What retirement plans have you made?
A friend of mine recently wanted to know "why retirement planning is important".
Perhaps you have asked yourself the same question.
My friend is well educated and financially successful, yet he hadn't taken the time to plan out one of the most expensive decisions in his life, enjoying retirement for decades without running out of money.
As he quickly found out, there are a lot of reasons why retirement planning is important for just about everyone - regardless of education or wealth.
Retirement can last a lot longer than you think. According to the current stats, a 65-year-old woman today will live past her 86th birthday. It is entirely possible your post-career phase lasts 25 years or more.
That’s great news if you are well prepared. But, if your retirement planning isn’t where it should be, living longer can be a little terrifying.
The fact is most state pensions aren’t nearly enough to maintain pre-retirement standards of living for many individuals. Social security benefits simply do not provide the income necessary for a comfortable retirement.
Will you be able to cover future medical costs? Someone turning 65 this year has a 70% chance of needing long-term nursing care; women, on average, need over three years of supportive care as they approach the end of life. Only 20% of today’s 65-year-olds will not need long-term supportive care.
It’s more important than ever to have a realistic retirement savings goal and a solid plan for achieving it.
Here are nine powerful reasons why retirement planning is important.
1. Better health due to lower levels of stress
Money problems are a major source of stress. According to the American Psychiatric Association, over 70% of adults worry about money, and that can take a toll on your physical health.
Financial stress is linked to physical conditions such as diabetes, heart disease, migraine headaches, and poor sleep. Not only that, but money worries can also cause anxiety and depression, robbing you of peace of mind to enjoy your life today.
Taking steps today to get your retirement planning on track is an important step in your overall financial wellness—which can only be good for your physical and emotional health.
2. Send less money to Mr Tax Man
No one likes paying more taxes than necessary.
Unfortunately, retirement is a period when taxes can destroy a major part of your income and savings if you are not careful. Avoiding those taxes is a major reason why retirement planning is important.
Your tax strategy for retirement should start during your working years. But the tax strategies you use while working will change drastically once you retire. Both are important, but how you approach them is very different.
When you are working, your income is relatively stable, and you may not have control over your income sources. As a result, finding deductions and tax credits to reduce your taxable income is paramount.
Upon retirement, the more control you have over your income sources, the more likely you will be able to reduce your taxes.
Since it is impossible to predict tax policy in the future, diversifying your income sources in retirement could save you tens of thousands in taxes upon retirement.
As you can see, reducing taxes is an excellent reason why retirement planning is important.
3. Big-picture context helps you make better career and financial decisions
Life hands you a lot of important questions as you get older. More often than not, the answers aren’t always black and white.
For example:
- Should you stay with your company or start your own?
- Does it make sense to pursue a new degree or professional path late in your career?
- Should you pay for your child’s college or fund it another way?
- Can you afford to buy a vacation home at the beach?
These life decisions have a major impact on your finances and cannot—or should not—be made in a vacuum. Knowing where you are with your retirement plan gives you essential context to make big decisions with confidence.
Making better financial and life decisions is another major reason why retirement planning is important.
4. Enjoy a happier marriage
It’s no surprise that money issues are a leading cause of divorce. Mismatched financial priorities, high levels of debt, and the inability to work toward a common financial goal all cause marital strife.
When you and your spouse are on the same page with retirement planning, you eliminate some major sources of discord in your marriage. Take money out of the retirement equation and you can focus your efforts on more exciting decisions—such as where you want to retire.
Hiring a financial advisor who can provide objective, non-emotional counsel may do wonders for your marriage. Maintaining a healthy relationship with your spouse can be a great reason for why retirement planning is important.
5. Forced early retirement will not be so scary
Retiring at 55 is great when it’s part of your plan; being forced out of your job early is not. Unfortunately, nearly half of all current retirees aren’t retired by choice. Most were laid off or forced to leave their jobs, and a smaller number had to leave work prematurely to care for an ill or aging parent or spouse.
If you must leave work before your expected retirement age, you’ll be in a much better position if your retirement plan is already in place. You might not have your nest egg completely built up, but having money set aside for retirement gives you more options and time to adjust your plans if you need to retire early.
6. You won’t worry about being a burden to your kids
Have you heard of the “sandwich generation?” That’s the name for the group of people who are simultaneously supporting their children and one or both parents. About 44% of middle-aged adults with children at home have at least one living parent who could potentially need care; 15% are full-fledged members of the sandwich generation who financially support both parent(s) and children.
A comprehensive retirement plan includes saving for medical costs and potential long-term care costs. When you know your expenses are covered, you will not have to rely on your family to fill the gap.
7. You can be a cool grandparent
A good retirement plan not only keeps you from being a burden to your kids, but it also gives you the resources to be an amazing grandparent. Wouldn’t it be nice to take the entire brood on an annual trip or host your whole family at your spacious vacation home every year?
Even if your grandparenting goals are a bit more modest, having adequate income means you can visit more often and be present for all their milestones and special events. It gives you the resources to buy those special birthday gifts or help cover the costs of their college tuition. Money won’t be an obstacle to a close relationship with your grandchildren.
8. Continue your legacy of charitable giving
Most people cut their living expenses in retirement but continue their habits of charitable giving, according to a recent study. We see this a lot with our clients.
If you have been a generous giver during your working years, it’s probably important to you to continue supporting your church and favourite charities once you leave your job.
Financial planning for retirement can optimize your charitable giving three ways:
- It helps provide the income you need for charitable giving throughout your life
- It ensures your estate plan aligns with your legacy goals.
- It allows you to reduce your tax burden, if appropriately structured.
While beyond the scope of this article, a qualified charitable distribution strategy can be a powerful strategy to help maximize your charitable donations and reduce taxes!
9. Avoid running out of money
Few things are more frightening than the thought of outliving your resources. Even a seemingly adequate portfolio can be inadequate for your needs if it’s not managed properly, especially if market conditions change.
Retirement planning is important because it can help you avoid running out of money in retirement. Your plan can help you calculate the rate of return you need on your investments, how much risk you should take, and how much income you can safely withdraw from your portfolio.
Working with a financial advisor for retirement means you’ll have the right amount saved when you finally leave work—and that your assets will be managed in a way that protects you against the unexpected so you’re never caught short in a downturn. That’s the ultimate peace of mind.
Conclusion
As you can see, there are many reasons why retirement planning is important.
Achieving your retirement goals takes a proactive approach. If you start planning for retirement early, the better off your retirement will be in the future. If you are nearing retirement, there literally dozens of strategies available to help you make the most of your next 25 years or more.
I believe retirement planning is an essential part of your financial wellness. Working together, I will help you clarify your expenses, prioritize your goals, and build a portfolio of assets that sustains a long and fruitful retirement. I am totally independent which means you get unbiased advice and recommendations that align with your values.
If you are not sure where you are when it comes to retirement—or want to refocus your efforts—schedule a free consultation today. I will give you a clear picture of your current finances and help you create a solid plan for the future.