After decades of work, you want to enjoy retirement on your own terms. It’s a big deal with a lot at stake. But a quality retirement doesn’t just come together. You need effective financial strategies set for protecting your retirement financial security.
Even if you have been diligent about saving for retirement, various risks can take your plans off the rails. Unexpected financial snags could force you to work longer, downsize your retirement dreams, or settle for less in other ways. That is why having strategies that protect your retirement is so important.
With careful and well-thought-out planning, you can safeguard your financial outlook and put yourself in a better position for a comfortable, stress-free retirement. Of course, no two people are ever the same, so these strategies may look different for various situations.
Let’s get into ten simple and effective ways for protecting your retirement and making the most of your post-career years. Once you have gone through these options, consider reaching out to an experienced financial professional to see how they can assist you.
1. Map Out Your Retirement Needs
Say that you were traveling to someplace unfamiliar and had no idea of how to get there. Would you venture out without a map, GPS, or other means of directions? Of course not.
Retirement planning isn’t any different. Before you retire, you need a financial plan that maps out your expected retirement spending and income needs. Once you say goodbye to your career, your income goes away, whether it’s from career salary pay or earnings from entrepreneurship. That income needs to be replaced somehow, and it needs to last for however long your retirement might be.
To that end, you can look into creating projections for what your spending may look like in retirement, and how much income you think your retirement investments can generate. Not sure about how much you might spend? No sweat, your current spending will be a great clue-in.
What does your desired lifestyle look like? How much are you currently paying for your monthly living expenses? How might your retired lifestyle be different from your present lifestyle?
Will you have your home paid off? Do you expect to spend less on transportation, as your work travel goes away? Will all your children be out of the house? What sort of activities do you plan on pursuing in retirement, and what will they cost?
Also think about outstanding debts and ways to address that before retirement. Otherwise, debt loads can eat into your income and shrink the pot of retirement money that you could tap.
Knowing your financial needs will help you set clear retirement goals and create a roadmap for achieving them.
2. Prepare for a Long Retirement
With modern technology, wellness, and healthcare, today people can spend several decades in retirement. Many financial experts say that retirement can span as much as one-third of someone’s lifetime.
According to Nobel laureate William Sharpe, the “nastiest, hardest problem in finance” is running out of money in retirement. Your income needs to last for as long as you need it, but it’s very hard to predict just how long your retirement might be. An effective approach is to aim for at least a 30-year span in your income planning, which can give you more flexibility in later years if any changes are needed.
Our personal medical and family histories can give an idea of whether the golden years might be longer or shorter in our case. If you expect that retirement may be on the shorter end, then such a long planning timeline may not make the most sense.
Even so, taking a careful long-term financial perspective can help ensure that your savings and investments will sustain you comfortably for many years to come. This proactive planning can also bring you more peace of mind.
3. Seek Professional Guidance
Retirement planning has a lot of moving parts. Many financial professionals bring valuable knowledge and experience for different situations, but not all of them are well-versed in retirement matters.
During your earlier career, you may have worked with a financial advisor who worked to grow your investments in value. Their specialty was accumulation, or helping you build up a nest egg.
However, in retirement, things change. The focus is on the distribution of assets, or in other words, tapping your investments for retirement income. In the pre-retirement years, the priority is preservation, or protecting what you have accumulated so that you have financial resources later on for income.
Protection and distribution are far different from investment growth. You need someone who knows the unique nuances of retirement: lifelong income, taxes, long-term inflation, health and long-term care, legacy wishes, and more. They should have a strong background in helping others have lifelong financial security in retirement, so that they can bring that expertise to your situation.
Your financial professional should be a good listener, asking active questions and taking strong measures to learn about your goals, concerns, and personal circumstances.
Based on your financial picture, they can build a personalized plan that is uniquely tailored to you. The bottom line is that working with an experienced professional can make a big difference.
4. Save Wisely
It’s common knowledge. Saving enough money for retirement is a crucial step toward a secure and comfortable lifestyle. You can look at your current savings progress and see if it’s good to sock more away.
How much should you have in retirement savings? Your target retirement savings goal will vary largely on your age. To get to those targets, financial experts recommend putting away at least 15% of your annual income.
If you have an employer match with your 401(k) or another workplace retirement plan, take advantage of it. That builds up your account with “free money” and can snowball your plan account balance.
There are a variety of rules of thumb to evaluate your financial progress near retirement. One back-of-envelope calculation is the 25x rule, which says that if you have saved 25 times what you would like your annual retirement income to be, that money will last for 30 years.
Of course, this rule has downsides (as the other retirement-saving guidelines do), and some products such as annuities can help you maximize your income with less money than what they might suggest. This is why the mapping of your future expected spending and income is so important.
5. Diversify Your Portfolio
As you approach retirement, diversification becomes more crucial for the purpose of risk mitigation. It spreads risk out across your entire portfolio.
The asset holdings that have more risk offer growth potential that can keep up with inflation. Those holdings include stocks, mutual funds, and other market-based investments. Low-risk asset holdings can help balance out the riskier holdings, but their growth potential isn’t as great. Those include fixed-type annuities, bonds, CDs, and other interest-earning instruments and investments.
A well-diversified portfolio can help protect your savings during market fluctuations, especially when you are in the retirement risk zone (the years leading up to and just after retirement).
6. Explore Low-Risk Options
We already talked about low-risk assets as part of a diversified portfolio. You might want to look at low-risk assets that come with contractual guarantees for lifetime income, growth, or protection.
While some of your investments should aim for growth, consider putting some funds into certain low-risk options, such as annuities. Annuities are the only financial vehicle that can pay you a guaranteed income for life. With how insurance companies pool their risk from their annuity obligations, you may be able to generate more income with less money than what other financial vehicles could do for you.
The bottom line? These options can provide a steady stream of income and safeguard the money you can’t afford to lose.
7. Maintain an Emergency Fund
Life throws curveballs. To be ready for unexpected expenses, it’s good to have an emergency fund, which is a bucket of money that is liquid and separate from your investment portfolio. That can help you cover unforeseen expenses without having to dip into your retirement investments (and drawing down an account balance that may be up or down with whatever markets are doing).
Think of retirement in three groups: the “go-go” (ages 60-75), “slow-go” (75-90), and “no-go” (90+) years. In the go-go years, financial professionals recommend keeping an emergency fund with at least six months’ worth of monthly income. When you move into the mid-70s club and beyond, you might aim for an emergency fund of 12 to 18 months’ worth of income.
Costs for housing and healthcare are among the expenses that generally go up in the slow-go and no-go years. These liquid funds can help you be financially ready for those situations. You may also look for ways to reduce your expenses in other areas.
Which brings us to the next point.
8. Account for Inflation and Healthcare
Inflation and healthcare spending are two of the most important financial factors to consider in retirement planning.
Inflation adds up, and it will eat into the purchasing power of your retirement savings over time. Don’t forget to include inflation in your income planning. Your yearly spending estimates could go up by a certain amount each year, such as 2-3%, so that you have some basis for what inflation may look like. An experienced financial professional can walk you through some ideas for that.
Healthcare and long-term care each can also cost a bundle, especially in later retirement years. Don’t forget to include them in your retirement income planning. Your financial professional can assist you with that if needed.
Explore ways to stretch your dollars. For instance, various long-term care insurance, annuity, and life insurance products can pay multiples on long-term care benefits for each dollar of premium that you put into them.
You can also make your money go further with Medicare supplement plans, cost-saving prescription drug plans, and other health options that provide some financial relief. If your employer offers continuing health coverage for you or your spouse into retirement, you may want to look into that as well. Talk to your insurance and financial professionals for more input on what the options for that might look like.
9. Set Expectations with Loved Ones
Retirement is more than just financial planning. Your relationships with loved ones and money also come into play. Part of that discussion is around financial support.
To protect your retirement, it’s good to have open and honest discussions with your adult children and other loved ones about financial expectations. Yes, it’s good to provide support for family members. But if it’s at the expense of putting your financial security in jeopardy, you won’t be in a good position to help others or yourself.
Being clear about expectations, boundaries, and ongoing communication with family as life unfolds can help with avoiding unnecessary conflict, broken relationships, or emotional pain.
10. Regularly Review and Adjust Your Plan
Retirement planning isn’t a one-and-done thing. Your plan shouldn’t not be set in stone. Life changes happen, and your financial plan should adapt to those.
Regularly review your plan with your financial advisor and adjust as needed to make sure it aligns with your current goals. At minimum, aim for an annual financial review. You may have health changes, have beneficiaries to change on accounts, need a new strategy to deal with long-term care expenses, or face other changing life circumstances.
Routine follow-ups with your financial professional can help you meet challenges from these changes and keep your plan on track.
The Bottom Line on Strategies for Protecting Your Retirement
Nothing is 100% foolproof in protecting your retirement, but thoughtful and proactive planning can help you be more financially secure. It helps to keep these 10 challenges, opportunities, and strategies in mind as you think about your financial future.
Mapping out your retirement income and spending needs gives you a roadmap for where you are headed. From there, you can estimate how much you should have in retirement savings. Rules of thumb such as the 25x rule can also work as a quick pulse take, but aren’t a replacement for a personalized savings plan. An experienced retirement financial professional can help you answer these questions.
Diversifying your portfolio, maintaining a bucket of money for unexpected expenses, and exploring low-risk options with contractual guarantees can keep your plan on track. Don’t forget about inflation and healthcare spending, which could otherwise put a big dent in your retirement budget.
Finally, retirement planning is about more than just money. Open and honest communication with your loved ones lets you sidestep misunderstandings and unneeded conflict. And communication with your financial professional is also important. Routine financial reviews with them can help you adapt to changing life circumstances.
These points are just a starting point for helping you get into the driver’s seat of your retirement. If you are looking for an independent and knowledgeable financial professional to help you with your personal situation, many are available here at SafeMoney.com. Get started by visiting our “Find a Financial Professional” section to connect with someone directly. You can request an initial appointment to discuss your situation. Should you want a personal referral, please call us at 877.476.9723.