You’re Ready to Retire. Now What?

You’re Ready to Retire. Now What?

Throughout the years, you’ve probably done a great job saving and contributing to your 401k. You might have stayed up late at night using an online calculator to figure out if you’ve saved enough money to retire. But now that you’re ready to retire, it’s common to arrive feeling like you are perhaps not doing enough to make your money work for you.

The Unique Challenge of Planning For Retirement

It’s no secret that women face more retirement roadblocks than men. We have more varied financial challenges, an increased likelihood of employment gaps, and we tend to outlive men. But one of the most critical hidden roadblocks is that women tend to start investing later in life. Did you know that 69% of women wish they had started investing their extra savings earlier?

Throughout the years, you’ve probably done a great job saving and contributing to your 401k. You might have stayed up late at night using an online calculator to figure out if you’ve saved enough money to retire. But now that you’re ready to retire, it’s common to arrive feeling like you are perhaps not doing enough to make your money work for you. You might even reach your retirement goal and say: now what?

1. You aren’t wearing the same clothes you did in your 20s, so why would you invest the same way?

As we get older, we dress differently in our 60s than in our 20s. It doesn’t make sense to keep the same closet throughout your entire life, does it? Your style changes, your size changes, and so does your taste.

Treat your retirement portfolio the same way you would treat your closet! Do these investments reflect your style/risk tolerance? Will they provide enough income to maintain your lifestyle over the next 20+ years? Considering these questions is also crucial for someone who has gone through a relationship change, be it losing a spouse or getting divorced; remember: your spouse’s portfolio is not yours.

If you haven’t been good at consistently reviewing your portfolio over the years, a wealth manager will be a great asset when you decide to do so. They’ll ensure your investments reflect your current needs and preferences while aligning them with your long-term goals. Most importantly, they will walk you through a risk assessment and return needs analysis as a part of your financial plan.

2. Don’t let your traditional IRA fool you.

If you diligently saved in your employer’s 401k for decades, bravo! But, don’t be fooled; all of those savings don’t belong entirely to you. You will owe ordinary income tax to the government for every dollar that you withdraw from your pre-tax retirement accounts (401k or IRA).

When you calculate the amount of income you will need to draw from your accounts to replace your employment income, you need to incorporate taxes. Ordinary income is taxed at a higher rate than capital gains income.

Taxes are complex, and a wealth planner with tax expertise will help you develop the best income strategy for your situation to ensure it will last you through retirement (and beyond!)

3. Take advantage of lower-income with Roth conversions.

When you retire, your income will most likely drop substantially. This income drop is an opportunity to convert portions of your Traditional IRA to a Roth IRA. While you will pay taxes in the year of conversion, once the funds are in the Roth IRA, they can grow tax-free, and all withdrawals are tax-free (as long as you meet the IRS’ Roth IRA withdrawal guidelines).

The best time to do Roth conversions is after you have retired, but before you begin taking social security, so ideally, you are in the lowest marginal tax bracket.

4. Speaking of income, what is your Social Security strategy?

While you are eligible to begin receiving social security at age 62 (or 60 if you are widowed), the longer you wait, the more your benefit will increase. For example, you will take a decrease of 25% of your social security benefit if you begin receiving social security before your full retirement age (“FRA”). But if you delay your benefits until age 70, you will increase your benefit to 132% of your FRA benefit. In addition, if you’re married, there are additional options that allow you to maximize your combined benefit.

So, what’s the sweet spot? A social security analysis as part of a comprehensive financial plan can provide helpful insight about your ideal age to begin taking social security. Additionally, it will provide guidance on maximizing benefits based on your financial situation.

5. Make your gift count.

While you can’t underestimate the power that giving has on the receiver, did you know that you could also take advantage of the tax benefits? Giving can help you decrease your tax burden while supporting your values and beliefs.

Review your expected taxes before writing a check to your nonprofit of choice. With the high standard deduction, it may be beneficial to bunch multiple years of charitable gifts to offset a year of high expected taxes. Use highly appreciated securities in your portfolio to donate to a charity. The charity can sell the securities and either cash-out or reinvest the proceeds in their investment portfolio.

You will avoid the capital gains on the security and receive an income tax deduction for the charitable gift on your taxes.

If you aren’t comfortable giving all of it in one year, there are particular account types to accommodate your situation. For instance, a Donor Advised Fund allows you to reap the benefits of the tax deduction in the year you give the gift while giving you control over the timing of the distribution of the gift to charity over future years. You can even pass this account as a personal charitable foundation from generation to generation. Charitable Remainder Trusts are another type of account that may be appropriate if you need current income from the portfolio.

At your death, the account will pass to the charity of your choice. A good financial advisor will coordinate with your tax advisor and estate attorney to strategize the correct type of account and the gift amount that will be most impactful for your situation.

6. Last But Certainly Not Least, Don’t Do it Alone.

We’ve only scratched the surface of retirement planning throughout this blog. As women, we’re accustomed to “doing it all.” But when it comes to financial planning, you don’t have to. If your dream is retiring on the beach or traveling the world without feeling the constant stress of your money, working with an advisor who has your best interest at heart will give you peace of mind. We’re experts, we know how to build custom strategies that apply to your situation, and we always put you first.

The right financial advisor can provide financial education and investment, tax, family planning, equity compensation, and estate planning guidance during this transition to your new normal.

Planning For Retirement, One of Many Other Challenges

As women, we have unique financial challenges. We deal with caregiving, longevity, and the gender pay gap, among many others. Yet, we’re used to doing it all. Even when we’re not experts, we become experts.

When it comes to handling your money, there’s no need to become an expert. As your priority is to meet your financial goals, some professionals will make that their priority, too. However, if a wealth planner is sitting on your side of the table, they will do everything to help you get to where you want to be. So, if you’re nearing retirement and feel like you’ve done enough, think about the tiny things you could be doing better to make your money grow for you even more!

An advisor can help you take care of each, so you can focus on enjoying your golden years, knowing that your money and legacy are in the best hands.