A proper retirement plan should contain provisions for the following areas: income, investments, taxes, health care and legacy.
1. Income: Where it comes from and how to optimize it
Retirement income usually comes from savings, Social Security and perhaps a pension. When it comes to Social Security, many women are unclear as to when to claim it. You can start drawing Social Security as early as age 62 but if you do so, you will permanently reduce what you receive.
If you start to take benefits while you are working and before you reach your full retirement age (67), Social Security benefits are reduced. You will eventually recover what was reduced however proper planning should be used to avoid this issue. Once you reach your full retirement age for Social Security, you can make as much money as you wish without any reduction in your Social Security benefit.
For each year that you wait until you claim Social Security past your full retirement age, your benefit is increased by 8%, for life! This applies until you reach age 70 after which the 8% increase in benefits is no longer added to your Social Security payout. At this time you should be claiming your benefits as there is no benefit to wait any longer before claiming.
As you near retirement, you should put to paper your expenses and your expected income from all sources. Will you have enough? At Retirement Solutions we specialize in helping single women review their Social Security benefits, advise as to when to claim the benefit as well as other factors that are important to your overall retirement plan.
2. Investments: Focus on risk first
If you don’t know where you are going, any road will take you there. Investing is much like that, you need to know your risk tolerance before you invest. You also need to know other factors such as your income needs stated above, your personal timeline as to how long you expect to live, etc..
At Retirement Solutions we have used an investment methodology referred to as the 3 Bucket Method. It helps you focus on your investment risk as well as your income needs. This method is based upon when the money will be needed and where and how to invest your assets. We match your investments with when the money will be needed. The shorter the time span of when the money will be needed, the more conservative you should become. The longer the time span before money will be needed, the more aggressive you can become.
At Retirement Solutions, we pride ourselves on thoroughly educating our clients so that they understand how and why their money is being invested. We take into consideration your risk tolerance so that you can sleep well at night knowing your money is properly diversified, yet growing.
3. Taxes: They have to be paid, but let’s reduce the burden
For those who have IRAs and 401(k)s and other such retirement accounts, by age 73 you must begin taking distributions under most circumstances. What the government gives in tax deductions during the period of time that you contributed to such accounts, the government takes away in the form of taxes. Taxes are due as you withdraw from your retirement accounts.
There are methods of helping to reduce your taxes by using Roth accounts. You can convert your taxable retirement money to a non-taxable Roth account however there could be a substantial tax bill to pay should you do this. It is best to consult with a qualified retirement planning specialist and/or a CPA to determine if a Roth account is best for you.
4. Health care: Know your Medicare benefits and options
At age 65 you become eligible for Medicare but unfortunately Medicare can be quite difficult to understand and therefore quite easy to make a mistake. Keep in mind that Medicare does not cover every medical condition which is why some people choose a Medicare Supplement Insurance plan. These can include vision and dental coverage.
Each insurance company offering Medicare coverage will operate in a slightly different manner, so be very diligent when you compare plans. Ask questions and if possible attend a meeting with a representative of that insurance company so that you can ask questions.
If you have a favorite primary care physician, specialist and hospital, make certain that the Medicare plan that you choose will allow you to use who you are currently using otherwise you may have to pay additional money.
5. Legacy: It’s important, but don’t forget about YOU!
Many women spend their lives putting other people’s needs ahead of their own. In retirement they are hesitant to spend on themselves because they want to leave something for their children. That is admirable however you also need to take care of yourself first.
Legacy planning is important and it takes planning on your part. Make certain that your beneficiaries are up-to-date on your retirement accounts and any life insurance policies. It is also important to update your will and/or trust. If you have not revisited your will or trust, you should do so in order to make any necessary changes since you last reviewed them.
Retirement Solutions offers women education in order to empower women. You cannot make an informed decision without the proper information. Should you wish to take advantage of our no-obligation, no-cost initial consultation, connect with us by visiting the Home page of the website and clicking the “Schedule a Consultation” link in the upper right corner. You talk, we listen, no pressure, we promise!