You’ve finally made it! You’ve picked a retirement date and can’t wait to start traveling, trying new hobbies, or getting around to working on home projects you’ve been putting off during your working years. But have you made the necessary preparations for post-retirement to avoid having financial issues?

If you haven’t mapped out your budget and taken into account costs and taxes, instead of exciting, post-retirement can become expensive and unpleasant quickly. Here are four tips to keep in mind while you’re figuring out what your retirement “paycheck” should look like and what lifestyle you can afford:

1. Solidify your budget in advance. You won’t know how much you’ll need to live until you know what you’re spending. Many experts recommend drawing up a preliminary retirement budget a few years before actually retiring and sticking to it as best you can. That way, by the time you retire, you’ll have a better idea of what your spending will look like and can make adjustments as needed.

2. Understand the sources of income that are available to you, how much you should withdraw each year, and the best order in which to tap them. Most people will be relying on some or all of the following: Social Security, a pension or a 401(k), an IRA (traditional or Roth), and bank savings. Figuring out the best way to maximize your retirement income and how much to withdraw each year is a critical component of your post-retirement financial plan. If you withdraw too much from your retirement investments, for example, you may have to pay a high-income surcharge on your Medicare benefits. 

3. Plan for Uncle Sam. Unless your assets are entirely in a Roth IRA, you may be in for a shock if you start taking large withdrawals from your retirement accounts. A good rule of thumb is to have 20% to 25% of your total withdrawal amount withheld for Federal income taxes. If your budget requires an $8,000 net monthly withdrawal, “gross up” that amount by $1600 to $2000 to account for taxes (in other words, change your total withdrawal amount to $9,600 to $10,000 each month). Also, remember that you may owe taxes on your Social Security benefits, depending on your total income (for Federal income tax) and where you live (for state income tax).

4. Account for healthcare costs. Depending on your pre-retirement healthcare arrangement, your healthcare costs could increase significantly after you turn 65 and sign up for Medicare (you can actually enroll three months before your 65th birthday). Medicare premiums can be significantly higher for high-income retirees than low-income ones and you may face penalties if you don’t enroll on time, so you want to account for these in your budget and drawdown plan.

These are just a few of the many considerations you’ll have to face when you first retire. That’s why working with someone experienced in investment planning, Social Security, and taxes can set you up for retirement success. You can set up a free, no-obligation consultation with one of our advisors by clicking here.


Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k)administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

Lifestyle Planning