Doing these five things in retirement could put stress on your money plan, which could end up leading to increased worry about your finances. I want to show you some examples of what some of these things can do in an actual retirement plan. I will go over these 5 things so that you’re aware of them, and hopefully can plan ahead so as to not be unpleasantly surprised in retirement.

Now, onto the first red flag.

Red Flag Number One – Main Income Source

The first red flag to be watching out for is if your main income source in retirement is going to be 401k’s, IRAs, or other pre-tax retirement accounts. Why is this a red flag? When you start taking money out of your retirement savings account, taxes are a major factor, right? Withdrawing from a normal 401 plan or IRA are subject, all of the income subject to ordinary income tax, so that million dollar IRA that you have might not really equal $1 million after taxes, it might equal 850K or less depending on social security or other income sources that you have. 

A couple ways to think about fixing this – if you’re not retired yet, think about increasing contributions to non-retirement accounts or maybe Roth IRAs. Having three types of retirement accounts that are taxed differently can give you more options when you’re designing that tax-efficient withdrawal plan. If you are retired, take a look at what your estimated tax rates might be a few years from now and if you’re able to convert pre-tax money now into Roth IRAs; if you can pay less tax now versus what you might do in the future, that could be another good option. This is an area where you should really consult with a tax or financial professional before doing anything, just to make sure that you’re thinking about all the steps.

Red Flag Number Two – Silent Killer

The second red flag can sometimes be seen as the silent killer – although it’s hitting the headlines a lot in 2022 – and that’s inflation. Your investments could fail to keep pace with inflation. Many people who get close to retirement want to increase security, which makes sense, and they want to put more money into cash or conservative assets or maybe build that conservative bucket that we talk about in the bucket strategy, and it seems like it’s a safe thing. However, if you had $1 million in a bank account at the beginning of the year, at the end of the year, you still got $1 million, so that’s kind of why it’s the silent killer. In reality, that $1 million could be worth $30,000 less, or maybe $50,000 depending on how fast everything else we need to buy is increasing in price – that’s inflation.

To maintain your net worth over the long-term, you have to put in more effort to keep up with inflation. Higher-than-expected inflationary periods is one of the four economic seasons that we can go through. Making sure you have asset classes that have historically done well during this season could be a good idea. Next, I’m going to actually dive into a retirement plan and look at the impact of some of these red flags.

Red Flag Number Three – Making Big Gifts 

This red flag is making either big gifts too soon in your retirement, or helping family with big things too soon in retirement. Now at Streamline, one of our core values is generosity and to help family and causes that you care about to really make a difference, but we want to make sure that we do it the right way with our clients. We first want to map out the entire retirement plan; make sure it’s sustainable, look at a bunch of the what-if scenarios, and make sure it all works. Then we can work in some of those other one-time possibilities, like here is an example of a plan.

Let’s say there was a one time big expense in 2025, or what if you had some weddings for kids, or what if inflation rates changed, or there was a big home purchase, or you wanted to spend more in the Go-Go Years (the early years of retirement)? The important thing here is to have increased confidence with your decisions before you actually make the decision. It’s really not a great feeling to make a financial decision and then be worrying about whether it was a good idea or a bad idea. Plan them out before retirement – have money earmarked for these gifts or bigger than normal expenses, and that’s going to make things just so much better.

Red Flag Number Four – Debt

Going into retirement with debt, specifically non-mortgage debt because that kind of debt, it’s easier to handle when you’re getting a work income and you know that paycheck’s coming in but once you move to more of a fixed income and those debt payments, they can actually really have a negative impact on cash flow, so try not to carry that debt into retirement. If you do have it, try to get serious on paying it down while still working.

Red Flag Number Five – Assisted Livings

This next red flag is one that comes later and it makes it easy to not work it into your plan, and that’s the possibility of needing an assisted living facility, home care, or some sort of long-term care need in the future. There’s really two options: you can self-insure, or you can pay for insurance, and there are a few options there. According to the US Department of Health and Human Services, about 70% of Americans 65+ are going to require long-term care at some point in their lives. Some can rely on family, which is great, but about half of those who need it will have to pay on their own.

If you want to make sure that your retirement years are going to be the best years of your life, watch this video that’s coming up next about the seven things that the happiest retirees do in their retirement years.

Disclaimer: Since we don’t know your specific situation, none of this information should be construed as tax, legal, financial, insurance, financial advice, or other advice and may be outdated or inaccurate. It is your responsibility to verify all information yourself. This content is prepared for entertainment purposes only. If you need advice, please contact a qualified CPA, attorney, insurance agent, financial advisor, or the appropriate professional for the subject you would like help with. Streamline Financial Services, LLC or its members cannot be held liable for any use or misuse of this content.

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Disclosures: Securities offered through LaSalle St. Securities LLC (LSS), member FINRA/SIPC. Advisory services offered through LaSalle St. Investment Advisors LLC (LSIA), a Registered Investment Advisor. Streamline Financial Services is not affiliated with LSS or LSIA. LSS is affiliated with LSIA.