Most people look at retirement as the finish line, the point after which financial planning and investing become moot.
The reality is far different. Forty percent of baby boomers expect to work until they die, according to data from AARP. The very idea of “retirement” is up in the air, since many folks in their mid-60s cannot afford to quit work and might never do so.
Here are some steps to help you approach financial planning in retirement:
1. Do estate planning now
Financial advisors regularly bemoan the fact that their clients operate under the presumption that they will never die. If you have any money at all, you have to have a plan in order to realize the tax benefits of leaving it behind intelligently.
At a minimum, an estate plan will give you a target, an end goal for whatever wealth you control, that helps you make better choices today.
2. Figure out your income streams
The Social Security Administration will help you get a solid projection of how much to expect and what happens if you delay taking benefits. This can get tricky, so take your time on it, especially if you are in a two-earner household.
3. Be smart about spending
Advisers often toss out broad numbers, such as 80% of pre-retirement income. Your situation could be wildly different.
If you pay down your mortgage and have no other debt, your cost of living will be driven by health spending, taxes, food, insurance and travel. If you have major debts, however, things change.
4. Review insurance needs
Around 60 or so, most term life policies convert into much more expensive voluntary coverage. You might or might not need disability coverage, if you have it.
As you near 60, it will be harder to find long-term care coverage, so consider taking out a policy soon if you feel the need. A financial advisor can help you make smart choices here.
5. Stay invested
How long will you live in retirement? According to Centers for Disease Control data, maybe 20 years or more. That’s a long time, long enough for inflation to zap your nest egg. A conservative investment portfolio can generate income while protecting your wealth from inflation.
Retiring on time and living well are not conflicting goals, so long as you maintain a strong sense of the realities of financial planning in retirement. It’s not about “getting by” but effectively using the resources you have to make the best choices along the way.