Tips for a Stress-Free Retirement

By Hightower Westchester on October 4, 2021

One of the key takeaways from the last 18 months is that many people are redefining their plans for retirement.  Perhaps staying or working from home has altered the way we think about not only retirement but more importantly our quality of life. This new focus on quality of life has inspired many to look towards an earlier retirement and to take the time to figure out what that retirement will look like.  As a result of this, many of our clients are asking us to run various financial plans to provide a more detailed roadmap on how to retire earlier than initially planned. With that in mind, I want to provide some general insight or steps we encourage our clients to take to make retirement less stressful.

A successful, stress-free retirement is something achieved with careful planning.  Planning that starts early on in your life, not a month prior to retirement.  One of the major components of planning is having a financial plan and a detailed budget. There are many variables that define a successful retirement, but financial stability is what will ultimately drive the conversation for many.  Those that have a plan know the direction but also understand that it’s a process that requires constant updating as circumstances change over time. This plan should also be qualitative.  What does that mean?  It means a successful retirement also needs to provide you with a sense of purpose and isn’t filled with activities or tasks that merely keep you busy.

As people are living longer, the need for having enough assets to last throughout your retirement becomes more critical.  For many, the days of having a pension are gone and have shifted towards individuals funding their own retirement.  Social security, albeit helpful, cannot be solely relied upon as it provides only a small part of the income that people need.  The goal of social security was to replace 30 to 40% of your income but clearly that alone will not provide a healthy financial outcome.  As we model out a life expectancy of 30-plus years in retirement, for potentially two people, it becomes that much more important to save as much as possible.  These investments should consist of personal assets, retirement assets such as an IRA, and after-tax monies such as a Roth IRA. This is the ideal scenario as it helps mitigate some of the current and future tax risk.

We encourage our clients to be diversified in all aspects of their overall financial picture.  As we look to slow down in retirement the idea is to reduce or eliminate risk.  Many years ago, the idea was to reduce risk based on your age.  If you were 65 you would invest 65% in bonds and 35% in stocks.  Perhaps that worked some time ago when rates were at 4 to 5% but when challenged with an environment of 1.3% on a 10-year bond, it is difficult to have a successful plan or outcome.  When you factor in the increases in inflation and healthcare costs, there is a lot more room for failure, so your risk should be redefined.  There should be more calculated risk taken to enhance your portfolio’s outcome.  Although you may be slowing down in retirement, your portfolio needs to work harder than ever.

One thing to keep in mind is that with longer life expectancies comes more medical expenses so you want to make sure you save enough money to cover those expenses.  A study by Fidelity Investments states that a couple turning age 65 will need approximately $300,000 (after tax) for health care costs.¹ This does not include long-term care insurance, which we feel is one of the most underutilized strategies to protect one’s wealth.  The Fidelity study also claims that 15% of expenses in retirement will be for medical costs.¹ We have seen many clients putting a significant amount of money into their HSA (Health Savings Accounts) and use those funds later in retirement to fund medical expenses tax-free.  The nice thing is that those funds earn interest like a traditional IRA account and can also be invested, once you reach the investment threshold.  And the best part is your interest and investment income are not taxed if used for medical expenses.

Lastly, make sure your estate plan is up to date.  For whatever reason, many people feel the need to keep punting on this until it is too late.  Oftentimes we see parents scrambling to do this when they are forced to make decisions in times of duress.  This is something that we encourage all our clients do sooner rather than later, and to take the time to be thoughtful and consider all their options.  This will help them achieve their goal of a stress-free retirement and it also will help provide the same for their kids or beneficiaries of their estate.

There’s no guarantee for anything in life but being proactive and planning for your future with the help of a financial advisor can help you achieve that stress-free retirement you’re looking for.

Roman Ciosek – Managing Director, Partner – Hightower Westchester

914.825.8633 – rciosek@hightoweradvisors.com

References-

¹How to plan for rising health care costs. (2021, August 31). Retrieved from https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs