4 Retirement Plans That Outlast Financial Uncertainties
Written by
Rebecca Neubauer
Edited by
T. Woods
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While retirement is exciting, it can also be a bit scary because you never know what’s going to happen to the economy when you finally leave your job. Whether you’re worried about a stock market crash, healthcare costs, inflation or taxes, there are several ways to plan for uncertainty in retirement.
1. The Financially Conservative Retirement Plan
One of the ways to combat uncertainty in retirement is to create a financially conservative retirement plan. This will give you some breathing room by having extra money saved just in case the economy looks different in retirement. A fundamental part of retirement planning is estimating future expenses. So, make sure you know all of your current expenses, and give a healthy buffer when estimating your future expenses. Also remember to factor inflation into your retirement plan.
Additionally, you’ll want to transition to safer investments, such as bonds, as you get closer to retirement. When you’re younger and starting to save for retirement, you are in the wealth accumulation stage, where you can accept larger risks in return for larger potential growth. As you get closer to retirement, you want to shift to a wealth preservation mode, where you manage your risk and accept lower returns.
2. The Healthcare Focused Retirement Plan
The Office of the Assistant Secretary for Planning and Evaluation (ASPE) found that “70% of adults who survive to age 65 develop severe [long-term services and support] needs before they die and 48% receive some paid care over their lifetime.” If you are retiring with a partner, this nearly 50% statistic indicates the likelihood of at least one of you requiring paid long-term care during your retirement.
Therefore, planning ahead for healthcare in retirement, and incorporating long-term care insurance and life insurance into your retirement planning will help you face health-related uncertainty. You may choose to wait until the age at which you are eligible for Medicare to retire (currently age 65), but remember that, depending on your eligibility, there may still be healthcare premium costs associated with Medicare. Be sure to incorporate those costs into your retirement plan.
3. The Tax-Smart Retirement Plan
You probably already know that it’s smart to invest in tax-advantaged retirement savings accounts such as 401ks and IRAs. You will need to pay taxes on money taken from traditional accounts, but Roth contributions will be tax free when you disburse them in retirement. Therefore, appropriately diversifying between traditional and Roth tax-advantaged accounts when saving for retirement is important.
Additionally, it’s not certain whether tax brackets will remain the same when you’re retired. You’ll want to take advantage of opportunities to manage your tax burden, such as strategic Roth conversions. It can be very helpful to consult a financial planning and tax professional to create a tax-smart retirement plan.
4. The Flexible Retirement Plan
The absolute best way to combat uncertainty in retirement is to be flexible. While you’ll want to control what you can about your retirement plan, whether that’s saving more than strictly necessary, purchasing long-term care insurance, or developing a tax strategy, it’s simply not possible to control everything.
If the stock market crashes right after you retire, it’s time to be flexible. That could mean cutting costs, so you don’t need to withdraw as much from investments while they are less valuable, or working part-time to supplement your social security income. No matter how much you plan, things may be different in the future. Being prepared to roll with the punches will make your retirement plan much less vulnerable to financial uncertainty, and it will probably save you a few worry-induced gray hairs as well.
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