7 tips for a worry-free retirement
by Randy Gardner, JD, LLM, MBA, CPA, CFP
1. Maximize your quality of life. Your health is your greatest wealth, so eat right, exercise and schedule checkups. Stay engaged by doing volunteer work or pursuing a part-time career. Frequent contact and close proximity to family and friends is what makes most retirees happy, while others value travel, a favorable climate and new experiences. Think about what’s important to you, and do it.
2. Time when you draw Social Security benefits. Social Security provides an inflation-adjusted annuity for life. Many people draw a reduced annuity at 62 and later regret it. Unless you have a shorter than normal life expectancy, the better strategy is to wait until 70. If you’re married, draw the lower-earning spouse’s benefit at 66 and the higher-earning spouse’s benefit at 70.
3. Watch your spending. You should limit your withdrawals from your investment portfolio to about 4 percent per year if you want the portfolio to last your lifetime. Adjust your standard of living so your Social Security, pension and 4 percent investment withdrawals cover your spending. Move to a smaller home or perhaps a no-tax state (like Florida, Texas or Nevada) if it helps.
4. Don’t change your investment strategy. If you switch to a conservative portfolio, inflation will chip away at your standard of living. Investors with a longer than five-year investment horizon—time before you expect to die, not retire—should continue to allocate about 60 percent of investable assets to stocks and about 40 percent to fixed-income investments.
5. Buy long-term care insurance. Nothing zaps a family’s resources and legacy faster than the cost of end-of-life medical and long-term care. What’s your family’s health history? Look into long-term care insurance before you have a medical event, which makes it more expensive or unavailable.
6. Get your estate in order. Even people in their 60s have unexpected, life-changing or sometimes life-ending events. You’ll experience peace of mind knowing you’re not leaving a mess for your loved ones. An estate plan includes a revocable living trust, pour-over will, durable power of attorney for financial matters, durable power of attorney for health care and a living will. The plan names decision makers who will manage your affairs when you’re incapacitated and distribute your wealth after you die.
7. Seek input before making big decisions. While wisdom increases until we are about 50, biologically, our capacity to make complex decisions starts to decline in our 20s. Sometimes it’s not a good idea to be a do-it-yourselfer. Family and friends can help with most decisions, but for some decisions you may need the advice of experts such as physicians, attorneys, accountants, financial planners and social workers.
Gardner is a professor of tax and financial planning at UMKC’s Henry Bloch School of Management.