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AN IRONY OF PERSONAL finance is that retirement can take work. More than once I’ve heard a retiree express this sentiment: “Working was easy. Retirement is complicated.”
There is, I think, a lot of truth to this. When retirement appears on the horizon, numerous questions enter the picture. There are, of course, financial concerns: “How much will I need? Do I have enough? How should I invest my savings?” These questions are important, but they aren’t the only ones. Below are nine other topics you might include on your retirement planning checklist.
1. Work. It might seem counterintuitive to include work as the first topic on a retirement checklist. But I mention it because the traditional concept of retirement just doesn’t match reality for many of today’s retirees.
While some are happy to step out of the workforce and directly into their easy chairs, many prefer a less abrupt transition. Some spend time consulting, teaching or working part-time. Why continue working when you no longer need to? I see at least three benefits: First, it can offer welcome structure for a retiree’s daily schedule, helping to make retirement feel less like an endless weekend, with days that begin to blur together. Second, it provides socialization, an issue that’s often overlooked. Finally, it lets you keep one foot in the workforce, should you decide to return.
2. Play. Retirees, I’ve found, tend to fall into two groups. The first group say they’re so busy with family, friends and hobbies that they don’t know how they ever found time to work. Others, however, can relate to the joke about the fellow who retires one Friday afternoon. On Saturday, his first day of retirement, he gets up and happily plays a round of golf. He plays again on Sunday, and on Monday, too. But by Tuesday, he’s tired of golf and bored of retirement.
While this is perhaps an exaggeration, it highlights an important consideration: When your days are no longer spoken for by work, which of these groups do you think you’ll fall into? If you aren’t sure, this is another reason to consider keeping one foot in the workforce, so you can adjust your schedule if need be.
3. Timing. Some of the happiest retired couples I’ve seen over the years are those who coordinated their retirement dates. That ensures that one spouse isn’t left home alone, while the other continues going to the office each day. It also allows a couple to enjoy travel and other activities together. This is hardly a requirement, but—if you’re married—it’s something to consider.
4. Housing. This topic has a number of dimensions. From a purely financial perspective, I always encourage folks to enter retirement without a mortgage, if at all possible. That can provide needed flexibility if money becomes tight later on. It can also open the door to a reverse mortgage, if that becomes necessary.
There are also many non-financial aspects to the housing decision. Some might want to move to a quieter location, while others choose to move into the city, where there’s more to do within walking distance. For others, proximity to friends, children or grandchildren is the overriding factor. Depending on your age, you might consider a continuing care retirement community, commonly known as a CCRC. These offer independent and assisted living on the same campus, with the option to move between them as needed.
5. Cash flow. Many retirees orient their budgets around Social Security and required minimum distributions from their tax-deferred accounts. That isn’t unreasonable, but I suggest another approach: After determining a sustainable withdrawal rate from your portfolio, set up consistent, automated transfers from your investment account to your checking account—on the first of each month, for example. Giving yourself this sort of retirement “paycheck” makes it much easier to know whether your spending is on track. It also allows you to take more of a set-it-and-forget-it approach to money management.
6. Taxes. During our working years, most of us have little control over our tax bills. While there are strategies that can help trim taxes at the margin, they don’t begin to compare to the tax levers available in retirement.
For starters, retirees have control over the timing of their Social Security benefits. They can also choose when to realize capital gains and how much to distribute from each type of retirement account each year. In addition, retirees can choose to employ strategies like Roth conversions. Result? Retirees have quite a bit of control over their tax rate and tax bill from year to year. That’s great, but to take advantage of this opportunity, you’ll want to be more intentional with your approach toward taxes.
7. Charitable giving. In the past, I’ve discussed a tax strategy known as deduction bunching. The idea is to make larger-than-average charitable contributions to a donor-advised fund every other year, or every third year, to lift your deductions well above the standard deduction in those years. If you have charitable intentions, this can help you increase your tax savings. While the strategy can be useful for folks at all stages, it can be particularly valuable during your last full year on the job.
That’s because, assuming you don’t have significant post-retirement income, your tax rate in that final year will likely be higher than in any future year. All things being equal, that can make a deduction in your last high-income year much more valuable. To take advantage of this, I often recommend folks front-load a donor-advised fund with as much as five or 10 years’ worth of annual giving while they’re still in a high tax bracket.
8. Insurance. In addition to the all-important Medicare decision, retirees should revisit their life insurance coverage. In most cases, if you have sufficient assets to retire, you likely don’t need life insurance and could cancel your coverage. But there are some exceptions. If you have a whole life policy, for example, you want to be sure you don’t generate a taxable gain. Or, if you have a pension that doesn’t have a survivor benefit, you might want to hold onto some coverage.
9. Levers. Retirement involves many moving parts and, despite our best efforts, we can’t predict precisely how things will turn out. That’s why I recommend that retirees think in terms of levers. What levers could you pull to adjust your financial situation, if you need to do so? Some, as I mentioned, keep one foot in the workforce. Others will want to establish a home equity line of credit while their income still makes them eligible.
Even if you don’t take any specific action, I recommend sketching out a playbook for how you might navigate a costly financial challenge. Some folks know they could sell a second home, for example, while others know which expenses they could easily trim. What’s most important is to map out these options in advance. Even if you never need them, simply having these options can deliver valuable peace of mind.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on Twitter @AdamMGrossman and check out his earlier articles.
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I know everyone hates reverse mortgages. But a reverse mortgage is a good supplement for retirees who are a little short on retirement savings. Yes, someone with a reverse mortgage has to make sure their home is maintained and that property taxes are paid, or their home can be lost. This, however, is true no matter whether the homeowner is 26 or 62 or whether you have a reverse mortgage or not. Money borrowed from a reverse line of credit does not have to be paid back until everyone on the reverse mortgage loan has left the property. Another advantage is that the reverse mortgage is a non-recourse loan which means that even if the amount borrowed is greater than the value of the home at time of final sale, the amount that has to be paid back is limited to the sale price of the house at the date of sale. There is no additional amount owed at the time of sale that is beyond the proceeds of the sale price at the time when the last reverse mortgagee has died or left the property. Survivors are not responsible for debts beyond what is covered by the final sales price of the RM property. Yes, it is true that the amount left to beneficiaries of the estate could get less than they otherwise would have if there was no RM.
Do you have any advice about where to get a DAF? I’ve looked around a little and the fees seem too high for the benefit they provide. Plus the fact that technically they own the fund and may or may not take my “advice” about where the money should go etc.
I have looked at various, including a more flexible non-profit that included both the ability to initiate (get approved and participate in) projects as well as donor-advised accounts. Ultimately I’ve stuck with Schwab charitable, which like Fidelity and Vanguard, offers straightforward, low cost, totally compliant DAFs. As long as you keep up the paperwork including subsequent advisors should you be incapacitated or gone and your designated charities are US non-profits in good standing, you will not have any problems as they are in the business of serving everyone as the law allows. The fees are extremely low and the funds can be invested in pools including a broad market index pool.
Check to see if there is a community foundation in your area that allows for DAFs. They are more likely to be in it as a service versus a profit center. I maintained a DAF at such a foundation for ten years after retirement. The low operating costs of the foundation (paid staff = 1) were shared pro rata among all the funds they managed (over 100 of various types and sizes), but there was no annual fee or any fees for transactions or anything else.
We’ve had a DAF at Fidelity for five years. They have never declined a grant request. A couple of times the grants have bounced back because the charity has some issue with its bookkeeping on their end, but Fidelity has kept me informed of that.
I find the dramatically reduced paperwork, especially at tax time, a great benefit.
It’s been 8 years since I retired at the modest age of 59 and I think the issue of “Play” is among the most important. I took a year of sabbatical to address this issue before I retired and I highly recommend it for anyone who can do it and has questions about what you are going to fill your day with when you retire.
Are you aware of the reason why one cannot make a qualified charitable donation to their donor advised fund, or at least not reap the tax benefits from doing so?
The limits on schedule A are slightly different, but contributions do count. If you’re doing your own tax prep, making sure you’re putting the numbers in the right places might help. The most recent tax law changes make it possible to give a lot more if you give to direct service organizations in cash. Foundations and other DAF hosts have slightly different rules. They are still 501(c)3 non-profits, the section of the tax code that describes them. Here’s a further explanation I found online https://pce.sandiego.edu/foundation-vs-nonprofit-vs-charity/
You get a tax advantage when you make a QCD. That amount is not counted as taxable income. A DAF is not a 501(c)3 charity.
I understand the QCD part, that you can’t take the deduction twice, but as for it not being a 501c3, it is still a charity and qualifies for a schedule A deduction, right?
Adam, do you have a book I could purchase on read covering the advice you have given over the years?
I believe he is working on it.