Consolidating millions of data points from thousands of world-class personal finance experts on what Baby Boomers (and all of us really) should be thinking about when it comes to retirement planning is a daunting task.
Quick Read
- Baby Boomers looking to retire in short order, or those who may have already started this process, may still feel as though there’s plenty to accomplish.
- Here are three of the key retirement checklist items I’ve come across I think those in this age category may want to pay attention to.
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The good news is we have search engines to work with, which can help us dive into some of the key questions we may have about how to set our portfolios up for success when the time comes to call it quits from one’s day job. Some of us may be eagerly awaiting such a day, while some may want to work longer. But the reality is that having some passive income streams set up for retirement is an important task to have the ability to step away from the daily grind, should one choose to do so.
For those thinking about these questions right now, and for Baby Boomers in particular who may be nearing retirement, here are three of the best pieces of advice I’ve come across that may be worth keeping on the retirement checklist.
Having Passive Income Streams Outside of Social Security Is Important
A social security card with $100 bills atop
Receiving social security in retirement certainly provides the financial backbone for the majority of Americans entering this new stage of their life. With monthly payments from the government made to seniors in proportion to their inputs over their working career (and factoring in other metrics such as years worked and whether the maximum was received in certain years), the social security payments older households receive can cover a significant portion of one’s expenses in retirement.
The thing is, most financial experts will point out that these payments may provide a lifestyle baseline, but are unlikely to cover the travel, leisure and other goals many Americans have when they retire. Being able to see the world while one is in good health is important, and enjoying spending money on family gatherings and time with loved ones can be expensive.
Thus, creating meaningful passive income streams in retirement that can support these non-essential spending activities is the number one goal those nearing retirement should be aiming for. The first step is knowing how much disposable income one expects will be needed each year to support these goals, and working backwards. The so-called “safe” withdrawal rate of around 4.7% can allow an individual to back into what they’ll need in terms of their nest egg to satisfy these criteria.
Every individual will have their own personal savings goals in terms of passive income needed, but creating a plan really is the first step in this journey (at least from a financial perspective).
Healthcare and Insurance Coverage Are Important
A stethoscope on top of $20 bills
Those nearing retirement will have one bucket to plan for that may not have been on one’s radar for most of one’s life. For those lucky enough to enter retirement relatively healthy, healthcare costs (or budgeting for such costs outside of an HSA or FSA) may have been an afterthought. For those who put some capital to work in an HSA, good on you – that can pay off big time in retirement.
But the reality is that with healthcare costs continuing to increase faster than inflation, having a prospective amount factored into one’s model that increases at the appropriate rate is important. Budgeting what one expects to spend on line items like at-home care, nursing services, an eventual move to an assisted living facility, and other extraneous medical expenses that can come with old age is important.
Supplemental insurance plans and other insurance programs can help bridge the gap, though these do come with significant monthly outlays in some cases. If one is able to budget these in effectively (alongside step one and having other passive income streams at the ready), that may be the way to go.
But in the meantime, doing what one can on the preventative front (staying active and healthy) can help delay these costs as long as possible, allowing one’s nest egg to grow larger for the day it will be needed. At the end of the day, that’s the best advice I’ve come across on how to budget for healthcare costs – be healthy enough so as not to have to utilize one’s nest egg for these expenses for as long as possible.
Estate and Tax Planning
An advisor talking to an elderly couple
The unfortunate reality that confronts us all is that in the end, we will all perish. Coming to grips with our own mortality is difficult, but an important step of entering this stage of one’s life.
Deciding how one ultimately wants their assets to be divvied up in the unfortunate event of their demise is important. Whether one looks to leave a legacy and some sort of fund to continue one’s philanthropic work after they die, or pass some assets down to their children, having some left over is what many Baby Boomers may have trouble grappling with (given section two of this article).
That said, one meaningful step I keep seeing from most financial experts advising those in retirement is to at least have a will or estate plan in place, to determine who gets what at the end of the day. Fights in probate court benefit no one except for lawyers, so paying the money up front to put together an appropriate list of one’s desires when they die can be very helpful to those who will need to pick up the pieces when it’s all said and done.
Tax planning throughout the retirement stage of one’s life is also important. So, building that cabinet of folks one can go to for advice can be very beneficial, and it’s a step that’s best done earlier than later in retirement.
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