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Balancing Retirement Income with Retirement Dreams

MP900384841If you used to think that retirement would be an endless vacation, chances are that by now you understand that retirement may include some dreams, but you have to be able to pay for them.

What are your retirement dreams? Do you want to travel to all of the National Parks, or jet off to exotic lands where you’ll enjoy the comforts of luxury hotel and four star service? Both sound great.

A recent Nasdaq article, “6 Mistakes to Avoid When Planning Your Retirement,” says that as we grow older and retirement gets closer, enthusiasm and positive feelings frequently turn to angst. We need to figure out how we're going to pay for the lifestyle we want when the paychecks end. This can be a challenge, even for the savviest of savers. Here are several mistakes to avoid when planning your dream retirement:

  1. No plan. Your goal in retirement should be to understand the amount of money you’ll have coming in each month from all of your income streams and how you'll make that money last. Your written retirement plan should encompass five main areas:
  • Income (how you’ll pay yourself);
  • Investments (how you’ll keep growing your money while keeping it safe);
  • Taxes (how you’ll hold onto more of the money you worked so hard to save);
  • Health care (how you’ll address short- and long-term care expenses that could significantly reduce your nest egg as you get older); and
  • Estate (how your family and favorite charities will be cared for when you die).

That plan is your guide to and through a successful retirement.

  1. No portfolio stress-testing. Ask yourself how much money you're willing to lose, if there's a market downturn. Try to find an amount that you can handle, both financially and psychologically.
  2. No tax plan. Many people underestimate the amount they’ll need to pay in income taxes after they retire. For example, up to 85% of their Social Security benefits can be taxed, and there are taxes on a 401(k) or IRA (if it’s not a Roth) when they take out their money. Many think that they'll be able to live on far less income during retirement. Some can live on less, but many cannot. Work with an estate planning attorney who understands retirement tax planning.
  3. Unrealistic income plan. Many peoples’ income plans have a high rate of return that may be incredibly optimistic. This type of plan typically uses minimum inflation protection rates and low tax rates, with no assets assigned to health care costs. A plan like that could leave you vulnerable.
  4. No estate plan or an out-of-date plan. If you don't have an estate plan, the state may decide who gets your assets. This may not be close to what you wanted for your family. Work with an estate planning attorney to draft a will, a living will, and a power of attorney. You also may need or want to draw up a trust. If your legacy is an important part of your retirement dream, your wishes should be included in your comprehensive plan.

Start by creating a written plan for your retirement that includes your retirement dreams as well as your retirement finances. The next and hardest part—see if you can realistically get them to match up.

Reference: Nasdaq (November 20, 2017) “6 Mistakes to Avoid When Planning Your Retirement”