Shakespeare Blog: View from the Lake

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Financial Planning for Retirement in 2024

Written ByBrian Ellenbecker, CFP®, EA, CPWA®, CIMA®, CLTC®

2024 Sign

Retirement can be an exciting time in your life. You’re moving to a new phase where you’ll have more time to do many of the things you’ve been waiting to do once you have more time. It’s also a time period that can make you feel uncertain and nervous—have you thought of everything to make sure you’ll be ok as you transition?

Whether you’re considering retiring this year or in the near future, it’s important to think through the financial planning items that will help ensure you are able to live the retirement lifestyle you’ve dreamed of. To help with the conversation, we will use the “2024 What Issues Should I Consider Before I Retire” flow chart inserted at the bottom of this post.

The best step you can take is to have a formal financial plan which helps project what your retirement will look like. While some assumptions need to be made, it’s a great way to map out what you’d like to do in retirement, and help determine whether or not any adjustments might need to be made.

Cash Flow Issues

Will your cash flow situation change? The answer to this is almost certainly “yes”, but to what extent can vary widely person-to-person. The easiest way to evaluate this is to create a pre and post-retirement budget. Identify which of your current expenses are expected to continue and which ones will end. Be sure to consider new expenses you didn’t have previously, which might include additional travel, spending more time on your hobbies, or building a second vacation home.

Your income will also change. Your employment income will be gone, and you’ll need to “recreate” your paycheck from other sources. For most people, Social Security will be one of those key sources of income. Evaluate when the best time to file for benefits is, based on your other income sources. Some people will also have access to a pension or other retirement benefits from a previous employer. Be sure to understand all your options for these benefits. You’ll also want to develop a strategy for generating income from your investments. Keep taxes in mind as you decide which accounts to draw from and when.

Healthcare and Health Insurance

The age you retire will have a big impact on your health insurance choices and their costs. If you’re 65 or older, you will be eligible for Medicare. If you retire prior to age 65, you will need to bridge the gap until you reach age 65, which could include enrolling in a Marketplace plan through, COBRA, or a retiree plan if your former employer offered one.

There are a lot of choices available, so choosing the right plan is a critical step in the retirement process.  Even if you are already Medicare age, there are choices in coverage that need to be made. Your best course of action is to work with an expert that can guide you through the different options and help you choose the right one based on your personal circumstances.

Investment Management

As you approach retirement, it’s important to revisit your asset allocation. Oftentimes, the window five years before and five years after retirement is when you’re most vulnerable to market downswings depending on your attitude towards investment risk, your ability to handle market fluctuations and your need to take risk to achieve your goals. If your portfolio was positioned aggressively during your accumulation years, this might mean positioning your portfolio to be a bit more conservative during this window to better protect against a possible market downturn. Work with your investment advisor to determine what the right asset mix should be in this window around your retirement.

This can also be a good time to consider consolidating investment and retirement accounts that might be spread around at multiple firms. It becomes much easier to monitor your asset allocation, coordinate your investments, be tax efficient, stay on top of required retirement account distributions, and manage account withdrawals when all your accounts are held at one firm.

Tax Planning

Tax planning is always an important part of the financial planning process and it’s no different as you approach retirement. One of the most important steps is to look at your projected taxes over your lifetime, which can be done more easily if you have a financial plan. While it can be difficult to project your future tax liability accurately, you should be able to identify general trends and potential windows where your income may be lower or higher than normal. Those windows could create opportunities for tax planning, such as Roth IRA conversions or realizing long term capitals at 0%.

Most people have IRAs or employer retirement plans. Required distributions from these accounts are a key component of your retirement distribution strategy. Tax planning overtime may help reduce the amount you are required to take, but that planning typically needs to be done over a number of years.

Income can also impact how much you pay in health care premiums. Prior to age 65, if you’re enrolled in a Marketplace plan through, you may qualify for a premium tax credit that helps reduce the amount you have to pay out of pocket for your premium. Your income determines the size of the premium tax credit you are entitled to, so managing your income in years you receive the credit can result in significant premium savings. Once you reach age 65, Medicare premiums for Parts B & D are means tested. Once your income reaches a certain level, you are required to pay more in Medicare premiums. Paying attention to those thresholds and being intentional about where you pull your income from can save you in premium costs if you’re a higher income individual.

The best course of action is to work with your tax expert to manage both your short term and long term tax picture.

Estate Planning

As you get older, your estate planning and legacy goals may change. Oftentimes, we see clients have an increased desire to give money to charity, both during their lifetime and at death. There are many charitable giving strategies that not only allow you to give to charity, but maximize the tax benefits associated with that giving.

Making sure your estate planning documents reflect your current wishes is critical in the event of incapacity or death. Reviewing them every 3-5 years or as your personal circumstances or estate laws change is important to ensure your estate documents will carry out your wishes as you originally intended.

Retirement can be an exciting time. It’s also important to make sure you’re working with a qualified expert to help you navigate through the numerous planning issues leading up to and during retirement.  Contact your Shakespeare Advisor if you’d like to discuss any of these topics in more detail.