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What Are You Aware of Before Retirement?

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By: Francis Choy, CPA, CFP®, RICP®

Retirement represents one of the largest financial decisions many people will make. Envision your retirement and understand the challenges. A sound plan for retirement focuses on a variety of factors. It is imperative that people consider each step carefully, both qualitatively and quantitatively. Evaluate your options and make a plan.

What is the meaning of retirement to you? Is there anything that you want to achieve during retirement? How do we fill our ordinary day of life to make it a bit extraordinary? What are the potential new activities that fill in where work left off? One of the most complex parts of planning is identifying and envisioning a meaningful and satisfying retirement. It is more challenging for couples, as their views may not be entirely in sync.
Explore retirement life early to transition into retirement, whether voluntarily or involuntarily. If it is a voluntary choice, what is the optimal time based on personal goals and financial projections? Many of us have spent the majority of our lifetime on wealth accumulation. If wealth accumulation was in a climbing uphill mode when we were young, decumulating wealth during retirement could be as challenging as going downhill during our later stage in life.

As retirement time horizons continue to increase and people are living longer, the time facing various risks, unfortunately, is also extended. A few of these are:  inflation risks, market risks, public policy risks, longevity risks, and aging risks. A plan must have answers to questions like, what happens if the market drops, if there is a need for long-term care, or if the tax laws change?

Understanding the tax-planning landscape and mitigating taxes in retirement can be an essential step toward financial security. Rising costs of lifestyle expenses can dramatically impact the calculation of retirement savings needs. Longevity may be the biggest risk a retiree could face over the course of their retirement. This is because, out of all the other retirement risks, longevity increases the length of time a retiree is exposed to other risks. In other words, longevity acts like a force multiplier of all other retirement risks.

Well-planned strategies may not avoid all the risks and shortfalls. An ongoing periodic review is almost a must to align with our changing goals and objectives. Without a plan, exposures could be devastating. We should try to optimize and preserve our resources so that we can turn our golden years into another success and ultimately build a legacy for our future generations.

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