future tax rates.

Disclaimer: This blog is intended for general educational purposes only and should not be considered as specific financial, tax, or investment advice. The information provided is for informational purposes and is not intended to recommend specific products, services, or strategies.