Your retirement party guest list may already be planned. You might be thinking about where to go for your first celebratory vacation (look out Hawaii, here we come!). But are you financially prepared to drive a car (or at least hop on a plane to Honolulu) toward the end of your working life?
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To determine whether your wallet is reaching deep into your heart when it comes to retirement planning, GOBankingRates spoke to Jacob Sadler, CFP, founder and senior advisor at Curio Wealth . We also spoke with Taylor Kovar, CFP, founder of 11 Financial and CEO of The Money couple, and Elizabeth Pennington, CFP, senior associate at Fearless Finance.
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planning for a long life
While many people don't necessarily imagine blowing out birthday candles well into their 90s, preparing for just that is a great place to start planning for retirement.
Of course, not everyone lives to be 90 years old. But Sadler says it's important to have a rough idea of what your life expectancy will be because “without that information, planning for retirement becomes an exercise in managing uncertainty.” We recommend that you leave it there.
Thinking deeply about your mortality isn't necessarily the most popular thing to do, but if you're thinking of retiring, you might be running out of money if you live 10 or 15 years beyond your actuarial life expectancy. You have to ask yourself whether or not. With people living longer than previous generations, the prospect of a 20- or 30-year retirement is no longer a far-fetched prospect.
“When you're on the brink of retirement, if you don't have enough savings to live comfortably into your 90s, you're not really prepared,” Sadler said.
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Diversifying income sources
While you were used to having a regular paycheck as your main source of income during your working life, you need to find ways to make money after you retire.
According to Kovar, one of the big signs that you're on solid financial footing for retirement is that you're doing more than just focusing on saving. You should also have a broader strategy for your retirement income, including Social Security, pensions, and other investments.
Making sure your investment portfolio is healthy and diverse is another way to start your retirement on the right foot. Ideally, you should have a mix of stocks, bonds, real estate, and possibly a retirement account like an IRA or 401(k).
I met a financial planner
When Pennington meets with clients considering retirement, he takes a holistic view of their financial situation and has a keen eye for the moving parts.
“Retirement is the biggest financial decision a person can make. Full stop,” she said.
That's why she says retirement preparation should include meeting with a financial professional.
By working with a fiduciary professional, you can be aware of expected changes in cash flow and gain a more complete understanding of your potential retirement income sources. By having a conversation with a trusted advisor, you can adjust your retirement investments for this phase of asset withdrawal. The important thing is that you can plan your spending so that you have money left over for long-term care if you ever need it.
Completed stress test of plan
The first five years after retirement are a particularly important time to monitor investment returns as well as the amount you withdraw from your portfolio. Sadler emphasizes that if retirees encounter a series of poor returns early in retirement, they can suffer long-term financial damage if they don't reduce their withdrawals from their portfolios.
He advises stress-testing your investment plan before you retire to understand how you would be affected by a series of declining returns. Once he completes these stress tests, he will know what adjustments he needs to make to his spending to better navigate the turbulent market.
Be financially prepared for your medical needs
Of course, you want to imagine your retirement as healthy and happy as possible. After all, you won it yourself. Unfortunately, in some cases, there may be a sudden medical emergency or the need for long-term care. Ensuring you have the resources to provide quality care is a cornerstone of retirement preparation.
“Preparing for retirement also means planning for your health care costs, which may include Medicare if you're 65 or older, or another health insurance plan if you're retiring early,” Kobar says. he said.
“People nearing retirement likely have a long list of financial goals they want to pursue, but planning for six-figure medical expenses as they get older is usually not on that list,” Sadler said. is not included.”
Still, retirees need to factor in the significant costs of long-term care when thinking about how to spend their money in retirement.
Performing another stress test on your financial plan to assess whether you can afford hypothetical costs for short- and long-term care can help you balance more enjoyable spending with unknown risks.
“To truly find the comfort and enjoyment of spending money early in retirement, it's important to know that what you spend now won't threaten your ability to spend on what you need in the future,” Sadler said. I did.
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This article originally appeared on GOBankingRates.com: Financial Planning Expert: 5 Signs You're Ready to Retire in 2024
