Life is filled with many tough choices and important decisions. Where do I attend college? Who am I going to marry? What am I going to do for my career? What’s for dinner tonight? All these questions have consequences once the decision is made. One of the most challenging decisions to make is deciding to retire. As you embark on one of life’s toughest and most important decisions, focusing on the following five areas can help you meet the challenge.
- Focus on replacing standard of living, not income. The financial advice industry blankets the idea that you’ll need to replace 70% of your working income during your retirement years. While I understand this reasoning, I don’t agree with it. You are unique, and your financial situation is different from others. The goal should be to replace 100% of your standard of living (what it takes to maintain your lifestyle). If your monthly expenses are $5,000 a month, you need to replace $60,000 yearly in standard of living. If your current income is $150,000 a year, and you use the rule of replacing 70% of your income, you would need $105,000 a year. There is a big difference between the two, and if not evaluated properly, it could lead to delaying your retirement.
- Reducing Liabilities: As you move toward retirement, reducing your liabilities and not adding to them can pay huge dividends. Reducing your liabilities lowers your overall standard of living needs, thus reducing the amount of income required to meet your standard of living.
- Build Tax Diversification: Three ways to make sure you are building tax diversification are to make sure you are saving in tax-deferred accounts (IRAs and 401k’s), tax-free accounts (Roth IRA and Roth 401k’s), and taxable accounts (brokerage investment accounts). Building proper tax diversification allows you to control the taxation of your retirement portfolios when you start using them for income.
- Budget: Budgeting is an excellent habit at any stage of life because you can track where dollars are going. In retirement, having a budget is critical, and make sure you don’t underestimate your spending; this can create future problems and a worse-case scenario of possibly running out of money.
- Have a plan for your time: Your life after work should be enjoyed, and one way to make sure you are feeling fulfilled in retirement is to have a plan for your time. If you don’t, this can lead to boredom and create unwise decision-making that could be devastating financially.
When planning for your retirement journey, expand your focus and consider implementing these important strategies. If you have not done so, I suggest you employ the help of a qualified financial planner who works for a fee rather than sells products as answers. Your planner will help guide you in making the correct retirement decisions so that you can enjoy your life after work.
Financial Enhancement Group is an SEC Registered Investment Advisor. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.