Thinking about retirement and all the things you’ll finally have time to do can be both exciting and a bit intimidating. After spending your entire adult life focused on a structured schedule and investing for your future, you now have to consider not only how you’ll spend your time but more importantly how you’ll create your own “paycheck” from the funds you’ve accumulated.

So, how can we make that transition as easy as possible?

Here are a few important things to consider to help turn your retirement dreams into reality:

Set Your Goals

You may have given some thought to how you want to spend your time in retirement – perhaps traveling more, taking up a new hobby or spending more time volunteering with your favorite charities. You should also think about what you need your retirement assets to do for you and your family. Of course, you need your retirement “paycheck” to cover your everyday living expenses, but now there is more to consider. For example, do you want to

  • Maintain your current lifestyle in retirement, or do you plan to spend more on travel and hobbies?
  • Protect a spouse’s financial security, especially when there is a higher probability of one spouse significantly outliving the other?
  • Provide for other family members?
  • Leave a charitable legacy?

Think about how important each of your goals is to you.

Next, you should consider how you’ll fund those goals.

Identify Your Anticipated Expenses

Consider the broad range of costs you’ll need to plan for in retirement. Many people are likely concerned about the high medical expenses they might face. However, housing is the top expense for retirees across all age groups, and transportation costs rival the amount spent on health care.[1] Your Financial Advisor can help you estimate costs and plan realistic future budgets, factoring in such things as inflation, expense spikes and potential changes in your lifestyle and/or health, including:

  • Essential expenses such as housing, transportation and food
  • Discretionary expenses such as travel, a vacation home and leisure activities
  • Health care costs, including both the cost of Medicare coverage, supplemental insurance plans and costs not covered by Medicare
  • Potential long-term care expenses
  • Assistance and/or gifts to family members


Outline Your Available Sources of Income

Determine how much of your retirement income will be derived from each of the following sources and whether these sources are guaranteed or how long the funds are expected to last.

  • Social Security retirement benefits and spousal benefits
  • Defined benefit pension plans, including what your spouse may receive after your death
  • Traditional retirement accounts, including 401(k)s, 403(b)s and Individual Retirement Accounts (IRAs)
  • Roth retirement accounts, including 401(k)s, 403(b)s and IRAs
  • Health Savings Accounts (HSAs)
  • Taxable investment accounts
  • Annuities
  • Wages, if you plan to work in retirement
  • Any other sources of income

All of these income sources together will help determine how much your monthly income will be and will become the “paycheck” you’ll use to cover all your planned expenses.

Make Your Health Care/Medicare Decisions

Options to obtain health care coverage if you leave the workforce before being eligible for Medicare, including:

  • Continuing your current employer’s coverage, usually for 18 months, under COBRA[2]
  • Employer-sponsored retiree health care coverage, if offered
  • Private-pay policies

When you do become eligible for Medicare, the decisions you make will affect your budget and include:

  • Whether to choose traditional Medicare or a Medicare Advantage plan
  • Which Part D Prescription Coverage plan to choose
  • Whether to choose a Medigap policy and, if so, which one
  • How Medicare will coordinate with any employer-sponsored health care coverage you have


Create a Retirement Spending Plan

Once you determine how much you will need and compare it to how much you will have, it is a best practice to create a reasonable budget. Remember to factor in annual expenses like property taxes, insurance premiums and potential emergencies, too.

How you withdraw money from various sources can also greatly affect what you ultimately take home. Most people have a combination of taxable and non-taxable accounts. Knowing how much to withdraw from each type of account and when, must be considered to help ensure any requirements for minimum distributions are met, as well as understanding the overall tax implications of your withdrawals.

Your financial advisor can model different scenarios to help you choose what is appropriate for your circumstances, weighing all the above and factoring in income taxes as well.

Make Your Social Security Decision

There are three main considerations when choosing when to start taking Social Security:

  • How much will you receive? Claiming prior to full retirement age (FRA) can reduce the amount you receive by approximately 25%; waiting until age 70 can increase the amount by about 8% per year, not compounded.[3]
  • What is the impact of working after you start Social Security benefits? If you take Social Security prior to reaching FRA and earn more than a certain amount, part of your benefit will be withheld.[4]
  • Will your spouse rely on your Social Security benefits during your lifetime or after your death?


Examine Options for Long-Term Care Needs

According to the U.S. Department of Health and Human Services, 70% of people turning 65 can expect to use some form of long-term care during their lives.[5] Consider which of the following you might rely on:

  • Family-provided care
  • Self-pay
  • Long-term care insurance
  • Medicaid

High medical expenses are typically our biggest financial worry about retirement. Planning ahead for unexpected medical care can lift a huge burden from your family members.