A retirement plan includes the financial and mental preparation required to fulfill your post-career life. However, to achieve the retirement you imagine, you must consider several factors, especially if you plan to retire in San Diego.
Retirement planning can help provide financial confidence and remove some of the stress of transitioning into this new life stage. Let’s outline what’s involved in a retirement plan.
How Should I Start Saving For Retirement?
While it’s never too early to start saving for retirement, there are instances when it may be too late. We recommend implementing a consistent savings strategy as early as possible and taking advantage of opportunities throughout your prime earning years, such as contributing to an employer-sponsored 401(k) program.
Waiting too long to begin saving could extend how many more years you must work or affect your spending and lifestyle. We encourage clients to build several tax-advantaged retirement income streams.
Beyond thinking through your savings strategies and cash-flow sources, retirement planning also includes looking ahead to matters like health care, your estate plans, and insurance. Taking the first steps, like learning about Medicare and speaking with an estate attorney about the documents to include in your plan, can help you feel more prepared as you enter this next chapter. These are some key items to consider as you move toward retirement.
#1: Retirement Accounts
Retirement accounts are generally the most significant sources of retirement income. From traditional 401(k)s to Roth IRAs, there are several different types, each with its own tax and withdrawal considerations. For example, withdrawing from pre-tax retirement accounts will typically come with a tax liability.
Seek retirement planning advice to determine when you should withdraw, required minimum distribution (RMD) strategies, and how new taxable income could affect your financial roadmap, such as the cost for Medicare.
#2: Stock Options
Many publicly traded companies offer stock options as part of their employee benefits. In San Diego, with its numerous biotechs and startups, many employees of these companies have stock options or grants. Strategies for managing your benefits can play a critical role in lowering your taxes and should be discussed with a retirement planning expert to optimize opportunities and avoid costly tax mistakes.
#3: Social Security Benefits
Most employees pay Social Security tax throughout their working years, a portion of their income deducted from their paycheck that contributes to the Social Security retirement benefit. If you’re 62 and have paid into Social Security for ten years or more, you will qualify for Social Security benefits. There are many strategies to obtain the highest cumulative lifetime benefit. Consider these questions with a retirement planning professional:
- When should I claim my Social Security?
- Can I qualify for Social Security using my current or former spouse’s work record?
- Will my Social Security be affected if my spouse passes away?
If you plan to retire in San Diego or another area with a high cost of living, you will likely need additional sources of income to meet your needs.
#4: Retirement Income and Budget
Some retirees choose to continue working after leaving their full-time career. While working full- or part-time after retirement can serve as a helpful income source, some retirees take a new job for the structure, community, and purpose it provides.
Regardless of whether you work or not in retirement, you need to understand your total expenses and desired lifestyle, which is why tracking and being fully aware of your expenses is critical throughout your life.
We help clients ensure they can meet their regular living expenses while considering changing insurance needs, new goals, spending choices such as an annual vacation or downsizing their home, and taxes. Once we know projected expenses, we can develop a retirement income target to help manage cash flow and achieve objectives.
#5: Pensions
Pensions are employer-based retirement savings accounts in which the employer contributes to a fund on behalf of an employee for future payments. Many government employees, such as teachers, military members, and first responders, receive a pension as part of their retirement benefits and may not pay into Social Security.1 A financial planner can help you determine how your pension will affect your Social Security benefit and if there are strategies to help you maximize your income.
#6: Estate Planning
Integral to retirement planning, an estate plan includes components to manage your assets and carry out certain actions on your behalf according to your wishes leading up to and following your death. This is a critical step in distributing your assets, outlining medical care directives, and reducing stress for your heirs. Without an estate plan, you risk delegating it to the state at its discretion.
A living will authorizes life-saving medical treatments if you’re mentally incapable of making a decision. A power of attorney allows an appointee to make medical, financial, and legal decisions on your behalf. Both documents should be discussed and drafted with the assistance of an attorney and trusted loved ones.
Real estate also has a role to play in estate planning and beyond. Your home and other investment properties are assets to consider as you design your inheritance plan and gifting strategies. These assets can also be a significant source of retirement income for retirees who own rental properties. With the high cost of purchasing a home, many residents seek rental options.
Even if you don’t own additional rental properties, your primary residence can serve as a backup fund for unexpected expenses, such as a long-term care event. Retirees can choose to sell a property and downsize or leverage the equity in their primary residence through a reverse mortgage or other means.
#7: Converting Savings to Income
Converting portfolio assets to cash for retirement income is another option with various tax-planning considerations. Whenever you withdraw from your portfolio or retirement accounts, it’s important to understand how taxable income and capital gains when selling assets can affect your overall finances and tax obligations. We recommend working with a financial planner who can offer investment advice related to your retirement goals.
#8: Planning for Health Care and Other Insurance
One of the biggest changes retirees face is entering the Medicare system. Beginning three months before your 65th birthday, you’ll have a seven-month initial window during which you can sign up for Medicare; if you miss it, you may have to pay higher premiums for life.2
Medicare also comes in four different parts, which cover hospital (Part A), medical (Part B), and prescription drugs (Part D). You may also opt for a Medicare Advantage (Part C) plan, which serves as an alternative to Parts A and B. Many pre-retirees find it beneficial to discuss their Medicare options with a professional in advance of making any plan selections.
In addition to health insurance, we encourage clients to revisit their homeowner’s insurance, natural disaster coverage, and life insurance needs. We can help you determine the amount of insurance you may need based on your life stage and personal circumstances and refer you to reputable insurance professionals to finalize a policy. Other considerations include:
- The amount of insurance you secure should cover your loved ones’ (including your dependents) financial needs if you pass.
- List your beneficiaries on your accounts and policies so your heirs can receive assets quickly.
Is it Worth Working with a Retirement Planner?
In addition to preparing for retirement’s various financial factors, we assist clients in navigating its mental aspects. We want our clients to have the peace of mind to enjoy their post-career chapter, forming a community, pursuing a passion, or spending their hard-earned money, for example, knowing they’ve created a solid financial plan.
CCMI is specially equipped to help clients through the emotional side of financial decision-making, which may feel stressful or overwhelming to those transitioning from full-time work. Please contact our team to learn more about how we can help you build a retirement plan.
Sources:
- FERS Information. (n.d.) U.S. Office of Personnel Management. https://www.opm.gov/retirement-center/fers-information.
- Sign up for Medicare. (n.d.) Social Security Administration. https://www.ssa.gov/medicare/sign-up.
PLEASE SEE IMPORTANT DISCLOSURE INFORMATION at https://myccmi.com/important-disclosures/
CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
How can we help you?
