What Should I Prepare for Now That I am Retired?

October 23, 2020

You’ve been planning for retirement for the bulk of your adult life — saving diligently, doing the math on how much you’ll need to live the lifestyle you want, and so on. But now, retirement is here. So what’s next?

Retirement isn’t the finish line. Managing your money after you retire is arguably even more important since you’re not likely to have a predictable income from your salary. In a lot of cases, that means you’re going to have to make the money you have on hand last for the rest of your life, however long that might be. So how do you go about making sure you can live the retirement life you want? There are a few things you should keep in mind.

Pre-Retirement Planning

The best time to start saving for retirement is yesterday, but the second-best time is right now. If you’re not retired yet, it’s never too early to start planning, and we can help. At First Western, we’ll take into account every aspect of your personal finances, from the money you’re bringing in to the lifestyle you want in retirement, to create a plan that will get you where you need to be.

Financial Risks in Retirement

Everyone faces financial risks throughout their lives that they have to plan around, and sometimes those risks become emergencies that have to be dealt with. Job loss, accidents, illnesses, business failure, and unlucky investments can all have a serious impact on your financial health, especially when you don’t have a consistent income to help you get over speed bumps.

But those are the obvious risks. There’s more that you’ll have to be ready to deal with:

• Inflation: though it’s usually pretty predictable at around 3 percent a year, spikes in the cost of certain living expenses like housing and travel can put a dent in the nest egg you’ve saved for yourself.
• Investment ups and downs: In the last 15 years alone, we’ve seen the stock market as a whole plunge twice, and individual stocks and funds fall much more often than that. If your investments take an unforeseen bad turn, the value of your retirement account can suffer substantially.
• Medical and caregiving expenses: you can do your best to plan for medical emergencies and cover yourself with insurance policies, but coverage changes and some unforeseen medical problems can cost hundreds of thousands of dollars, even with insurance.

Managing Your Assets

Managing your assets takes on extra importance after you’re retired. You don’t know how long you’ll need your nest egg to last, and you’re unlikely to have a significant income stream coming in, so managing risk and the allocation of your funds is vital.

Stocks and index funds are a great way to keep your retirement savings growing in size, since you can expect gains of roughly seven percent a year from the stock market, but there’s still risk involved. In the most recent crash in March of 2020, even the historically stable S&P 500 lost more than a third of its value — those who needed that money to pay for their living expenses were caught in a bind.

The temptation is to cash out entirely and put your money somewhere stable like a savings account or a CD ladder, but that comes with risks, too. You’ll pay capital gains taxes on whatever you sell, which can cut into the value of your investments significantly. The best balance is somewhere in the middle, but the specifics of asset allocation will depend on your unique circumstances.

Talk to First Western

Planning for retirement can be complicated, but planning for your post-retirement life is just as important. You need to know where your money is coming from, what your budget will look like, and what you want to leave behind. You need to balance retirement income, savings, and expenses to ensure that you’re comfortable and secure for as long as you need to be. If you’re ready to take your retirement planning seriously, get in touch with First Western Trust Bank today.