Congratulations! You’ve made it to retirement. All the working, planning and saving you’ve done over the last 30, 40 or even 50 years has led up to this moment.
But just because you’ve reached retirement age doesn’t mean you can stop planning. Instead, it becomes even more important to continuously evaluate how your plan is working and adjust for life changes, market shifts and other events that could impact your cash flow and your portfolio. Without ongoing preparation, you could find yourself or your beneficiaries left short financially – especially when retirement can last two or three decades.
Financial planning during your retirement years
Let’s take a look at some of the planning tasks you’ll need to tackle once you’re living in retirement, as well as some of the events that could lead to regular adjustments in your financial plan in your later years.
1. Plan for required minimum distributions and sources of cash flow
If you own a qualified retirement account, such as a 401(k) or traditional IRA, you must begin taking required minimum distributions (RMDs) from your account starting at age 73. These distributions are counted as taxable income in the year in which you take them.
Since RMDs are taxable, any changes to when you must take them or how they are taxed could impact your retirement income, both positively and negatively. It’s a good idea to review your RMDs annually to see what adjustments you may need to make to your financial plan. These adjustments include assessing what accounts will fund your cash flow. Withdrawals from retirement accounts are taxable income, while withdrawals from accounts that were funded with after-tax dollars are not always taxable income. Working with your financial advisor and accountant will allow you to properly assess which source makes the most sense in any given year
2. Adjust for inflation
The only constant over the years is change. That includes inflation, which needs to be accounted for in retirement. Because inflation is ever present, regular review of your cash flow model and retirement plan are key, especially in the early years of retirement. You never really know what the actual costs of retirement will be until you have settled into the new routine. Therefore, periodically looking at an updated cash flow model will ensure that your retirement is on the correct path.
3. Manage market shifts
Economic environments constantly evolve – and when they do, it can lead to a big impact on your retirement income. If the market drops, inflation rises or the economy slows, you could end up with lower investment returns than expected. You may need to adjust your portfolio or your budget to make up for losses or slower-than-planned-for growth. Your financial advisor might also recommend altering your asset allocation to address unnecessary risk due to shifting market conditions.
4. Address health care needs
We never know when a medical issue may arise or how severe it may be. An unexpected health challenge could mean more of your retirement resources are directed toward current and future health care costs. It could also mean a change in plans for how you spend your retirement days. For example, if you’re working part-time in retirement, a health issue could result in giving up that job – and the income it brings in – earlier than expected.
During your annual review, it’s a good idea to reassess your health situation and review how you will pay for medical costs when they arise. You may also want to review potential long-term care and Medicare coverage options (if you’re age 65 or older).
5. Refresh your legacy plan
A well-thought-out estate plan becomes even more important in the later part of life. But this isn’t a one-and-done task. Review trusts, wills and beneficiary designations at least annually to make sure your assets will be distributed according to your wishes. It’s also wise to establish a power of attorney and review it regularly to make sure it’s up to date.
Let your loved ones know where they can find all important documents related to the handling of your estate. We also recommend introducing your grown children or grandchildren to your team of professionals, such as your financial advisor, attorney, accountant and insurance agent. Facilitating a relationship between your beneficiaries and your advisors can help ensure your legacy lives on long after you’re gone.
Stay on track with a trusted financial partner
Creating your ideal retirement lifestyle starts by working with a trusted financial partner, no matter where you are in your journey to retirement. From investing and saving to future income and legacy planning, CIBC works with retirement savers of all ages and backgrounds. Visit our Private Wealth page to learn more.