4 Steps to Prepare for Retirement
Like the day your infant sleeps through the night, the day of retirement seems like it will never come. But here it is and you wonder, “Now what?”
Here are Borchers Trust Law’s four areas to focus on as you near retirement.
Estate Planning
Estate plans should be reviewed every 3 to 5 years. If you are not on a cycle like this, then retirement age is a good time for a check up. If your existing plan is not centered around a trust, then you need to get one!
A revocable trust is often a good starting point to save your family time, trouble, and taxes while allowing you to keep control of your assets during your lifetime. Irrevocable trustsA trust that cannot be revoked by the Grantor. Irrevocable trusts are created to either save taxes or protect assets, or both. More should also be considered if eventual long-term care costs are a concern.
If you have utilized a trust during the years leading up to retirement, then you are ahead of the game. Consider whether your trust is fully funded with all of your accounts and also revisit the terms of the trust itself. Will your trust save taxes? Is it written to protect your child’s inheritance? Are your backup trustees still viable choices? These questions and many more should become part of a retirement review.
As children mature into adulthood, they may become suitable choices for one or more roles in your plan, such as being available to make medical decisions if you become incompetent, or even serving as your power of attorney or trustee.
Healthcare
Leaving the workplace with its accompanying benefits of health insurance means you must evaluate your options in order to maintain good medical coverage. Signing up for Medicare and determining whether supplemental insurance is needed are logical first steps.
Future care should also be considered, such as care provided by an assisted living facility or nursing home, as well as how you will pay for that care. Long-term care insurance can provide a benefit to help minimize these costs, but as with other insurances, premiums often increase with age. Meeting with an insurance professional now could help save thousands of dollars down the road.
Financial Planning
No work, no cash! After all those years of saving it is now time to consider a strategy for spending. Consider your fixed income sources (work with a financial professional to analyze at what age to begin taking Social Security) and determine how to supplement that income by using savings to cover your cost of living. It will become important to:
- Set or revisit your budget to arrive at the amount of income you will need on a monthly basis
- Devise a strategy with your financial planner around taking distributions from retirement accounts or other savings vehicles in a tax efficient manner
- Revisit your investment strategy given the switch from accumulation mode to spending mode
- Reassess insurance needs including life, disability, long-term care, and liability insurances
- Determine whether to pay down your mortgage. This will depend on your cash flow, how much you’ve saved, and the performance of your investment accounts. See US News & World Report’s article, Should You Pay Off Your Mortgage Before You Retire?
Tax Planning
No solid retirement planning checklist would be complete without a conversation with your accountant! Changes in income lead to changes in tax liability, since the amount and even type of income you earn annually may change. Will you have income taxed at ordinary tax rates or capital gain income taxed at lower capital gains tax rates? Tax planning will help you and your financial planner arrive at the proper amount to take from your retirement account, among other benefits.
The team of trusted professionals you have assembled throughout your working years, consisting of an estate planning attorney, financial planner, and accountant, is vital in the non-working years to ensure you have a carefree retirement and can focus on the plans you have made. Now it’s time to get them working for you!
