How To Gain Confidence In Your Retirement Strategy: 5 Areas You Must Address


When you stop working for a living and have to rely on your savings to fund your retirement, it can be stressful. No longer do you have the safety of your next paycheck to tide you over. You’ll need to have your finances for the next couple decades (or more) already figured out. And the last thing you want to do is spend your golden years worrying about how to make ends meet.

That’s why it’s critical to address the following key areas so that you can approach retirement with security. By triple-checking your finances, you can hit retirement ready to roll and with the confidence to enjoy that time, secure in the knowledge that you won’t outlive your income.

5 areas to address for retirement

By working through the following areas yourself or with the right financial advisor, you can prepare yourself for the key retirement issues and go with confidence into your golden years.

Getting Social Security right

Social Security is a cornerstone of working Americans’ financial plans, so it’s important to get it right. Social Security offers a reliable stream of income that you can’t outlive, but you’ll need to consider the best way to file and how you can max out benefits in a way that fits your needs.

One way to max out your benefits is to simply wait to file, since your benefits grow over time.

“Social Security from age 62, the first year you can claim it, to age 67 has an average 6 percent growth rate,” says Kris Whipple, partner and financial advisor at Kristopher Curtis Financial in Nashville. “From age 67 to 70, the average growth rate is 8 percent. That’s a pretty good return that’s ‘guaranteed’ by a government issuer.”

Social Security is a complex program with many options, however, so it can be useful to coordinate with a spouse on how to claim, if you’re trying to max out your lifetime benefit.

“The right decision for each individual or couple can depend on several factors, including the earnings history of each person, the value of other assets and income in the retirement portfolio, and expected longevity of each person,” says Russell Hackmann, CFA, and president with Hackmann Wealth Partners in Stamford, Connecticut.

Specialized software can help you optimize your Social Security strategy.

“You can use an analytical software package like Social Security Analyzer or that can calculate the maximum lifetime Social Security income for you and your spouse and at what age to claim your benefits to achieve those maximum projected benefits,” says Vincent Birardi, CFP, wealth advisor at Halbert Hargrove.

Because Social Security offers a variety of ways to increase your benefit and it’s so vital to many retirees’ financial plans, it can also be useful to work with a financial advisor, especially one who specializes in this area. An advisor can tailor a plan that meets your needs and by looking at all your finances may even be able to help you avoid making compromises.

Ensure income sustainability

Social Security is one pillar of income sustainability, but the program wasn’t created to fully fund retirement. You’ll need other sources of income and should have the details worked out well before you retire, including how the plan can withstand economic challenges such as inflation.

Getting enough income doesn’t begin with income, however. It starts with understanding your potential expenses and then seeing how your potential income stacks up with those expenses.

“Prioritize your spending and set a budget long before you set a retirement date,” says Michael Arvay, founder and CEO of Marvelous Retirement Planners in Toledo, Ohio. “At the very least, five years prior to retirement you should have a very good idea of where and what you want your retirement to look like, financially.”

From there you can begin to build the income toward your needs. Tax-advantaged retirement plans such as a 401(k) or IRA help you amass wealth, but you’ll need to turn that into income.

“It is important to ensure that all assets in an investor’s portfolio are producing income,” says Hackmann. “Money market funds, CDs, and T-Bills can provide 5 percent or more returns on cash currently. Dividend-paying stocks can generate both current income and the long-term growth of the stock market.”

Annuities can also provide sustainable lifetime income, says Hackmann, though he acknowledges their mixed reputation. But in the right circumstances annuities can work well.

“The best lifetime income annuities offer solid guarantees of lifetime income, reasonable costs and legacy value for beneficiaries,” he says.

Retirees will need to balance lower-risk stable income from sources such as bonds with the growth offered by stocks, helping them continue to increase their assets.

“I always recommend taking less risky investments in retirement or at least having your portfolio diversified enough to where a large market downturn won’t cripple your retirement,” says Arvay.

Finally, it’s important to remember to factor inflation into your plan.

“One of the common mistakes we see of pre-retirees coming in to talk about when stepping into full retirement is that they do not include inflation in their own calculations,” says Whipple. He recommends factoring inflation and taxes into your calculations to create sustainability.

With so many moving parts of your income plan, it can be valuable to consult a financial advisor.

Optimize your tax situation for income

Closely related to your income is your tax situation. Optimize your taxes and more money stays in your pocket. But that means you need to understand the tax effects of various actions.

For example, if you’ve contributed to pre-tax accounts such as a traditional 401(k) or traditional IRA, you’ll generate taxable income when that money comes out of your account. In contrast, with after-tax accounts such as a Roth IRA and Roth 401(k), money comes out tax-free.

If you have both pre-tax and after-tax accounts, you’ll need to figure out how to balance withdrawals from each to minimize the tax impact. Another wrinkle for tax optimizers is that pre-tax accounts have required minimum distributions once you hit a certain age.

For example, it can make sense to withdraw from pre-tax accounts first, since you’ll pay taxes at a lower rate. Then if you need more income in a given year, you can withdraw from tax-free Roth accounts. This strategy also keeps more money growing in your tax-free Roth for later.

Of course, to get to that point, you’ll need to be making smart decisions along the way.

“Contribute the maximum annual limits to available tax-deferred retirement accounts,” says Birardi. “Allow your contributions to compound tax-deferred over time to further grow your retirement account balances.”

And if you have pre-tax accounts, you do have the possibility of converting to Roth accounts, but you’re likely to pay significant taxes along the way. Still, it may make sense to do, but you’ll need to run the numbers to see, and a certified financial planner can help you do so.

Factor in healthcare

Healthcare is expensive and it only gets more expensive as you get older. For those with plenty of assets, paying for healthcare won’t be any problem when the time comes. However, others may want to consider carefully what options they have and plan well ahead for rising costs.

One easy step is to use a health savings account (HSA), which offers numerous benefits.

“An HSA is a triple tax-free vehicle for planning to pay out-of-pocket healthcare expenses,” says Birardi. “Contributions are not taxed, capital gains are not taxed and lastly distributions are not taxed if they’re used to pay for qualified healthcare expenses.”

“Though you can’t contribute to an HSA once you receive Medicare, you can contribute now and use your HSA to help offset the higher bills,” says Whipple.

Long-term care policies are also an option, helping to pre-pay for expenses, but some experts say they’ve become unaffordable. Even if you do get one, it’s vital to understand what it covers.

“There are nursing home care needs, in-home healthcare needs and even needs for how you’re going to do upkeep on your primary residence,” says Arvay.

Calling in an expert with healthcare experience can also be worthwhile, too.

“Speak with someone who has vast experience in supplemental care to design a proper health plan based on your medical history, as well as needed prescriptions and eye care,” says Arvay. “This person should be able to recommend what plans are best for your needs.”

You’ll need to incorporate the cost of any Medicare supplemental plan in your budget, and your investing plan should have growth assets to help you cover the rising costs of healthcare.

Prepare yourself mentally

Understanding the financial issues can help give you greater confidence when it’s time to retire.

“Clarity is the number one way to offset the mental anxiety retirement can bring,” says Whipple. “Too many retirees have their fingers crossed, hoping their money will last their lifetime. Hope is not a plan.”

“Connecting with your advisor or retirement specialist and putting a plan together that shows the longevity and preparedness for inflation and medical bills will help you to feel confident in retirement because you can see what’s needed moving forward,” he says.

Beyond that, you should look forward to doing the things you want to do, even ones that don’t necessarily require money. With no office to report to, you have plenty of time to do things.

“Retirement is a new way of life and frankly starting over can be difficult, so I advise you figure out what you love to do and do it,” says Arvay.

Bottom line

Gaining confidence in your retirement strategy requires you to understand many different aspects of your retirement – your expenses, retirement accounts, taxes and more. Then putting that understanding into action will provide even more confidence as you move toward your goal.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.


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