It is good to have a retirement plan, and it should start with… When Do You Want To Retire?
For some it is that magic age of 65. For others who are self-employed (like me) or who really enjoy what they do… that time is pushed down the road some.
Regardless of the age you plan on retiring, it is a good idea to shift your investment strategy from building your nest egg to determining how your portfolio will support your standard of living through your lifetime.
This window of time gives you the opportunity to rebalance your portfolio, look at other income sources and make some tax moves. Here are some investing rules that may help:
- Catch-Up Rule – The IRS allows you to at the age of 50 and older to put extra money into your retirement account. In 2026 you can put $8,600 into an IRA. If you make these catch-up contributions into a pre-tax retirement account, such as a 401(k) or traditional IRA you also get a tax deduction for your contribution.
- Bucket Plan Rule – This strategy plans for the now, the next 2-10 years and the after 10 years. Think of your portfolio as 3 buckets. In the first one is income for now and the next 2-3 years. It can help cover expenses that your monthly income does not. The 2nd bucket is to help you maintain the lifestyle you want in the early years of retirement and make adjustments for inflation. These funds can be invested but should focus on preserving or income – producing strategies. The 3rd bucket is designed for long term growth, income planning, health care and legacy planning. Have your investments in this bucket align with your goals and risk tolerance.
- Risk Tolerance Rule – It is important when designed your buckets to be comfortable with your choices. There is enough stress in day-to-day life and since you have choices and are able to adjust your portfolio to your risk tolerance… managing your financial picture should not be stressful.
- Health Coverage Rule – Although Medicare comes into place at age 65, the years leading up to that can be expensive ones. Premiums, deductibles, and out of pocket costs can vary from year to year. Understand how Medicare with the different parts actually work. It comes with its own rules for enrollment. As we age, our health needs become more important, so having good health care coverage that you understand and that works for you is important.
- Tax Window Rule – Understand the current tax laws and how you can benefit from them now. At age 73 you must take your RMD (Required Minimum Distribution) which makes you take money out of your traditional pre-tax retirement accounts. This could put you in a higher bracket and trigger tax on social security and Medicare premiums. Also, if one spouse dies, household income often declines but you have to go to a single status for taxes which often puts you in a different tax bracket.
As a financial planner I have over the years met with many folks to discuss retirement. I am always happy when they come to me 4-5 years ahead of time to plan for the retirement years. I never like to have to tell people that retirement is not really doable based on their portfolio and the lifestyle they want to live. It is never too early to build a map for turning your savings into a retirement that will last your lifetime.
You can contact me through Coach4Retirees, Inc. or call my cell at 814-931-1043 if you have any questions or would like to learn more.