Retire quickly? It’s time to consult your financial GPS

It’s rare these days to see someone pull out a paper map to figure out how to get where they’re going.

Instead, most of us log our current location and destination to our car or phone, and the GPS plots a route, telling us about every turn and alerting us if we get lost.

Retirement planning, when done right, can work the same way. If you’re nearing retirement, it’s time to check out the financial version of a GPS – a step-by-step guide to help you approach and navigate this final chapter of your life.

Here are the steps to follow to get there:

Create clarity

It’s the “where are you now, and where do you want to go?” part of the trip. What are your goals and concerns as you approach retirement? Often people haven’t given much thought to the details of retirement while they’re saving, but now is the time to think about what you want your retirement to be.

What lifestyle do you want? Do you plan to travel? Do you want to buy a second home? Will you spend a lot of time with your grandchildren? The more specific you are about your retirement desires, the better plans you can make to achieve them.

Determine risk tolerance

Investing involves risk, but when you’re nearing or in retirement, it’s best to limit your risk as much as possible. Young people have plenty of time to recover from a major loss. Those who are about to start withdrawing money to live on their savings don’t.

Risk tolerance involves the level of risk you are willing to take, but sometimes that level of risk may not be enough to generate the returns you are looking for. For example, if you saved $1 million and you need $50,000 a year of that investment to live on, you need to have a 5% return to replenish the fund. A moderate risk portfolio should do the trick. But let’s say you have that million dollars, you haven’t adjusted your risk since your accumulation days, and the market drops 20%. Now you only have $800,000 and it will take a 6.25% return to give you the $50,000 you need to live on. To achieve this, you will need to take more risks, which could cause you to run out of money before you run out of life.

Develop an income plan

Step back in time a few years – or decades – and you’ll find that retirement income plans weren’t a necessity for many people. They had decent pensions which, coupled with social security, provided them with the income they needed for the rest of their lives. Essentially, their retirement income had been planned for them and it was not imperative for them to meet with a retirement specialist.

But year after year, pensions are becoming more of a thing of the past. In fact, over the past 25 years, the number of people who can participate in a retirement plan has fallen to just 20% of American workers. That’s why it’s important to develop an income plan based on factors such as the lifestyle you want and the income you need to maintain that lifestyle.

Creating an income stream for retirement might involve withdrawing money from your retirement savings in a disciplined way and determining your risk tolerance and taking whatever risk you are comfortable with. A finance professional can explain the options and the pros and cons of each.

Be proactive with tax planning

Like many of us, retirees too often approach taxes this way: As tax time nears, they gather all their paperwork in a folder, visit a CPA, and the CPA tells them how much they owe. or how much to expect a refund. But this approach is to look at taxes at a micro level, when really you want to look at taxes at a macro level.

Are there things you could do with tax planning now that will benefit your family later? Are there any strategies that could save you hundreds of thousands of dollars in taxes over your lifetime? As an example of forward tax planning, you can convert a tax-deferred account, such as a traditional IRA, to a Roth account, allowing your money to grow tax-free.

Consider healthcare, long-term care and estate planning

Health care costs can significantly reduce retirement savings. The average 65-year-old couple will need $300,000 to cover health costs for the rest of their life, so you need to consider how that fits into your overall budget.

Meanwhile, a big unknown in retirement is the potential need for long-term care. Retirement homes, assisted living facilities and other types of care have very high prices. Where will the money come from? Possibilities include long-term care insurance or a life insurance policy with a long-term care rider, but you’ll want to discuss with your financial professional which is best for you.

Finally, you should consider estate planning and take steps to ensure that whatever you leave to your loved ones is done in the most tax-efficient way.

As you consider all of this, it might be time to make sure the finance professional you’re working with is familiar with the strategies for this stage of life.

Many advisors focus on wealth accumulation, which is optimal when you’re in your 20s, 30s, 40s, and maybe 50s. But after that, you need to focus on preservation rather than accumulation. It is therefore essential to contact a retirement specialist who understands how to protect and make the most of what you have saved.

That way, when you leave the workforce and merge into retirement, you can move on without worrying too much about taking a wrong turn.

Ronnie Blair contributed to this article.

President, Slagle Financial LLC

Chad Slagle is the president and founder of Slagle Financial, a Midwest-based financial planning firm with offices in Illinois and Missouri. He is the host of “The Chad Slagle Show: Coaching You To and Through Retirement” and author of “Winning in Retirement: When Every Day is Saturday.” Since 1995, Chad and his team of advisors have trained thousands of pre-retirees and retirees on how to make better decisions with their hard-earned money.

The appearances in Kiplinger were obtained through a public relations program. The columnist received help from a public relations firm to prepare this article for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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