The Building Blocks You Need For A Strong Retirement Plan

Retirement planning is like songwriting—while there may only be 12 notes to pick from, there is an infinite number of combinations and songs you can produce from them. Any seasoned musician knows that it’s not just the notes that make up a song. Sure, you start there, but it is the intonation, rhythm, melody, and harmony, as well as the structure that gives it life. 

We feel the  same is true when creating a retirement plan. In reality, there are usually only certain factors included in a retirement plan: income, cash flow, taxes, investments, health care, lifestyle, etc. These are the notes, the starting point of the plan. 

But a retirement plan comes to life when you infuse it with passion, purpose, and values. Each person brings their own unique set of experiences to the retirement planning process, and that’s where the magic happens—when the song takes shape.

Today, we are excited to bring you an overview of the basic tenets that comprise a retirement plan.

Map out your lifestyle.

What is the first thing that came to mind when we said “retirement planning”? In all likelihood, it had something to do with money, and that makes sense. The financial aspects of retirement are crucial, but your desired retirement lifestyle plays just as an essential role in the creation of your plan. 

Once you have an idea of how you want to live in retirement, then you can work towards building a financial plan to help support those goals. Someone who wants to downsize and stay near family in Macomb will have different financial needs than someone who wants to build their dream lake house in Traverse City. 

It all comes down to what you want your life to look like. This planning is especially important for married couples because they need to build a plan that complements each person. Once you start talking about retirement planning, you may have thought that you wanted to travel the world, and you come to find that your partner’s passport has long expired. It is essential that both people are on the same page and can start to build a plan together. 

Below are a few questions to inspire your thoughts about what may be important in your retirement lifestyle. 

• Where do you want to live? Would this require a move? If so, have you spent significant time in this new area? Where is your home in relation to family, friends, and loved ones?
• How do you see yourself spending your time?
• Will you work part-time or pursue an encore career?
• Is traveling a big part of your life?
• How will you maintain or develop new relationships?
• In what ways will you stay mentally and physically active?
• How will you bring meaning, fulfillment, and value to your routine?

These are some big questions that require you to flesh out the answers with time, preparation, and trial and error. Before you retire to that beach in Florida, make sure that you are just as equipped to handle the hot summers as you are to escape the Michigan winters.

Carefully consider your finances.

A study by AARP found that nearly half of retirees share a fear: running out of money. With increased longevity and a strain on overall retirement savings, outliving retirement income is now retirees’ top fear. To help alleviate this concern, you need a robust financial plan in place that supports your retirement goals long-term.

The first step is to have a handle on your projected income. Start by listing off all of your regular income channels.

• 401(k), IRA, other retirement accounts
• Social Security
• Pension
• Real estate
• General investment portfolio
• Part-time work/encore career
• Cash
• Other savings

Understanding how much money you will have coming in each month/year will be a great indicator of building a retirement budget that supports your goals. A healthy income plan is about finding a balance between saving for the future and living a fulfilling life today. The right advisor will be able to work with you to strike that balance.

You’ll also want to have a proactive tax plan in place to mitigate the costs of Required Minimum Distributions (RMDs), portfolio withdrawals, tax brackets, charitable contributions, and more. Armed with a solid tax plan, will help you keep your tax bill at bay, and set yourself up for the future. 

After looking at all of the financial factors, you may find that you need to save a bit more to live the life you want. Here are a few ways to help do that,

• Max out your retirement accounts.
  • For 2022, you can contribute up to $20,500 to a 401(k) and $6,000 to an IRA. 
• Take advantage of catch-up contributions.
  • Those over 50 can exceed the annual limit for 401(k) and IRA contributions. In 2022, you can add an extra $6,500 to your 401k and an additional $1,000 to an IRA. These additional funds can significantly boost your savings.
• Work a little bit longer.
  • While not always an ideal option, it could provide you with the flexibility you need to live the life you want. Working longer can also increase your Social Security benefit since your monthly paycheck is determined by your 35 highest-earning years and the SSA algorithm. 
• Cut discretionary expenses like take-out, subscriptions, and more.
  • You might be surprised by how much you could save each month by cooking for yourself.

Prioritize your health.

Healthcare costs can eat up about 15% or more of your retirement budget. A Fidelity study found that an average retired couple would spend about $295,000 in healthcare alone throughout their golden years. 

While this number takes into account premiums, deductibles, copays, and other out-of-pocket costs of Medicare, it doesn’t take into account over the counter medication or long-term care, which many retirees will need at one point or another in their lifetime. This situation means that healthcare planning needs to be a top priority for pre-retirees.

There are several potential ways to plan for the costs of healthcare in retirement,

• Open and actively contribute to a health savings account (HSA).
• Contribute extra to other investment vehicles.
• Make the proper Medicare elections for you and your needs.
• Look into additional insurance coverage (long-term care insurance).

The right plan for you will depend on your current and projected health, any pre-existing conditions, as well as your family health history.

Let your goals and values guide you.

Your retirement plan should be individual to you and your outlook on life. That’s what makes retirement planning unique. You can use the resources available to you to create a beautiful new phase of your life. 

You must let your values and goals act as the foundation of your retirement plan. They will help inform your lifestyle choices, which, in turn, will impact your financial decisions. Our team at Legacy Wealth Advisors wants to help you uncover your retirement goals and work to build a plan that brings them to life. 

Ready to start creating the retirement plan of your dreams? Schedule a 15-minute call with our team to learn more about how we can help you.

Advisory services are offered through Legacy Wealth Advisors, LLC dba Legacy Wealth Advisors, an Investment Advisor in the State of Michigan. 

The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents of any State other than the State of Michigan or where otherwise legally permitted. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed.