5 Pillars of Retirement Planning

Retirement planning is made up of several components; these are the 5 pillars of retirement planning. It is important to be familiar with these pillars so you can be prepared for every avenue. In this article, we will go over the 5 pillars of retirement planning.

Income Planning

It is important that you understand the true repercussions that no longer receiving a regular paycheck will have on your finances. Part of your retirement plan needs to include a way to replace this income. Many people rely on social security to do this, but it is usually not enough, and you need multiple streams of income. With life expectancy now you may need these income streams to last thirty years or longer. Some examples of retirement income sources include pensions, annuities, IRAs, Roth IRAs, and 401ks.

Investment Planning

As you get closer to retirement you need to take on less risk. But this does not mean you should completely stop investing. When you invest you need to do so in a way that will protect your money from market volatility, reduce risk, while still allowing for portfolio growth. You should also perform a periodic fee analysis to make sure your fees are not substantially eating into your profits.

Tax Planning

As part of your retirement planning your need to assess the taxable nature of your current holdings and analyze how you can draw on them in a tax efficient manner. When you begin withdrawing from traditional IRAs or 401ks, those funds will be taxed as ordinary income. So, you need to plan ahead for how you are going to handle that. One way is to draw from taxable and tax-free accounts, such as a Roth IRA. This helps reduce the tax burden at the end of the year. Some people even choose to convert their traditional IRAs into Roth IRAs, paying taxes in a lump sum on conversion.

Health Care Planning

Health care tends to become a larger portion of your expenses as you age. Health care costs are also on the rise, so you need to factor that in. It is a common misconception that Medicare will cover all costs. It is a cost-sharing plan and will not cover long-term care. You need to plan ahead to make sure you can cover these costs. One way is by funding a long-term care insurance policy.

Estate Planning

After you enjoy your money during retirement, you will want to pass your leftover funds on to your beneficiaries. A proper estate plan can do this while helping you to avoid the lengthy and expensive process of probate. You can do this with a living trust. The sooner you plan the better, do not wait until you are very old or sick.

Successful Retirement Planning

By implementing the 5 pillars of retirement planning you can have a successful retirement. The sooner you start planning the better and stronger your plan will be.

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