Retirement is a major life shift, and it often comes with a mix of excitement and uncertainty. Many people approaching this stage wonder if they are truly ready, and recent surveys show that a majority of Baby Boomers feel the same way. That uncertainty is normal, but it is not permanent. With the right retirement plan, you can replace doubt with clarity and move into this next chapter feeling prepared.
The key is to ask the right questions before you retire. Doing this early helps you understand your options, stay aligned with your personal goals, and feel more confident about the decisions that will shape your future.
1. How Will I Maintain a Consistent Cash Flow in Retirement?
On average, Social Security covers roughly 39% of one’s income in retirement. So, where will the other 61% come from? It’s essential to have a proper cash flow plan for retirement so you can maintain a consistent income. There are a few potential sources of retirement income, including working part-time, retirement accounts, pensions, fixed annuities, savings, and other investments. Looking at all these income sources, you’ll want to determine if they’ll cover your needs.
If your projected expenses don’t match your income and savings, you’ll either need to reconsider your expenses or increase your retirement income. Consider working part-time, contributing more to your retirement accounts, and developing a strategy to generate more income from your retirement portfolio. This can be done by ensuring your asset allocation still meets your risk tolerance and time horizon, and investing in assets that will diversify your income stream.
2. How Will My Investments Hold Up in Various Market Conditions?
Market volatility can mean the difference between living comfortably in retirement or just scraping by. Facing a decline in the early years of retirement can be disastrous. Considering those who retire during or near a bear market are more likely to run out of money, it is crucial to understand how your investments may react during an economic downturn.
It’s important to regularly analyze your portfolio to ensure that it lines up with your risk level and that you haven’t become too reliant on any one asset category. It may be time to diversify your portfolio (if you haven’t already), rebalance, and utilize a Monte Carlo simulation to stress test your plan. This can help you see how your portfolio will react to various market conditions.
Inflation can be your biggest enemy in retirement because it slowly increases prices year after year. Over a 20–30 year retirement, even “normal” inflation can turn a comfortable income today into a tight budget later. This is why leaning too heavily on fixed-income investments in retirement can be risky. Bonds may feel safer because they don’t bounce around as much as stocks, but bonds have historically had a hard time keeping up with inflation. That’s why assets earmarked for spending more than three to five years down the road should be invested in a diversified equity portfolio, which has historically shown potential to help protect purchasing power over the long term.
3. When Should I Claim Social Security Benefits?
Social Security benefits can be claimed between the ages of 62 and 70; however, the timing of benefits will impact the total amount received.
Early Retirement
You can start receiving benefits as early as 62, but your monthly benefit will be lower than if you waited longer. Your basic benefit is reduced by a fraction of a percent for each month you begin receiving benefits prior to full retirement age. Retiring early can permanently reduce your benefit by up to 30%.
Full Retirement Age
Your full retirement age (FRA) changes based on the year you were born. FRA is 66 for those born between 1943 and 1954 and increases by two months for every year after that you were born until it settles at age 67 for those born in 1960 or later. If you wait until you reach full retirement age to begin collecting your Social Security benefits, you will receive your full benefit amount.
Delayed Benefits
If you’re still working or don’t need the money immediately, you can delay receiving your benefits. Your benefit will increase by 8% for each year you delay. You cannot delay and increase your benefit indefinitely, though. Once you reach age 70, the amount of benefits you receive will not increase any further.
Be sure to reference your Social Security statement in the years leading up to retirement. This important document tells you a lot about your expected benefits, so it can help you in your decision-making process.
In general, the best time for you to claim your benefits depends on your personal situation and health. If you expect to live longer than average, your overall lifetime benefit will be greater if you delay claiming your benefits to increase your benefit amount. If the opposite is true and you see little chance of making it into your mid-80s, you would likely receive a greater lifetime benefit by taking it sooner, even though it would be a smaller monthly payment.
While your life expectancy is an important consideration, married couples should consider their joint life expectancy. Social Security is often framed as a personal decision, but for married couples it’s really a joint strategy. The timing of each spouse’s benefit affects not only today’s monthly checks but also what a surviving spouse may have to live on down the road. In many cases, it can be wise for the higher earner to delay benefits to strengthen that future survivor benefit, while the lower earner claims earlier to help with current cash flow. Married individuals should not make the claiming decision in isolation.
4. Am I Properly Utilizing Tax-Reduction Strategies?
As the saying goes: “It’s not how much you make, but how much you get to keep that matters.” This is especially true as you approach retirement. Once your income sources become fixed, managing and minimizing your taxes should be your top priority. If you haven’t already, consider working with a financial advisor to review your potential options, including:
- Charitable donations
- Qualified charitable distributions
- Roth conversions
- Health savings accounts
- Tax-loss harvesting
Your income plan during retirement will also play a major role in how long your money will last and how much will be lost to taxes.
Each retirement asset has different tax characteristics, whether it be a 401(k), a Roth IRA, an annuity, or some form of equity compensation, and understanding the timing of distributions from each source is a significant part of managing your overall tax bill in retirement.
5. How Much Can I Expect to Spend on Healthcare?
Choosing the appropriate insurance coverage is the first step to take when planning for unexpected healthcare costs in retirement. According to a Fidelity Retiree Health Care Cost Estimate, the amount needed at 65 to cover healthcare costs for a couple is roughly $330,000 after tax. For those who had employer healthcare coverage, retirement may mean paying more for medical insurance (Medicare Parts B and D and Medicare Supplement policies). Even with insurance, some expenses will be paid out of pocket.
Planning for unexpected healthcare costs begins with choosing appropriate insurance. For those aged 65 and above who are eligible for Medicare, it means understanding options under Medicare and choosing insurance to supplement Medicare. Take a look at your eligibility and premium estimates to get an idea of what to expect. Thorough research of your supplemental coverage options can help ensure your healthcare costs won’t eat into your retirement savings.
One more key piece of the health care puzzle is long-term care. Many people assume Medicare will cover an extended stay in an assisted living or nursing facility, or ongoing help with things like bathing, dressing, or memory care, but it generally does not. Those costs can be significant and should be planned for. Options include exploring long-term care insurance, earmarking specific assets for long-term care needs, or talking with family members about how care would be handled. Planning ahead for this can help protect both your retirement income and your loved ones.
Your Trusted Partner in Retirement Planning
Retirement planning can feel like a lot to navigate, but it doesn’t have to be stressful. At Tapparo Capital Management, we walk our clients through the transition to retirement step by step, focusing on the questions that really matter and giving them the clarity to make confident decisions.
If you’d like to see how we can help you feel ready for this next chapter, schedule a complimentary introductory meeting today. Reach out to us at 978-887-1121 or email andrew@tapparocapital.com—we’d love to connect and explore your retirement goals
About Andy
Andrew Tapparo is a fee-only financial advisor at Tapparo Capital Management, a financial planning firm in Topsfield, MA, helping clients turn their savings into a retirement income that lasts. Inspired by the quote “Choose a job you love, and you will never work a day in your life,” Andy founded Tapparo Capital Management in 1997 with a passion for helping clients enjoy a truly worry-free and fulfilling retirement and experience financial freedom. As a Retirement Income Certified Professional (RICP®), he designs retirement strategies along with sound money management to help clients retire with confidence.
Andy holds a Bachelor of Science in Industrial Engineering from Rochester Institute of Technology in Rochester, New York, and a Master of Science in Finance from Bentley University in Waltham, Massachusetts. Specializing in retirement income planning, Andy completed a comprehensive financial industry education program at The American College of Financial Services and was awarded the Retirement Income Certified Professional® designation. He is frequently quoted in the media as a financial expert.
Andy and his wife, Susan, live in Topsfield, Massachusetts, and have two beautiful daughters. Outside of work, he is an automobile enthusiast, enjoys taking road trips, and loves the Outer Banks of North Carolina. In his spare time, he volunteers with the local high school varsity girl’s basketball team as the team statistician and runs the team’s website. He is passionate about supporting charities that serve our veterans and their families. To learn more about Andy, connect with him on LinkedIn.
