by Brian Kuhn
As we enter the New Year some households ponder their retirement plans and how the rest of their lives are going to play out. Retirement is a popular notion but others don’t want to consider it by that name as they enjoy working and presume they always will. Positioning themselves to be in control of their finances so as to not have to work however is almost universal. So as you think about the rest of your life, here are 5 major decisions other than what you will be investing in that are important to consider as far in advance as possible.
- Whether you will work part time or go from full time to free time.
Why is this such a big deal? Think of it as the analogy between choosing to jump off a cliff and sliding down a large slide. Jumping off of a cliff obviously had the advantage of getting you to the bottom quicker. It also would be a more thrilling moment in time during your free fall. On the other hand slides are also enjoyable, a longer ride, and more of a gentle approach. Both lead to the ground and have their advantages but also their pitfalls.
- Where you will live in retirement.
This is important for several reasons. One is whether there is a mortgage remaining on the house you currently reside in, and if that could be removed by downsizing to a smaller home. If so is that a necessary step to be able to fully fund retirement. This would depend both on the monthly payment to the mortgage now but also the remaining term of the loan. Is the monthly mortgage burdensome but only 3 years are left on it and at the conclusion you could stay in your current home which is really your goal?
Another aspect of your residence to consider is the living environment itself. Is there a lot of maintenance to be done on the property? If you stay in it another 5 years let’s say would you begin to incur one time major expenses like a roof or water heater that you don’t want to part with liquid savings to cover? Is the house one level or could you live on one level of the house? Meaning as you age could your mobility be affected by the way the house is laid out?
- Whether you will live with your money or for your money.
To live with your money means to spend it on the things you have always wanted to spend it on, travel, enjoy life, and let the last check bounce so they say. To live for your money means to structure your lifestyle so as to not touch the principal of the assets you have accumulated, living only off the income it produces, thereby leaving that principal intact to pass on to children and grandchildren and possibly other valued causes. This is easier said than done and may not be an option at all. And ideally both of these are accomplished, assets are used as warranted but their growth rates preserve their value. Assuming one must be chosen though, how you feel about family and their needs beyond your life will sway your decision and you’re spending.
- Which assets you will spend first.
If you have managed to save into a few different accounts over the years you might not just have a decision of which one to pull income from first based on their potential to produce that income, but also based on their relationship with the IRS. For example if you have three accounts with $100,000 in value each but one is a Roth IRA, one is a Traditional IRA, and one is a individually owned investment account the tax environment on a withdrawal from each would be different. Subject to other rules and checking in with a tax advisor, one would be tax free, one would be fully taxable as income, and one could be taxed as a capital gain depending on what you are selling and its cost basis. What is confusing for households is this would be the case even if all three accounts were invested in the exact same thing, like a mutual fund for example.
- Whether you will take care of your health or you won’t.
Retirees know that health care costs will be one of their largest expenses in retirement. And some health care costs, like premiums, checkups and tests are all unavoidable. And luck isn’t avoidable either, both the good kind and bad as you age. However one who takes care of themselves and exercises their body and mind should be able to count in dollar terms over time how much they are saving in medications, procedures, reduced life expectancy, and reduced lifestyle.
To learn more about Brian Kuhn, view his Paladin Registry profile.
Securities offered through Triad Advisors, Member FINRA / SIPC. Advisory Services offered through Planning Solutions Group, LLC. Planning Solutions Group, LLC is not affiliated with Triad Advisors. PSG Clarity is a division of Planning Solutions Group, LLC.
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