Aug 25, 2022 4 min read

People who are considering retiring at the end of this year need to be taking a number of steps right now to see if it is possible to do so and make the outcome the best it can be.

All retirement planning starts with incoming planning. You must have enough income to pay your bills and to cover whatever is on your bucket list. You will make less money when retired than you will while working, or most people would have already retired. Hopefully you have been preparing by paying down debt and increasing your savings.

One of the first decisions many people make is deciding when to start Social Security. It is an important income source that you have been paying into all of your life. This does not mean that you immediately start receiving benefits. There are software programs that help evaluate different claiming options. If you begin taking benefits before your full retirement age, you will receive about 6.5% less for every year. Someone born after 1960 with a full retirement age of 67 will get about 30% in every check for the rest of their life if they start taking benefits at 62. This adds up to a large loss of income over the years. I recently worked on a case where a couple will receive an extra $149,000 over their lifetime with planning, if they just have a normal life expectancy.

Most people need to review their asset allocation as they prepare to retire. Risk may have to be reduced, yet there still must be enough growth to last for years and produce the required income. Inflation today shows some of the challenges that must be dealt with during retirement. You also must protect from sequence of returns risk, where large stock market losses at the beginning of retirement can make you run out of money.

Health care expense can be a major issue during retirement. If you retire before age 65, private insurance is expensive. At 65, Medicare can help, but it is not free. An average, couple will spend over $200,000 in lifetime out-of-pocket costs during retirement. Decisions that you make about coverage can make big differences, so choose wisely.

One of the biggest expenses in retirement is taxes.

Unlike our parents and grandparents, we are responsible for our retirement funding. Most retirees today do not receive defined benefit pensions. Today, the 401K is the default income source. Too many people have almost all of their retirement savings in these plans. These can create a tax time bomb during retirement.

Most of our lives, we believed our tax rates would be lower during retirement. That is why we deferred taxes in qualified accounts. Today, many people are finding that this is not true. Without a good tax plan, seniors can end up paying more taxes on Social Security than necessary.

If not carefully managed, it can cause Medicare premiums to explode. Also, upon the first death of a spouse, taxes can increase rapidly. You must have a proactive tax plan to minimize the damage.

It is also important to make sure that all legal documents are up to date. Beneficiary designation must match today’s reality. There may have been divorce or new births in the family. Guardianships may no longer be needed and trust may need to be eliminated or modified. Powers of attorney and living wills may have to be updated.

There are many things to be done when preparing for retirement. A person doing it on their own may not have the knowledge to handle all of the issues. People who have worked with an advisor may need to switch to a retirement income specialist, because it takes a completely different skill set during distribution.

Usually, you only get one chance to do things right. Make your retirement the best possible.

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP.

, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.