In a world where political ideas come and go, trends surge and falter, revolutions bloom and then fade, a few foundational concepts for retirement remain true: Income is of prime importance, planning for your specific circumstances will increase your financial stability, most retirement calculators are seriously flawed, and you can lessen – but not eliminate – the burden of taxes.
We recently completed a survey of the advice I have offered in this space for the past five years. Here are 10 retirement building blocks that I expect will remain useful no matter how long your retirement lasts.
The retirement foundation
To understand how to build a solid retirement, start with the idea that income is the prime goal. Savings are good, but only if they can be converted into spendable income to maintain the quality of life you had before retirement.
Income is money that you can count on whether the stock market is plunging or your party is out of office. Social Security and company pensions set the standard.
Think about retirement in two stages
Too much of the financial literature treat retirement as a single event. We are generally living longer, however, and our requirements change during those additional years. I plan for a two-stage retirement to account for different needs and wants as we mature.
Optimize Social Security
For most of us, our Social Security payments represent a substantial percentage of our retirement income. Waiting to tap this valuable resource will increase your payments.
Minimize taxes
If you have a 401(k), a rollover IRA or own securities that have appreciated, taxes may take a large chunk out of your retirement savings. I explain how to defuse this tax bomb. I also believe it is prudent to minimize taxes and manage for income.
Learn about income annuities
Especially around Tax Day, you will hear many opinions about income annuities.
Why retirement calculators may fail you
There is no magic number for your retirement savings. Calculators generally input your retirement age, your income goal and the number of years of payments, and then solve for amount of savings you need.
Based on the results, the calculator (or an advisor) will tell you to save more or spend less.
Add deferred income annuities and QLAC to the equation
A deferred income annuity from a top-rated insurance company can provide income guaranteed for life at a date in the future, similar to Social Security or a company pension.
For the second stage of retirement, an income annuity called a Qualifying Longevity Annuity Contract, or QLAC, purchased out of your Rollover IRA account can provide income to cover late-in-retirement expenses.
Develop spendable income
During your working years, you depend on getting a regular paycheck. Dependable, spendable income is the key to retirement, too. However, a large savings account doesn’t necessarily translate into income.
Save a legacy for your heirs
I argue that you should take care of yourself first. I refer to a couple of books that help you decide what is important to you and how you might be able to provide for all of it.
How to work with financial advisors
The decisions you make about your finances during retirement are some of the most important you will consider. Learn enough about your options so you can ask the right questions of your advisor – and trust your own judgment.
You might find that advisors tend to operate in silos, constrained by the types of products their company sells. Educate yourself to feel more comfortable while you shop for retirement products.
Managing around life events
The closer we get to retirement, the more we realize that life happens. We can plan for some events, and others cause us to react.
Second marriages, transitioning to a single life, and other life-changers are all events that can be managed for optimal financial outcomes, even if they are surprises.
This article originally appeared here.
