Retiring in America is how many people look to their futures. Saying goodbye to your working years and entering a stage of enjoying your life in new ways — often in ways you’ve dreamed of — is a rite of passage for most Americans. Of course, before you can retire, you need to take the right steps to plan for retirement. So, whether you’re retiring soon or are already in retirement, here’s a reminder on how retirement changes your financial life.
1. You Swap Paychecks for Social Security & Investment Income
As we all know, your regular paycheck ends once you choose to retire. So, you have to replace that income — and with retirees living longer than before , you also have more years to account for. And while Social Security payments start in retirement, they should just be a portion of your income strategy. In fact, 97% of seniors aged 60 – 89 receive Social Security and, on average, receive $1342 per month.
Now, think about all the monthly bills you have like utilities, insurance payments, etc. Couple those costs with your other expenses like groceries, medical bills, social occasions — and more than likely, the average Social Security monthly check may not equal the base income you need. Ensuring that you have an evolving retirement-income strategy in place to cover your cost of living (and then some) is a critical step to enjoying financial wellness throughout retirement.
2. You Have Increased Healthcare Costs
As we age, our bodies inevitably change. Even if you’ve lived a healthy adult life and are enjoying a healthy retirement, your healthcare costs may still increase. In fact, according to the Fidelity Retirement Health Care Costs Estimate, a couple who is 65 years old and retired in 2016 is expected to spend about $260,000 on healthcare throughout retirement . This amount does not even include your nursing home or long-term-care expenses.
A big factor increasing health care costs is prescription medicine not being covered by any type of insurance. Retirees can expect for out-of-pocket prescription costs to account for 24% of their healthcare financial needs . So, to round out your financial picture in retirement, you must account for all the various medical expenses you could incur — and may already by incurring — and remember to revise your financial strategies as your needs change.
3. You Can Start Taking Retirement-Savings Withdrawals
One financial benefit your retirement now brings you is finally being able to take withdrawals from your retirement-savings accounts. So, all those years of saving your money in accounts such as traditional IRAs, Roth IRAs, 401(k)s, and non-qualified annuities start to pay off. But as you use your savings, you must also make sure that you’re withdrawing the funds while accounting for your tax liabilities .
Different accounts receive different tax rates — and also have different minimum-age requirements for withdrawal. Navigating these financial factors is essential if you want to save as much money as possible. To stay ahead of the complexity, you should know your tax bracket and follow your retirement-plan distributions strategy.
How can life insurance and annuities can help you?
When designed as part of your strategic financial plan in retirement, permanent life insurance and deferred annuities can serve as alternative savings vehicles that turn into income sources. For permanent life insurance, you have the option to tap into your benefit’s cash value for a loan against your policy . This approach can be helpful if you have unexpected expenses that are outside of your monthly retirement budget. Deferred annuities are an insurance product designed to provide retirement income with various options available to invest in.
Whether you’re in retirement or are about to retire, you should have retirement-income and retirement-distribution plans in place that evolve with your life needs and goals.