It's one thing to save enough to be comfortable during retirement. It's an entirely different matter to sustain the lifestyle you have cultivated over decades of earning income and building wealth.
You have worked hard throughout your career. It is no surprise that you want your retirement lifestyle to be all you have dreamed of over the years. That means looking beyond concepts like saving the minimum to get by and setting aside enough funds so that you don't outlive your nest egg.
Instead, you will need to focus on strategic wealth management.
First, we will look at retirement planning, estate planning and the relationship between these two needs in a general sense. Then, we will dive into more personal considerations related to them, which can help you make effective choices that lead to a more financially secure retirement.
Understanding retirement planning and estate planning
The difference between retirement planning and estate planning is relatively simple. We can start with a brief definition of each:
Retirement planning
Retirement planning is a process where an individual or a couple considers the many details of life in retirement and the financial needs associated with it. Expenses, such as housing, health care and living expenses, as well as sources of income, such as Social Security payments, required minimum distribution from IRAs and retirement plans, are among the most common and important considerations.
The ultimate objective is to set specific financial goals and decide on a course of action to reach them. Working with a financial advisor who has a background in retirement planning is one common way in which individuals and couples can better understand and make use of this process.
Estate planning
Estate planning involves making decisions about how your assets will be managed should you become incapacitated or pass away. An estate plan may involve:
● Establishing power of attorney.
● Creating a will and other documents and planning around the probate process.
● Building a strategy for managing estate taxes.
● Many other considerations.
Because of the many complex legal considerations involved, many individuals and couples choose to work with an estate planning attorney to ensure they address all responsibilities and needs related to creating an estate plan.
The connection between estate planning and retirement planning
Retirement planning is a broad process. It encompasses all financial considerations related to life after exiting the working world, or at least after leaving a full-time career position.
Estate planning is much more targeted because it relates to specific events. This does not mean it is any easier — just that estate planning has a narrower area of focus.
Estate planning is a part of the larger retirement planning process. Addressing the needs related to an extended period of incapacitation or your passing is a vital consideration when it comes to your life in retirement, but it is far from the only one.
It is important to remember that estate planning can, and ideally should, begin well before you start getting close to retirement age. An adverse event can strike at any time, and being prepared will help you and your loved ones better manage what is often a difficult time.
Estate planning is a long-term process, which means it requires occasional updates. As you formulate your strategy for retirement, be sure to include the development or updating of your estate plan as well.
The same is true of retirement planning in general: You do not need to wait until you are close to the end of your career to begin this process. The earlier you start, the more time you have as an active earner to consider options, make investments and reach decisions that can financially support you in your golden years.
Making decisions that support your retirement needs
Identifying what you will really spend
Imagine you own a business that lets you occasionally indulge in luxurious opportunities.
Perhaps company funds cover global trips to meet with sales contacts or speak at conferences. Those work-related adventures come with their own perks, like nights out on the town with prospective customers and an expense account that covers everything. Because it is your business, you are still the one paying for that trip, but you are doing so out of revenues and operating expenses generated at work.
What happens when you retire, but want to maintain that globetrotting lifestyle? Will your savings be able to cover those expenses?
What about spending more time on trips with family? Starting a micro-business to chase after a passion project? Establishing a philanthropic foundation to use your wealth to help others?
You are probably bringing big dreams into retirement, and it is critical to carefully evaluate what it will truly cost to fund your lifestyle. A retirement cash flow projection will help you understand the expenses and income in retirement and quantify your savings needs. Combine it with your plans for the future, and the financial needs related to them, and you will have a mostly complete view of your expected, day-to-day needs.
Determining your estate goals
Part of achieving the retired life you want to lead is clarifying your goals regarding taking care of your loved ones. What do you want your financial legacy to be, and how can you execute that plan in practical terms?
For example, if you have been conservative about financially supporting adult children, then you may want to create a revocable living trust or similar type accounts that will control their access to the money. Similarly, if you have the goal of making your wealth last multiple generations, you should structure your estate accordingly.
By considering your estate planning goals as part of your retirement planning process, you can determine how best to diversify and leverage your various investments and other sources of wealth. A financial advisor can help you balance your estate and retirement planning goals so you can not only maintain your immediate lifestyle, but also take care of the future.
Planning for health problems
You already know that health care is often expensive, and any long-term care needs will siphon funds from your budget. However, it is important to consider the care opportunities that will be at your disposal and the ways in which they will be funded. Whether it is hiring a live-in caretaker or investing in technology to leverage state-of-the-art telemedicine, there are many options out there if you are willing to put significant resources into unconventional care strategies.
More flexible health care services can help you live the lifestyle you want, but you will need to design your retirement plan against the costs and complexities of those sorts of strategies, not only typical hospital bills and insurance expenses.
Dealing with fiscal complexity
No one can predict the future or make ironclad guarantees about retirement. Comerica Wealth Management works to gain a holistic understanding of your goals and your wealth portfolio so we can help you unravel the complex array of decisions that impact your retirement and estate plans. We can help you identify what you need to do to maintain the lifestyle of your dreams and provide insights into how various decisions along the way could impact your fiscal situation.
