SNEAKY RETIREMENT FACTORS YOU MUST CONSIDER

Retirement is one of the biggest financial decisions you will make in your lifetime. While many people focus primarily on how much money they have saved or how much retirement income they will receive, there are other important factors that can significantly affect how long their money lasts.

Your lifestyle, income taxes, and inflation can all affect your financial security during retirement. Understanding these factors before you retire can help you make better decisions and create a more realistic retirement plan.

Since the pandemic, many people have chosen to retire earlier than they originally planned. Some have successfully remained retired, while others have found themselves returning to work.

The retirement process can be complicated, and many people are uncertain about how to make such an important financial decision.

Retirement is not simply about determining whether you have enough money saved. You also need to understand how your expenses may change, how taxes may affect your retirement income, and how rising prices can reduce your purchasing power over time.

Through my experience helping people navigate retirement decisions, I have seen how differently individuals prepare for retirement.

Some people are extremely meticulous with their planning, while others enter retirement with very little preparation.

Figuring out where your retirement income will come from may actually be one of the easier parts of the process. The more difficult challenge is determining how much money you will need to maintain your lifestyle throughout retirement.

Three factors that are frequently underestimated are:

• The cost of your retirement lifestyle
• Income taxes
• Inflation

Ignoring these expenses can significantly affect how long your retirement savings will last.

• Your Retirement Lifestyle

Before retirement, you usually have an established daily routine. You go to work, follow a schedule, and generally have a good idea of what your regular expenses will be.

Retirement changes that routine.

Suddenly, you may have considerably more free time. You may travel more often, eat out more, pursue hobbies, spend more time with family, or participate in activities that were difficult to fit into your schedule while you were working.

These activities can create new expenses that may not have been part of your original retirement budget.

Understanding what your retirement lifestyle will actually cost is an important part of determining how much income you will need.

• Income Taxes

Taxes are another factor that retirees sometimes underestimate.

If your expenses are higher than expected, you may need to withdraw money from retirement accounts sooner or more frequently than you originally planned.

Larger taxable withdrawals may result in higher income taxes and can cause your retirement savings to decline more quickly.

The amount of taxes you pay will depend on your individual financial situation, your sources of retirement income, and the types of accounts from which you withdraw money.

For this reason, tax planning should be an important part of your overall retirement strategy.

• Inflation

Inflation is another important consideration because the cost of goods and services generally increases over time.

Gasoline, groceries, utilities, healthcare, household supplies, entertainment, and many other everyday expenses can become more expensive throughout your retirement.

As prices increase, you may need more income simply to maintain the same lifestyle.

That can mean withdrawing additional money from your retirement savings, which may also increase the amount of taxable income you receive.

A retirement lasting 20, 25, or even 30 years requires a plan that accounts for how your purchasing power may change over time.

Retirement can bring tremendous opportunities, but it can also create financial uncertainty.

One of the best ways to prepare is to develop and follow a comprehensive financial plan.

Your retirement plan should include an understanding of:

• Your expected retirement income
• Your anticipated lifestyle expenses
• Your retirement savings
• Your potential tax obligations
• The effects of inflation
• Unexpected expenses and emergencies
• How long your financial resources may need to last
• 
  

A thoughtful retirement strategy can help you organize your resources more effectively and make financial decisions with greater confidence.

The goal is not simply to retire.  The goal is to create a retirement plan that allows you to enjoy your life while helping your financial resources last for years to come.

Art De La Rosa
Financial Planner
USC Graduate | Author
23+ Years of Experience

Wealthy Dollar provides financial education and planning guidance. Individual financial and tax situations vary. Consider consulting the appropriate qualified professional regarding your specific circumstances.