What to Know about Your Finances When You Retire

About Nicole Pajer

Nicole Pajer is a Los Angeles-based freelance published in The New York Times, Woman's Day, AARP, Parade, Wired, Glamour, People and more.

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Are you getting closer to stopping work for good? Consider making some money moves now to help get yourself financially ready.

Retirement is just around the corner. Are you ready? If not, you’re not alone. There’s a ton of preparation and planning involved for this big phase of life, and it can, at times, feel overwhelming. The good news? It’s never too late to start getting your finances in order so that you can help things be easier when you’re gearing up to call it a day in the workforce. Here are some key steps you can consider taking now to help you be able to focus on enjoying your retirement years.

1. Account for Your Time Horizon and a Longer Retirement

“Retirement planning is a marathon, not a sprint,” says Amanda DeCesar, co-founder of TARA Wealth. Thus, it’s often important to make sure you’re planning for the length of your retirement, which could span several decades. Key questions to ask yourself, per DeCesar, include things like:

How long should my money last? Consider your family history of longevity and potential advancements in healthcare.
When do I want to retire? Consider an ideal retirement age and any plans for phased retirement or part-time work.
How much income will I need during retirement? Factor in lifestyle goals, inflation, and any anticipated large expenses.

2. Define Your Retirement Goals

Write down your retirement goals and priorities, as these will help to shape your retirement plan. DeCesar says to consider the following:

The age at which you wish to retire.
Travel plans, hobbies, and other lifestyle aspirations.
Philanthropic goals, such as charitable donations or volunteer work.
The legacy you want to leave for family and loved ones.

“Clear and specific goals provide a roadmap to guide your financial decisions,” says DeCesar.

3. Know Your Numbers

Understanding your own financial situation can be crucial for a more secure and happy retirement. This can help you to get clear on what you have coming in each month and what you will be spending. DeCesar suggests that her clients can get started with the following:

Forecast Cash Flow: Estimate how much you’ll need to support your ideal retirement lifestyle.
Create an Expense Worksheet: List fixed expenses (e.g., mortgage, taxes, insurance, Medicare premiums) and variable expenses (e.g., travel, entertainment, dining).
Assess Income Sources: Review all potential income sources, such as Social Security, pensions, rental income, or investments. Develop a plan for creating passive income and evaluate strategies to optimize your cash flow.

4. Maximize Your Income

One thing DeCesar advises is to try to develop a thoughtful tax plan for income distribution. “Tax planning can be complex, especially if you have substantial savings in pre-tax retirement accounts or passive income sources like pensions or real estate, where income control is limited,” she says. Some things to consider are:

Prepare for Required Minimum Distributions (RMDs): “While pre-tax retirement contributions can reduce taxes during your working years, they may not be the optimal strategy once RMDs start,” says DeCesar. Thus, it can help to plan ahead, as this can help you minimize a potential "tax bomb" when RMDs push you into a higher tax bracket, which may result in higher taxes to be paid in retirement.

Consider Roth Conversions During Low-Income Years: You may want to consider whether you could be able to “[t]ake advantage of ‘income valley’ years for Roth conversions to lower [your] future taxable income,” suggests DeCesar. Income valley years are years during which your taxable income may be lower than your actual income. Even if you don’t have a clear valley year, she says, a conversion might still provide long-term tax benefits.

Focus on a Long-Term Tax Strategy: “An effective tax plan should aim to minimize lifetime taxes and consider the long-term impact,” says DeCesar. Since every tax strategy is unique, she stresses that it’s important to look at your entire financial picture, values, and goals to create the best plan.

5. Address Healthcare Costs

Medical expenses are often a significant component of retirement, and something that people often forget to factor in. Preparing ahead, says DeCesar, can help manage these costs. She suggests exploring coverage options and learning more about Medicare plans, supplemental insurance, and long-term care insurance to help find the best coverage for your budget.

You should also consider whether you may be subject to IRMAA (Income-Related Monthly Adjustment Amount), which are increased fees imposed on certain Medicare plan enrollees who have a higher income. “If your income exceeds certain thresholds, you may pay a higher premium for Medicare Part B and Part D coverage due to IRMAA,” says DeCesar. It's important to be aware of this potential cost when planning your retirement income strategy, as she stresses that higher income could lead to significantly increased Medicare premiums.

If eligible, you may also want to set up a Health Savings Account (HSA) during your working years and save as much as you can into it. “An HSA can be a tax-efficient way to save for healthcare expenses in retirement,” says DeCesar.

And assess potential needs for long-term care. “Working with a fiduciary financial planner can help you stress test your retirement plan to understand the potential impact of long-term care expenses,” says DeCesar. When having these conversations, she stresses the importance of determining how you will cover these costs. “For some, this may involve purchasing a long-term care insurance policy, while for others, it might mean setting aside a portion of retirement assets specifically for future care needs,” she says.

6. Align Your Investments with Your Retirement Goals

“Your investment strategy should be tailored to your specific time horizon, goals, and risk tolerance,” says DeCesar. Her team advocates for taking on only as much risk as necessary to achieve your objectives, recognizing that each person’s situation is unique. “Your asset allocation should reflect how much risk your plan can tolerate, considering factors like guaranteed income sources (such as Social Security or pensions) and liquid savings,” she explains, providing the following example:

If you have guaranteed income that covers 100% of your living expenses (fixed and variable) but limited liquid savings, you may need to plan for future costs like long-term care. In this scenario, a growth-oriented portfolio for the first few years (maybe the first 5 - 10 years) of retirement could provide the potential for higher returns. As you approach the time when long-term care expenses might become more likely (15-20 years into retirement, if you retire at 65), you can gradually reduce risk in your portfolio to preserve the gains and ensure funds are available for those costs.

7. Get Your Estate Plan in Place

An estate plan is typically considered to be essential for managing your legacy. This plan helps to determine where your assets will go after you pass. “Make sure to establish key documents,” recommends DeCesar, as it is helpful to “have a will, power of attorney, and healthcare directive in place,” says DeCesar. “You could also consider a trust that can offer benefits, such as avoiding probate and protecting assets for your beneficiaries.”

If you have a substantial estate, DeCesar says it’s usually important to plan for estate taxes.”Currently, the federal estate and gift tax exemption is the highest it's ever been, at $13.6m per individual and $27.22m for couples,” she explains. She adds that there is a strong likelihood that this will revert to pre-TCJA (Tax Cuts and Jobs Act of 2017) numbers on Jan 1, 2026, potentially cutting the exemption in half. “Even if your estate currently falls below the federal exemption limit, it's important to factor in potential growth,” says DeCesar. So, if you are 60 today and have an estate worth $5 million, she says to consider what it could be worth in 20 - 30 years. By planning early, you can help reduce the impact of estate taxes for your heirs.

8. Work with Fiduciaries

If you need help planning, reach out to a financial professional to help you align with your goals. One thing DeCesar stresses is that when seeking financial advice, you may want to ensure that your advisor is a fiduciary, which is someone who is legally obligated to act in your best interests. ”Avoid product-driven advice and be cautious if a professional recommends specific products like annuities, life insurance, or long-term care without performing a comprehensive financial analysis,” she says. “A comprehensive approach ensures your financial plan supports your overall goals.”

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