It can be easy to think of retirement planning as a means to an end: a series of purposeful meetings leading up to a life transition. Yet this transition is not the end of retirement planning. Think of this transition (and the steps preceding it) as the first phase. The second phase focuses on managing your spending, plus enhancing your income and savings.
It may be useful to plan your spending with the bucket approach. In this strategy, you withdraw assets from three “buckets” to spend on present-day, near-term, and future needs.
The present-day (or short-term) bucket is a bucket of cash, typically from bank accounts or short-duration, fixed-income investments. This bucket complements Social Security and other income sources. It is a liquid resource you can tap for emergency expenses and everyday needs.
Your second bucket is your near-term bucket, a portion of your retirement savings invested for a mix of growth and income. This bucket could help you finance your vacations, a remodel of your home or yard, or a dream that emerges during your “second act.”
Your third bucket, a portion of your retirement fund invested mostly with an eye toward long-range growth, can be used to address health care costs (including long-term-care expenses).
All the while, tweaks can be made to your retirement plan in pursuit of tax efficiency and improved income streams (one may lead to the other).
According to Bankrate, 61% of Americans have no idea how much money they will need to save for retirement, and very few have probably considered how they will spend the savings they have once away from work. So the first phase of retirement planning is designed to provide one kind of clarity; the second phase, another.
The May-December Retirement Challenge
When one spouse or partner is considerably older than the other, retirement may unfold differently for that couple than it does for others. Most importantly, the younger spouse or partner must realize how self-reliant they may need to be decades from now.
If you are a Gen Xer married to or partnered with a Baby Boomer, the prime challenge may be making your own wealth last until your 80s or 90s. Your spouse or partner may have a greater amount of wealth and retirement savings than you do, but future long-term care or hospital expenses may reduce it to an extent you cannot anticipate.
Consider also that you might need to retire earlier than you think, to care for or simply be with your spouse or partner if they become physically or mentally frail. If you can work well into your 60s, this can be a plus, as you can maintain your income and keep up your retirement savings effort. If you are in your early 60s and your partner or spouse is in his or her 80s and in need of eldercare, having at least one income can help if your home needs upkeep or if you need to downsize.
If you intend to retire together, your loved one may be eligible for Medicare, but you may be without any health insurance for some time (and the average annual premium for individual private health coverage was $6,896 this year, by the estimate of the National Conference of State Legislatures). These matters all deserve consideration before a retirement decision is made.
On the Bright Side
At the end of the third quarter of 2018, the average IRA balance was $111,000. That was more than double the average balance of $52,000 in 2008, according to Fidelity Investments.
Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Lighthouse Financial, LLC., a Registered Investment Advisor. Cambridge and Lighthouse Financial, LLC., are not affiliated.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.
1 – investopedia.com/retirement/retirement-planning-doesnt-stop-when-you-retire [11/12/18]
2 – washingtonpost.com/business/2018/10/29/retiring-with-big-age-gap-these-couples-share-joys-challenges [10/29/18]
3 – plansponsor.com/years-positive-retirement-savings-behaviors-lead-record-balances [11/5/18]