If the pandemic proved anything, it’s that life tends to get in the way of our plans — including retirement plans. Over the course of the pandemic, many people were forced to retire early, others decided they wanted to retire and still others opted to change their planned retirement date. The number of people affected is high; a recent survey found that more than 80% of Americans say their retirement plans were impacted by the pandemic.
While you may not be able to control when you retire, here are seven steps you can take to ensure a comfortable retirement:
- Review or update your estate plan to be sure it reflects your wishes. Be sure the review includes all documents, including will, trusts, health care proxy and power of attorney, to be sure that all assets are included, and all beneficiaries, executors and trustees are correctly named. Sometimes, life is busy, and we forget to review these documents in view of changed circumstances, such as the birth of a child, a marriage or a divorce.
- Review your portfolio to be sure that it aligns with your risk tolerance and projected timeline for retirement. Generally, people are more aggressive when they are younger and move to a more conservative portfolio as retirement nears.
- Saving for retirement should start as early as possible, but the best time to make a detailed plan is 10 years before you plan to retire. After that, review the plan periodically to be sure you are on track. Here are some specific items to consider:
- Use the years leading up to your retirement to contribute as much as possible to tax-advantaged plans such as 401(k)s, 403(b)s, IRAs and health savings accounts (HSAs).
If you took an early withdrawal from your 401(k) or 403(b) plan, IRA or other qualified plan as permitted by the Coronavirus Aid, Relief and Economic Security (CARES) Act, the early withdrawal penalty will not be required as long as the loans are repaid within the mandated time period. Taxpayers who already paid taxes on their retirement plan withdrawal can file an amended federal income tax return to claim a refund for the amount paid. - Decide what you will do with the money in your 401(k) plan. Will you have to roll the money into an IRA, or can you leave it in the 401(k)? What fees are involved?
- Health care can be costly. Become familiar with the rules and start exploring your Medicare options before you reach age 65. For example, will you join a Medicare Advantage plan, or take straight Medicare and pay for a supplemental plan and prescription drugs?
If you do not start paying for Medicare at age 65, you may trigger hefty penalties whether or not you expect to retire at that age. - Determine what your monthly Social Security payment will be and at what age you will apply for it.
- If you will get a pension, carefully choose from the available payment options. For instance, will your pension go up if you continue working for another year or two? Should you take a lump sum or an annuity?
- Understand which of your benefits will follow you into retirement. For example: Will the company continue to pay for all or a portion of your health care coverage or your life insurance policy?
- Use the years leading up to your retirement to contribute as much as possible to tax-advantaged plans such as 401(k)s, 403(b)s, IRAs and health savings accounts (HSAs).
- Pay down any large credit card debt and loans while you are still employed. However, you may choose not to pay off your mortgage. Depending on your tax and financial situations, paying off your mortgage may not be the best option.
- Plan to have enough in savings to cover at least one year of expenses so that you are prepared for any emergencies.
- Review your anticipated budget to understand how much you will be spending on fixed and discretionary expenses. For a realistic budget, know your projected income. This involves understanding where your income will come from—and which income is guaranteed and which is not.
Recognize that some expenses will go down when you retire (e.g., commuting and clothing costs), and others will rise (e.g., health care, long-term care, travel and hobbies). Be sure to include long-term expenses in your projections. - Assess whether you can fully retire or will need to find a job to supplement the income from your savings.
Southern California’s Premier Estate Planning Law Firm
Decisions like these are complicated. Be sure you get the advice you need to make the choices that will provide you and your family with the financial peace of mind they need. If you have additional questions or concerns regarding your estate plan, elder or tax law, or probate, contact the experienced and trusted estate planning lawyers at Sandoval Legacy Group, A division of Holstrom Block & Parke, A Professional Law Corporation, by calling (951) 787–7711 to schedule an appointment. No other law firm in Southern California has the knowledge and experience relating to estate planning, special needs planning, probate, conservatorships, business succession planning, tax planning, and trust administration as our lawyers and paralegal staff.
Have a question? Ask Dennis.
- Protecting Beneficiaries’ Interests: California Trustee Obligations - May 17, 2023
- Who should be your Trustee? - April 12, 2023
- Watching Out for Elder Abuse - June 14, 2022
