Financial Wellness in Retirement from a Financial Advisor

Imagine someone handed you $250,000 for your retirement—would that make you feel ready to leave the workforce?

Research from Fidelity suggests that reaching a financial milestone of $250,000 or more can significantly shift a person’s perspective on the challenges of retirement. However, money alone isn’t the full story. True retirement readiness also depends on a sense of financial well-being.

How can you feel confident and at ease about your retirement? The answer varies for everyone, but two critical factors are emotional and financial preparedness—and they’re closely connected.

Creating a strong financial foundation is important for a happy retirement. This includes making a budget, managing debt, and planning for retirement income. It also involves getting protections like insurance and a will. These steps can help you feel more at ease in your retirement.

Here are four actionable steps to help you achieve financial confidence as you plan for retirement.

1. Revisit Your Budget

A strong financial foundation in retirement starts with ensuring you live within your means. With today’s market fluctuations and rising costs, creating a thoughtful budget is more important than ever.

Begin by identifying your essential expenses—those that are non-negotiable, like housing, utilities, and groceries. Then match these to steady income sources such as Social Security, pensions, or annuities.

Next, outline your discretionary expenses, like travel, hobbies, and entertainment. These should come from your retirement savings, including 401(k)s, IRAs, and investment accounts.

Remember, your spending patterns will likely shift over time. Essential costs like housing may decrease, while healthcare expenses could climb. Early in retirement, discretionary spending may spike as you explore more leisure activities. Regularly revisiting your budget ensures it evolves with your priorities.

2. Develop a Retirement Income and Investment Plan

A common concern for retirees is spending their savings too quickly, even if they have adequate resources. To make sure your money lasts, try to withdraw no more than 4% to 5% of your portfolio in your first year of retirement. In later years, adjust this amount for inflation.

This approach is especially important during a market downturn. Large withdrawals in a weak market can deplete your portfolio before it has a chance to recover, so adjusting your spending temporarily can protect your long-term finances.

How you invest also matters. Your portfolio should align with your risk tolerance, financial needs, and time horizon. While a stock-heavy portfolio may offer higher growth potential, it also comes with greater volatility. A diversified approach that balances growth and stability can provide peace of mind.

3. Be Strategic About Managing Debt

Debt can weigh heavily on your financial well-being, particularly in retirement. High-interest debt, like credit card balances, should be addressed as quickly as possible to reduce financial stress.

Focus on paying off debt with interest rates above 6%, starting with credit cards. Consider paying more than the minimum each month or transferring balances to lower-interest options.

Two popular strategies for paying off debt are the snowball and avalanche methods. The snowball method focuses on eliminating smaller debts first, giving you quick wins to build momentum. The avalanche method tackles higher-interest debt first, saving money over time. Choose the method that works best for your situation and stick with it.

4. Protect Yourself Financially

Even the best financial plans can be derailed by unexpected events. Protect yourself by maintaining an emergency fund, ensuring you have adequate health insurance, and planning for long-term care.

Healthcare and long-term care are among retirees’ biggest concerns. For example, a 65-year-old may need approximately $165,000 in after-tax savings for health expenses during retirement. About 70% of adults over 65 will need skilled care. The average yearly cost for a private nursing home room is over $116,000.

Consider purchasing long-term care insurance, which can help offset these costs. Policies vary widely, so take time to research your options and ensure you choose a reputable provider.

Finally, make sure you have a comprehensive estate plan in place. This includes key documents like medical directives, powers of attorney, wills, and trusts. Periodically review your plan to keep it aligned with your current needs and goals.

It’s About More Than Money

Having enough money and a plan to manage it is important. But finding your identity after leaving work is just as important. This change may include trying new hobbies, continuing education, or seeking new ways to connect with others. All these activities help improve emotional well-being in retirement.

Ask yourself some key questions: What brings meaning and purpose to your life? How will you spend your unstructured time? How will you define yourself in this new chapter? Where do you envision living?

Reflecting on these questions can help you uncover what your "new normal" looks like. It can also guide you in making financial choices that support your vision for retirement.

Bringing It All Together

Achieving financial wellness in retirement means putting together different parts of your financial puzzle. You should revisit these parts as your needs change. Your approach will be uniquely yours, shaped by your priorities and goals.

Consider collaborating with a tax professional or financial advisor to create a personalized plan that not only meets your current needs but also sustains you well into the future.

Sources:

https://www.fidelity.com/learning-center/personal-finance/benefits-of-financial-wellness

Disclosures:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information