5 Things to Know When Planning Your Financial Strategy After 65

For many people, 65 is a magic number. Your retirement is beginning or will be soon and the regular 9-5 gig is ending. Hopefully you’ve been planning and saving for this moment long before you cross the retirement threshold and have accumulated savings in your 401K or other investment vehicle. Or maybe you’re planning to work part-time(Opens in a new Window) or have other sources of income to rely on while living life in retirement.

No matter what your situation is, there are a few things to know when you create a financial strategy that will provide security for the next phase of your life. Here are the top five to get you started:

It’s critical that you have one. As you transition into retirement and beyond, your income level drops. Make sure you have at least six months to 18 months of emergency savings either in cash or CDs to ride out economic downturns. There are many online tools that can help you figure out and stay on budget, such as Mint, You Need a Budget and Personal Capital. In order to live within your means it’s vital that you understand where you may need to make adjustments to spending.

If you are leaving the workforce, evaluating where you stand financially is paramount. You may want to review your asset mix to ensure your risk tolerance matches the risk profile of your assets. As years pass and outside income sources end, your risk profile may no longer be the same as pre-retirement. Your portfolio may no longer have time to recover from sharp market downturns. As a result, growth may take a back seat to capital preservation, requiring a safer portfolio strategy. It is time to recognize that protecting your assets is as important as growing them. As people age they become more risk averse and tend to invest in less volatile assets like bonds versus stocks. A financial advisor can help you make these decisions.

In addition to having an asset allocation strategy, it’s important to create a withdrawal strategy. Ask yourself if you need to offset the loss of employment income once you are retired and consider whether you will have other retirement income streams (pensions, Social Security, annuities, outside savings) sufficient to cover your necessary expenses. Bonnie Loedel, first vice president and senior fiduciary officer at Rockland Trust, advises that if customers need funds from their investment portfolio, they tap into the taxable accounts first and then move into their non-taxable accounts such as IRAs and 401Ks.

Pro Tip: Consider whether it makes sense for you to convert your taxable retirement assets to a Roth IRA to have tax-free withdrawals in the future.

Before tapping into retirement savings, consider drawing from other investments first. Social Security allows you to delay collecting until you reach the full retirement age or 70 years old. Currently, for each year of delay your benefits will grow around 8 percent annually depending on your date of birth. This type of guaranteed annual increase(Opens in a new Window) will allow you to make your social security benefit checks bigger.

Medicare starts at age 65. If you retire before 65, you will have to fund health care expenses. Look into other options such as an employer insurance plan like COBRA, your spouse’s insurance and subsidies available through the Affordable Care Act.

Although no one really wants to think about it, it’s very likely you’ll need long-term care insurance to pay for assisted living, care in your home or a nursing home, none of which is covered by Medicare. Without insurance, you could pay $150,000 or more in lifetime out-of-pocket expenses(Opens in a new Window), which most people haven’t budgeted into their retirement strategy. Long-term care insurance can be expensive but it can help protect you from having to dissolve your assets.

Bonnie counsels clients that having a team of people in place to advise you before and during retirement is key. The team(Opens in a new Window) should include an accountant, attorney and financial planner or advisor you trust.