Do you feel good about your future, or does retirement planning make you feel like you’re in over your head? Wealth management can be time-consuming and confusing, but it doesn’t have to be.
I’m here to help you take control of your financial life by taking the stress out of financial planning. Below, you’ll find a helpful guide to answer your retirement planning questions and equip you to make informed decisions.
Step 1: Understanding and Estimating Your Retirement Needs
There are few things more worrying than wondering if you’ll run out of money during retirement. Confidence starts with calculating your future expenses and income. This includes your day-to-day living expenses, healthcare costs, discretionary spending, and what you want to leave to your beneficiaries.
Calculating Expenses and Inflation
When calculating your retirement expenses, consider both your essential and discretionary spending. Essential expenses include housing, food, and healthcare, while discretionary spending covers lifestyle costs like travel and hobbies. Don’t forget to factor in an inheritance.
Getting into the practice of following a budget now is a good idea. That way, you’ll be able to take healthy financial habits with you into retirement and lower the risk of outliving your retirement savings.
And of course, we can’t leave inflation out of the equation. The cost of living will likely increase over time, and your retirement savings need to keep pace. A financial advisor can help you analyze and adjust your plan in response to projected inflation rates and market fluctuation.
Step 2: How to Save for Retirement
Once you know how much you’ll need to enjoy the retirement you want to have, it’s time to start saving. There are much more efficient ways to save than just utilizing a savings account. Take a look at these options.
Basic Types of Retirement Accounts
There are several types of retirement accounts available, each with its own set of rules and tax advantages. They’re designed to incentivize long-term savings by offering tax benefits. However, they often come with restrictions on withdrawals to prevent misuse of these benefits.
Choosing the right retirement account depends on your income, tax situation, and retirement goals.
401(k)s are retirement savings accounts that grow through contributions and market gains. There are many types catered to specific needs, like small businesses, traditional employees, or those who are self-employed. Your employer may offer to match your contributions.
Individual Retirement Accounts (IRAs) and Roth IRAs are two common types of 401(ks) retirement accounts. Traditional IRAs offer tax deductions on contributions, while Roth IRAs offer tax-free withdrawals in retirement. Each of these accounts has its own contribution limits and eligibility requirements. Understanding these can help you make the most of your retirement savings.
Social Security and Alternative Retirement Income
While Social Security benefits have been a significant source of retirement income for many people, that may change in future years. The trust’s depletion means it’s wise to view it as a supplement to your income, not a main income source. You can estimate your benefits using the Social Security Administration’s online tools found here.
Other income sources, such as pensions, annuities, bonds, or real estate investments can provide additional financial security in retirement.
The Importance of Early Planning
Starting your retirement planning early is crucial. It allows you to take advantage of compounding interest, which can significantly increase your savings over time. Planning ahead also allows you to make changes to your strategies if needed, so you can stay on course to reach your retirement goals.
One of the best things you can do for your retirement is to start contributing early and stay consistent, even when the market is down.
Step 3: Maximizing Your Retirement Savings
As I mentioned earlier, saving for retirement is good, but saving strategically is even better. Here are some ways you can position and protect your retirement savings.
Mitigating Risks
Having too much of your retirement savings invested in one place or in one type of investment can make you financially vulnerable. This is often referred to as having concentrated stocks or an unbalanced portfolio. Proper diversification and asset allocation can reduce the risk of running out of savings and help you ride out market fluctuations.
Diversification involves spreading your investments across different asset classes to reduce risk. It’s the financial equivalent of not putting all your eggs in one basket.
Asset allocation, on the other hand, is about deciding how much of your portfolio to invest in different asset classes, like stocks, bonds, commodities, or real estate. This decision should be based on your risk tolerance and investment horizon.
Healthcare costs can also pose a risk to your retirement. Consider options like Medicare, supplemental insurance, and long-term care insurance. These can help cover medical expenses and protect your retirement savings.
Tax Strategies
Taxes can significantly impact your retirement savings. Understanding tax rules and planning accordingly is crucial, especially for business owners.
Knowing which accounts to withdraw from and when can help your retirement savings last longer. For example, you might start by withdrawing from taxable accounts, then move to tax-deferred accounts, and finally, tax-free accounts. This strategy can help reduce your overall tax liability in retirement.
Reallocating investments or postponing distributions can also help lower your tax liability in retirement. You may want to consider tax-loss harvesting, which is the strategic selling of certain investments to reduce capital gains taxes on other investments.
The most effective way to reduce your taxes is to work with a tax preparer who coordinates with your financial advisor to create a holistic financial strategy.
Step 4: Working with a Financial Advisor
A financial advisor can be a valuable resource in retirement planning. People often wonder, “Should I hire a financial advisor?” Here’s how a financial advisor can make it easier to save for retirement and how to find the right fit.
How a Financial Advisor Can Help
A financial advisor can help you create a retirement plan tailored to your goals. They can guide you toward informed decisions about investments, tax strategies, risk management, and establishing a legacy. Most importantly, they can provide personalized advice and strategies based on your unique circumstances, monitoring and adjusting your plan as needed.
You may want guidance in helping your children pay for college, establishing a trust for future generations, or choosing a retirement plan to offer to your employees. A qualified financial advisor can help with it all.
How to Hire the Right Financial Advisor
Finding the right wealth management firm to work with is an important step in planning for retirement. Things to consider are their qualifications, specialties, availability, and whether or not they feel like the right fit.
An internet search is a good place to start, and a personal recommendation is even better. Registered Investment Advisors (RIAs) like Caviness Wealth Management don’t make commissions from investment products, so you can trust that they don’t make recommendations for any other reason than your best interests.
Ideally, you’ll be able to work long-term with the same financial advisor. Consider whether or not their services meet your specific needs, and evaluate how they make you feel. With such a personal decision, it’s important to find a financial advisor who you can trust to listen to your needs and understand your goals.
Paving the Way to a Confident Retirement
Retirement planning can seem daunting, but with the right knowledge and strategies, and the help of a trustworthy financial advisor it becomes manageable. Understanding the basics of retirement planning is the first step toward planning your golden years.
Remember, retirement planning is not a one-time event, but a lifelong process. Stay informed, adapt to changes, and seek professional advice when needed. If you need a partner to help you plan for your future, I’d love to help. Give me a call at 972.499.8273, or schedule a free consultation to learn more about what Cabiness Wealth Management can do for you: https://go.oncehub.com/dcaviness.
Don’t forget to follow me on LinkedIn for more tips on navigating your finances.
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This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Asset allocation does not ensure a profit or protect against a loss.
