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Retirement planning

Blueprint to better prepare for retirement

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Illustrations by David Saracino

8 steps to consider long before you retire

Retirement is one of the biggest life decisions you’ll ever make.

And it comes with plenty of questions. The first is the most obvious: when do I want to retire? But that’s quickly followed with: How much money do I need?

While many say the ideal time to start visualizing and firming up your retirement strategy is five to 10 years ahead of when you want to retire, it’s actually a lot earlier than that.

“Honestly, you should be thinking about it at all points in your life,” says Tom Hussian, advanced markets consultant at Thrivent. “But by your mid-40s, you should begin gathering information, seeking advice and preparing for what many consider one of the most significant phases of life.”

And if the mid-40s already are in your rear-view mirror, don’t worry. It’s not too late, but the time to start is now. Here are eight steps to consider to help you move confidently toward retirement.

1. Dream big

The first step is understanding your goals and dreams, says Amy Green, Thrivent financial consultant in Crystal Lake, Illinois.

What do you want your retirement to look like? Do you want to travel? Volunteer more? Find a new hobby? Work part-time? Visualizing an unknown future can be a challenge, but your financial advisor can guide you.

“I’ll often ask my clients about their parents’ retirements and what they looked like,” Green says. “And I’ll follow that up with: is that what you want yours to look like, or what would you change?”

She’s received answers like: “my parents didn’t save; they’re living off Social Security,” or “my parents wanted to travel, but one got sick.”

“This really opens up the conversation in terms of planning now for what they want to do later,” Green says. “It’s not just about your financial picture; it’s also what’s important to you—whether it’s your family, faith or giving back.”

And if you’re married, it’s key that you and your spouse are on the same page with your retirement dreams. Or at least that you find a way to compromise.

2. Evaluate your assets

You may want to retire at age 65, or you may want to travel, but will you be able to afford to?

“It’s really a simple calculation with your financial advisor to determine if you’ve saved enough, are on track to save enough, or if you’ll need to save more,” Hussian says.

Don’t forget your pension, if you have one. And make sure you have your Social Security statement. “You’ll want to check if both spouses qualify for Social Security benefits, or if you’ll be short on credits. There’s still time to change that,” he says.

Also, reassess your risk tolerance. As you get closer to retirement, you want to make sure you’re comfortable with the level of risk you’re assuming with your retirement accounts.

If you’re on track, keep running the course. But if you’re not on track or you need to make some changes, you can work with your financial advisor to address it.

I’ll often ask my clients about their parents’ retirements and what they looked like. And I’ll follow that up with: is that what you want yours to look like, or what would you change?
Amy Green, Thrivent financial consultant

3. Make a Social Security plan

Social Security * is the biggest asset for many people in retirement, and it’s important to have a game plan, says Austen Wilson, a financial advisor in Bellevue, Washington.

It may make sense for you to claim Social Security immediately when you retire, especially if you’re ill, unemployed or have no other sources of income. “But claiming early can reduce both your benefit and survivor benefits,” he says.

In most cases, it’s better to review the different claiming options to see which fits your lifestyle and retirement strategy the best, he says. Always include your spouse, if you have one, in the review.

“It impacts both of you, not only when both are living, but when one dies,” Wilson says. “Health is a big factor. If you’re healthy or have longevity in your family, it looks different than if you have a disease or a shorter life expectancy.

“And remember, until you actually claim, you always can call an audible,” he adds. “If a change needs to be made because of employment or health, it’s still possible.”

4. Prepare a budget

It’s also a good time to think about what your budget will look like in retirement. You’ll be on a fixed income, so just like during your working years, you’ll need to follow some discipline around what you spend.

“We often think about retirement as having three phases—the go-go years, slow-go years and the no-go years,” Hussian says. “We’d advise you to plan your budget with this in mind.”

In the go-go years, you may be younger and healthier, therefore more active, he says. In the slow-go years, activities begin to change and spending on those activities tends to decrease as well. Finally, in the no-go years, spending often changes around living arrangements and healthcare expenses, which can be significant for retirees.

5. Review insurance coverage

Oftentimes, as the children leave home and the home mortgage gets paid off, life insurance decreases, Green says. A term life insurance contract may expire without you knowing or considering the options.

“This is where we walk through what you would want to happen for your family if something should happen to you,” she says. “We often think about life insurance as covering the mortgage, but we forget that it can serve as income replacement as well.”

And what if you or your working spouse become disabled? Disability insurance can be important as well, Green says, to protect your income.

6. Maximize tax diversification

You’ve already reviewed your assets. But this is where, along with tailored guidance from your financial advisor, you need to do a 10,000-foot view and categorize the different asset classes you have. “Ideally, you want to have a mix of assets that fall into all three tax buckets— tax now, tax later and tax never, ” Wilson says.

For many savers, the majority of their assets fall in the tax later basket, and that can have a big impact on your retirement strategy when it comes time to pay taxes.

Some options to consider: rolling over a 401(k)** and looking at annuities, traditional or Roth IRAs.

“There are steps we can take to make sure there are no surprises for you in retirement,” Wilson says. “We need to pay our fair share, but we also want to be aware and not overpay and put your retirement strategy in jeopardy.”

7. Get your paperwork in order

Do you have all your legal documents, such as will, health care directives, powers of attorney, etc. in place, Hussian asks, and are they current?

Also, double-check the beneficiaries on life insurance contracts, retirement accounts, etc., to make sure they are up-to-date.

“You want to make sure your life is laid out the way you want it, so that your wishes will be met,” he says.

8. Think about your legacy

Pre-retirement planning also should include a conversation about how you want to transfer your assets and leave a legacy, Hussian says.

“It’s never too early to think about legacy planning, both for family and increasing your impact with your favorite nonprofits,” he says.

One of the provisions of the SECURE Act, which went into effect Jan. 1, 2020, changed how inherited retirement accounts are treated. Instead of stretching withdrawal of assets over the beneficiary’s lifetime, most beneficiaries must now withdraw assets within 10 years of the owner’s death. Eligible designated beneficiaries include: a surviving spouse, a disabled or chronically ill individual, an individual who is not more than 10 years younger than the IRA owner, or a child of the IRA owner who has not reached the age of majority. Once age of majority is reached the balance of the assets must be distributed within 10 years.

An option is to leave the taxable dollars in these accounts to your favorite nonprofit, since these are non-taxable entities, and look at other options for family.

“There are many ways to leave your legacy,” Hussian says. “You can do annual gifts to charity. You can bequeath a life insurance contract that will pay out to a family member or charity.

“The only questions you really need to answer are: How do I want to be remembered and who do I want to impact?”

It’s not just about your financial picture; it’s also what’s important to you—whether it’s your family, faith or giving back.
Amy Green, Thrivent financial consultant

How Thrivent can help

Thrivent financial advisors have a variety of advice tools and worksheets that can help you achieve financial clarity as you prepare for retirement. One of those tools, MoneyGuidePro®, is an interactive and collaborative tool that can help you understand your current financial situation and identify strategies and solutions you can feel confident about.

Author Donna Hein is editor of Thrivent Magazine.

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* Thrivent financial advisors and professionals have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.

** There may be benefits to leaving your account in your employer plan, if allowed. You will continue to benefit from tax deferral, there may be investment options unique to your plan, fees and expenses may be lower, plan assets have unlimited protection from creditors under Federal law, there is a possibility for loans, and distributions are penalty free if you terminate service at age 55+. Consult your tax professional prior to requesting a rollover from your employer plan.

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Information generated by MoneyGuidePro® regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. MoneyGuidePro® results may vary with each use and over time. MoneyGuidePro® is a registered trademark of Envestnet MoneyGuide. All rights reserved.

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