Consolidating millions of data points from thousands of world-class personal finance experts about what Baby Boomers (and all of us, really) should be thinking about when it comes to retirement planning is a daunting task.
Baby Boomers looking to retire soon, or those who have already begun this process, may feel there is still a lot to accomplish.
These are three of the key retirement checklist items I’ve come across and think those in this age category should pay attention.
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The good news is that we have search engines to work with that can help us dig deeper into some of the key questions we may have about how to set our portfolios up for success when it comes time to leave our day jobs. Some of us may be eagerly awaiting that day, while others 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 get away from the daily routine, if one decides 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 tips I’ve found that might be worth keeping on your retirement checklist.
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A social security card with 100 dollar bills on it
Receiving Social Security in retirement certainly provides the financial backbone for most Americans entering this new stage of their lives. With monthly government payments made to seniors in proportion to their contributions over their working career (and taking into account other metrics such as years worked and whether the maximum was received in certain years), the Social Security payments received by older households can cover a significant portion of retirement expenses.
The thing is, most financial experts will point out that these payments may provide a lifestyle foundation, but are unlikely to cover the travel, leisure and other goals that many Americans have in retirement. Being able to see the world while in good health is important, and enjoying spending money on family gatherings and time with loved ones can be expensive.
Therefore, creating meaningful passive income streams in retirement that can support these non-essential spending activities is the number one goal those approaching retirement should aim for. The first step is to know how much disposable income is expected to be needed each year to support these goals, and work backwards. The so-called “safe” withdrawal rate of around 4.7% can allow an individual to recover what they will need in terms of savings to meet these criteria.
Each individual will have their own personal savings goals in terms of passive income needed, but creating a plan is really the first step on this journey (at least from a financial perspective).
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A stethoscope on top of 20 dollar bills.
Those approaching retirement will have something to plan for that may not have been on their radar for most of their life. For those lucky enough to retire relatively healthy, health care 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 for you, that can pay off very well in retirement.
But the reality is that since healthcare costs continue to rise faster than inflation, it is important to factor into the model a prospective amount that increases at the appropriate rate. It is important to budget what one expects to spend on items such as home care, nursing services, an eventual move to an assisted living facility, and other unnecessary medical expenses that may arise with old age.
Supplemental insurance plans and other insurance programs can help close the gap, although in some cases they come with significant monthly outlays. If one is able to budget for them effectively (along with step one and having other sources of passive income ready), that may be the way to go.
But in the meantime, doing what you can on the preventative front (staying active and healthy) can help delay these costs for as long as possible, allowing savings to grow for the day they are needed. At the end of the day, that’s the best advice I’ve found on how to budget for healthcare costs: be healthy enough that you don’t have to dip into savings for these expenses for as long as possible.
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A counselor talking to an elderly couple
The unfortunate reality we all face is that, in the end, we will all perish. Facing our own mortality is difficult, but it is an important step in entering this stage of life.
It is important to decide how you ultimately want your assets to be distributed in the unfortunate event of your death. Whether one is looking to leave a legacy and some type of fund to continue their philanthropic work after their death, or pass on some assets to their children, having something left over is what many Baby Boomers may struggle with (given section two of this article).
That said, a significant step I continue to see from most financial experts who advise those in retirement is to have at least a will or estate plan to determine who gets what at the end of the day. Fights in probate court benefit no one except attorneys, so paying the money up front to put together a proper list of one’s wishes when you die can be very helpful to those who will have to pick up the pieces when all is said and done.
Tax planning during the retirement stage of life is also important. Therefore, building that cabinet of people you can turn to for advice can be very beneficial, and is a step that is best done before rather than after retirement.
