Five Smart Financial Moves for Thriving Retirees and Pre-Retirees

smart retiree money moves

I’ve said it before, but it bears repeating: lots of things changed in 2020. But one thing that didn’t change—in fact, it probably became even more important—is the need to take careful stock of your retirement strategy, whether you’re already a thriving retiree or still approaching retirement. This can seem like an overwhelming prospect, but here are five specific things you can work on that will let you look forward to a smoother, more satisfying retirement lifestyle.

1. Review your expenses. This is one piece of advice that never goes out of style, no matter where you are in the life cycle. For pre-retirees, it’s important to know your number, including your best estimate for what your desired retirement lifestyle will cost. For retirees, especially in 2021, it’s vital to reassess your spending. Many of us spent a lot more time at home during 2020 because of the pandemic shutdown and the need to limit exposure to the spreading virus. If the vaccine rollout continues and begins to take hold as expected, your plans for 2021 may change. How will that affect your monthly cash flow? Now is the time to start thinking ahead and matching your plans with your financial resources.

2. Know your annual cash flow. Speaking of RMDs, if you’re a thriving retiree, you need to keep track of your required withdrawal from your qualified retirement accounts for each year. Remember, for those who reached age 70 ½ in 2019 or earlier, RMDs were required by April 1 of the year following the one when you turned 70 ½. Because of the changes in the SECURE Act, for those reaching age 70 ½ in 2020 or later, RMDs must begin by April 1 of the year following the one when you turn 72. But your retirement cash flow isn’t just your RMDs; you should also consider your Social Security benefits and any pension payments you may receive. Usually, it’s best to wait as long as possible (age 70) to begin receiving Social Security; that’s when your benefit reaches its maximum level. But even for those who choose to start earlier, it’s necessary to factor in that income as you set up your spending plan. You should also consider any income from real estate, ongoing business interests, and other non-retirement investment accounts. A professional, certified financial advisor can help you make sure you’re looking at your complete income picture and develop tax-efficient strategies for tapping your retirement savings.

3. Boost your HSA. According to recent estimates from Fidelity, the average American couple retiring at 65 will spend almost $300,000 (in 2020 dollars) for healthcare expenses during retirement, excluding long-term care costs. Any retirement strategy that doesn’t take this into account is a problem just waiting to happen. For pre-retirees who haven’t enrolled in Medicare, adding money to your healthcare savings account (HSA) gives you tax-free accumulation and tax-free spending for qualified medical expenses—and contributions reduce your taxable income. The funds can continue accumulating for as long as you need them; there’s no deadline for spending down your HSA, and no required minimum distribution (RMD) as with IRAs and other retirement accounts.

4. Review your asset allocation. With thriving retirees and other clients, I always stress the importance of broad diversification among different asset classes (especially stocks, bonds, and cash) as the best protection against market volatility. Especially for those approaching or in retirement, matching your asset allocation with your risk tolerance and your income strategy is vital. This is another area where a professional, fiduciary advisor can add tremendous value, both in insuring the proper fit between your position in the life cycle and the way your assets are deployed.

5. Develop a withdrawal strategy. Most retirees are familiar with the “4% rule,” which is really more of a rule of thumb. This concept states that you should withdraw about 4% of your retirement savings each year in order to ensure that you don’t outlive your savings. But in reality, there are many strategies available to thriving retirees that can provide retirement income, reduce the tax burden, and prolong the life of retirement savings. A professional, fiduciary advisor can work with you to develop a personalized withdrawal plan for your retirement savings that is designed specifically for your needs and takes into account your available resources.

I work with thriving retirees and those who are preparing for retirement to design smart, individualized strategies that can help to provide for a secure, satisfying retirement lifestyle. Most critically, I am a fiduciary, which means that I am legally and ethically obligated to provide advice and recommendations that place my clients’ best interests before everything else. Click here to download my report, “The Fiduciary Standard and the Individual Investor,” to learn why it is critical to have a trusted advisor guiding your retirement strategy for 2021.

Stay Diversified, Stay YOUR Course!