Retirement planning and services can be essential for anyone looking to retire. It involves setting goals and estimating how much money you will need in retirement.
It also involves investing in growing your retirement savings. Planning has many benefits, including reducing stress in retirement and the years leading up to it.
Long-Term Care
One of the most significant risks that retirement planning should address is the possibility of needing long-term care. That’s because 70% of Americans turn 65 years old and will require long-term care.
But many retirees need to prepare for this challenge and may find themselves caught off guard by the cost of these services or the emotional impact it could have on their families.
Fortunately, some strategies can be employed to protect retirement assets from long-term care costs and to ensure your loved ones receive the quality of care they deserve.
A fee-only fiduciary financial planner like ADP can help you assess your risk of needing long-term care and develop a plan to ensure you’re covered.
In retirement, there are several options for financing long-term care, including using your money, long-term care insurance, and even Medicaid. Talk to your financial professional about these options and work through your prospective coverage needs to ensure a plan meets all your goals and objectives.
You can create a long-term care “bucket” within your retirement portfolio to hold the money you set aside. That way, it won’t be diluted among other investments and can be used to fund the care you need or pass on to your heirs as part of your estate plan.
Term Life Insurance
In the case of a policyholder’s passing, life insurance is intended to offer beneficiaries financial security. It also can help you fund retirement and other financial goals.
A diversified retirement plan may include a variety of investment vehicles, such as 401(k)s and IRAs. Adding permanent life insurance can help your clients create a complete retirement plan, providing an additional source of income with death benefit protection, access to cash value, and tax benefits.
Whole-life policies typically have a guaranteed level of growth that never declines due to market conditions. It can give your clients a better sense of comfort when the value of their investments and other retirement accounts falls.
Another way to use a life insurance policy in retirement is to take distributions of the policy’s cash value to pay medical bills or long-term care expenses later in retirement. Some policies even offer chronic illness and qualified long-term care riders, allowing policy owners to accelerate some of their death benefits, income-tax-free, to help pay for specific healthcare needs.
Reviewing your life insurance plan annually or after significant life events, such as marriage, the birth of children, or a move to a new home, is essential. You may need to change your beneficiaries, increase your coverage, or reduce your coverage. Your advisor can help you understand all your options and how life insurance could fit into your overall financial plan to help you achieve your goals.
Inflation
Inflation is a significant concern for many retirees, especially those who rely on Social Security or pension benefits to fund their retirement. While these sources of income are impacted differently by inflation than 401(k) savings or other forms of retirement planning, they all lose purchasing power when prices rise.
For example, if inflation averages 2.5% per annum and you use your 401(k) to purchase an annuity that makes fixed monthly payments, inflation can cut your buying power by more than half over 30 years.
It is why taking a proactive approach to your investments is essential, even as you’re still working. Conventional investing wisdom suggests scaling back your riskier stock holdings as you age and reinvesting in more conservative bonds and cash investments, which should help you mitigate the impact of inflation.
However, the good news is that some types of inflation can be positive for the economy. For instance, demand-pull inflation can spur growth by attracting business investment and encouraging more spending.
Inflation affects retirees differently than workers because they rely more on their savings and fixed income. It also changes how they spend their money and can make it harder for them to maintain their current lifestyle if they need more funds saved for retirement.
Taxes
While creating your retirement strategy, there are many factors to consider, but one of the most crucial ones is taxation. Many people focus on income taxes, but you must also pay sales taxes when you buy goods and services.
The first step in determining how much of your retirement income will be taxable is identifying your sources of revenue. It includes everything from Social Security benefits to distributions from a 401(k) or IRA, wages from a job, pensions, royalties, and even rental income.
Having different account types or strategically placing your assets can help reduce the tax impact of your retirement income.
Another critical consideration is how the tax brackets may shift in retirement. It may affect the order you withdraw from your savings, which can significantly impact how much tax you owe and how long your savings last.
