Financial steps you can take to prepare for life after retirement

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Planning for retirement can be a challenge, but there are things you can do to financially prepare for post-working life.

When it comes to retirement, Frank Akridge told The Atlanta Journal-Constitution, “the earlier you start, the better off you are.” Akridge is an independent financial advisor and owner of Financial Pathfinder LLC in Woodstock.

Planning for retirement

As you enter your 50s and 60s, you may have a better idea of when you will be retiring and where you will be. According to Nationwide, money is the most vulnerable within the first five to ten years of retirement, meaning that anything overspent will be harder to recover.

Setting up a private pension can allow for a lifetime stream of income, according to Akridge. Putting a percentage of your assets into a private pension, which allows individuals to contribute to retirement from their earnings, can cover your expenses after retiring.

Four to five years before you retire, you can easily figure out what your social security payments will look like. As a consistent stream of income, social security can serve as a solid base that you can include in your budgeting.

“But in most cases, (social security is) not going to cover your expenses at all. That would be the beginning of handling expenses, (such as) monthly expenses,” Akridge said.

“In my case, what I tell people is to let social security be your bill payment. It’s not going to pay all of it, but it’ll pay some of your bills, and just count on it that way.”

You must be at least 62 years of age to get social security. However, the longer you wait until you reach your full retirement age, the more social security benefits you can get.

When planning retirement, health and health expenses are big considerations. According to Akridge, the biggest issue is avoiding running out of money.

“(Especially) in today’s world because we are living longer, not necessarily living healthier,” he said.

Akridge recommends looking at your medical history to predict your level of health risk. An individual may be healthy; however, they may have a family history of diabetes or heart disease which may impact health risk. Accordingly, plan for additional health expenses. While Medicare can cover a portion of healthcare, it does not cover everything such as long-term care, most dental care, eye exams and hearing aids.

Investopedia suggests using a health savings account or purchasing long-term insurance care to mitigate additional healthcare costs that may not be covered by Medicare.

Building a budget

U.S. News & World Report recommends creating a retirement budget so you don’t run out of money once you stop working.

According to The Balance, there are three things to look for in fixed expenses when setting a budget: essential spending, such as food or clothing, non-essential monthly spending, such as gym memberships or streaming services, and required non-monthly expenses such as property taxes or insurance premiums.

Once you’ve identified your fixed expenses, review how much is left. That total is your flexible spending that can go toward savings or toward travel and lifestyle costs.

Your budget should map out how much money is coming in versus how much is going out. Consider what goals you want for your retirement. Do you want to travel? Do you want a lifestyle change? Do you want to set up your children or grandchildren up financially? Take all of those factors into account when creating a budget. That way, you know exactly what your expenditures are and can fulfill all of your retirement goals without worrying about running out of money.

Taking care of debt

Before retiring, a cardinal rule is to make sure all debt is paid off. There are many ways you can take care of your debt before retirement. The first priority should be to get rid of credit card debt.

Begin by planning to avoid future credit card debt and using credit cards for unnecessary expensive purchases. According to Forbes, it is good to pay off minimum interest rates. However, targeting payments toward your most expensive credit card payments with the highest interest rates will have more impact in the long run.

On average, Vanguard reports adults age 60 and over hold around $20,000 in college debt whether it is from themselves or their children. According to Federal Student Aid, federal loans offer plenty of relief options whether it is loan forgiveness, cancellation or discharge.

Providing financial assistance to children and grandchildren

To set up future generations financially, Akridge says it is important to identify three things: goals, values, and strategies.

  1. Goals: What do you want your legacy to look like? How much do you want to leave behind? Do you want your children or grandchildren involved in charitable work?
  2. Values: What values do you have? How do you share those values with your children or grandchildren? In what ways do you want to support each individual based on those values?
  3. Strategies: To find the best strategy, your goals and values have to be identified first. Once identified, strategies are easy to find since there are plenty of easily available ones to best fit your ideal financial situation.

According to Zach Morris, managing partner and co-founder of Atlanta-based Paces Ferry Wealth Advisors, you can give a gift of up to $16,000 each year to your child or grandchild without it being taxed. If you are married, your spouse can also send a gift of $16,000 to your child. That’s $32,000 per child or grandchild you want to send a gift to. This is an easy way to send assistance to your children or grandchildren without setting up a trust.

“It’s easy for retirees to want to solve all of their adult children’s financial challenges. Sometimes it’s at the expense of their own retirement goals. It’s okay if that’s a priority for them,” Morris told The Atlanta Journal-Constitution.

“But I think everyone should understand the implications of consistent, unplanned gifting to children. You don’t want to put yourself in a situation where you’re asking for money back from children later in life to provide for your care.”

Additionally, 529 college saving plans, a state-sponsored investment plan to save and fund higher education, allow for parents or grandparents to set up something called super funding, where a grantor can fund five years of gifts — or $80,000 — in one contribution without it being subject to tax.

Taking care of aging parents

Communication is key when taking care of aging parents. Morris recommends adding care into your financial plan and coordinating with your parent’s financial plan. Look into streams of income your parents may have, such as social security, and include that in your own financial plan.

Akridge says that having financial conversations as early as possible can make taking care of aging parents much easier.

“None of us want to have that conversation with our kids,” Akridge said.

“I wouldn’t ever suggest (having this conversation) without a financial advisor,” he added. “And I know that that’s probably impractical.”

“But the reason is because a financial advisor is like going to family therapy. The therapist, in this case, the financial advisor, is supposed to be an unbiased person who can bounce ideas off.”

Adult children can look into ways to protect aging parents from financial mismanagement.

According to Morris, one method is to put assets into a living trust. This allows the children to take care of their parent’s assets in the event that the parent is unable to make sound financial decisions for themselves.

“To be effective with this strategy, the trust document should include a provision that establishes a process for determining the trust maker’s abilities to make those decisions,” said Morris.

“So, this could be a medical professional, maybe, that determines the elder parent is no longer able to make those decisions for themselves. And then the adult child would then take control of those assets.”

Consider using a personal financial advisor

When it is time to plan financially for your retirement, you may want to consider using a financial advisor to help you navigate retirement and explore your options.

“A financial advisor can review your current portfolio (and) determine if you’re taking only enough risk in order to hit your goals, that you’re not taking unnecessary risks,” Morris said.

“A financial advisor can also help with all of your income planning in retirement as well as coordinate with both your CPA and your estate attorney.”

Akridge’s biggest advice was to consider getting a financial advisor who can give you individualized plans. He compared a financial advisor relationship to the relationship between air traffic control and a pilot.

“Can you imagine flying from (Atlanta) to Tacoma, Washington, and the minute you take off, there’s no communication at all between you and anybody? You’re just on your own. And that’s what most people do with their financial planning. They just take off and go and never get an air traffic controller.”

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This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.