What Should I Do Before I Retire?

Retirement planning is about more than reaching a certain dollar amount in your 401(k).

The real question is:

Will the money you have accumulated create enough reliable income to support the life you want—without forcing you to dramatically change your lifestyle later?

For many people approaching retirement, especially those in their 50s and 60s, this is where retirement planning becomes very different from simply saving for retirement.

You have to start thinking about retirement income, taxes, Social Security, healthcare, long-term care, market risk, debt and how your different financial accounts will work together.

For families in Boca Raton and throughout Florida, there is another important consideration: Florida may not have a state individual income tax, but federal income taxes can still affect distributions from traditional 401(k)s and IRAs.

That is why a well-designed retirement strategy should look beyond how much you have accumulated and focus on how you are going to use that money.

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Here are five important areas to review before you retire.

1. Know What Your Retirement Lifestyle Actually Costs

One of the biggest retirement planning mistakes is assuming your expenses will automatically fall once you stop working.

Some expenses may disappear. Others may increase. You may spend less commuting to work but more on:

• Travel
• Healthcare
• Home maintenance
• Insurance
• Dining and entertainment
• Helping children or grandchildren
• Hobbies and activities

Inflation can also gradually increase the cost of maintaining the same lifestyle.

Instead of guessing, create a realistic retirement income budget. Look at what you actually spent during the last several months and separate those expenses into categories such as:

Essential expenses: housing, utilities, food, transportation, insurance and healthcare.

Lifestyle expenses: travel, restaurants, entertainment, hobbies and recreation.

Debt obligations: mortgages, car payments, credit cards and other loans.

Unexpected expenses: home repairs, medical expenses and family emergencies.

Then compare that number with the income you expect to receive from sources such as:

• Social Security
• Pensions
• 401(k)s
• IRAs
• Roth accounts
• Annuities
• Investment accounts
• Rental income
• Business income
• Cash-value life insurance

This gives you a much more useful number than simply saying:

“I have $1 million saved for retirement.”

A retirement account balance is not the same thing as retirement income.

What matters is how much income those assets can reasonably produce, how long that income may need to last and how much of it you will actually keep after taxes.

2. Make Social Security Part of the Strategy

Social Security should not be treated as an automatic decision.

You can generally begin Social Security retirement benefits at age 62, but claiming before your full retirement age reduces your monthly benefit. Delaying beyond full retirement age can increase your monthly benefit until age 70.

That doesn’t automatically mean everyone should wait until 70. The right Social Security strategy can depend on factors including:

• Your current income
• Other retirement assets
• Your expected retirement date
• Your spouse’s benefits
• Your health and family longevity
• Whether you plan to continue working
• Your need for immediate income
• Your overall tax strategy

Instead of asking “What age gives me the biggest Social Security check?” a better question is “How does Social Security fit into my total retirement income plan?”

That distinction matters. Social Security is only one piece of the retirement-income puzzle.

3. Have a Plan for Healthcare, Long-Term Care and Living Benefits

People spend decades planning how to accumulate retirement money and sometimes almost no time planning what could cause them to spend it much faster than expected.

A serious health event can change an otherwise solid retirement plan. That is why healthcare and long-term-care planning should be considered before retirement—not after something happens.

There are several approaches that may be available depending on your health, age, assets and objectives.

Traditional Long-Term Care Insurance

Traditional long-term care insurance is designed specifically to help cover qualifying long-term-care expenses. Premiums, benefits, waiting periods and coverage vary substantially by policy.

Life Insurance With Living Benefits

Certain life insurance policies may include or offer riders that allow a qualifying portion of the death benefit to be accessed while the insured is still alive following specified events such as a critical, chronic or terminal illness.

These are commonly referred to as living benefits or accelerated benefit riders. The exact qualifications, benefit amounts and costs depend on the insurance company and policy.

For the right person, this can create another layer of financial protection beyond the traditional death benefit. Life insurance is not only about “What happens if I die?” It can also be worth asking: “What financial resources would my family have if I became seriously ill but survived?”

Annuities and Enhanced Income Features

Certain annuity contracts may also offer enhanced-income or care-related riders. These vary significantly among products, so the details matter.

The point isn’t that everyone needs an annuity or additional insurance. The point is that your retirement income plan needs a strategy for the things that can disrupt it.

4. Review Your 401(k), Taxes and Retirement-Income Risk

For many Americans, their 401(k) is their largest retirement asset. But your 401(k) is an account—not an income strategy.

As retirement approaches, you should understand:

• How much market risk you’re taking
• What happens to your income during a major market decline
• How withdrawals will be taxed
• Whether your investments match your retirement timeline
• Whether you need guaranteed or predictable income
• How your 401(k) works with your other retirement assets

Understanding a 401(k) Rollover

When you leave an employer or retire, you may have several choices regarding your retirement plan. Depending on your circumstances and plan rules, those choices can include leaving the money in the existing plan, moving it to another employer plan, rolling eligible assets into an IRA or taking distributions.

An eligible direct 401(k) rollover generally allows the assets to continue tax-deferred without creating current income tax simply because they were transferred. The IRS also distinguishes direct rollovers from distributions paid directly to the participant, which can involve mandatory withholding and a 60-day rollover deadline.

That does not mean everyone should roll over a 401(k). Fees, investment choices, creditor protections, available guarantees, withdrawal flexibility and individual tax circumstances should all be considered.

The important thing is not to make a rollover decision simply because someone says “You retired, so move your 401(k).” The destination needs to solve a specific problem.

5. Build Multiple Retirement Income Buckets

Retirement planning becomes more powerful when you stop expecting one account to do everything.

A traditional 401(k) has advantages. A Roth account has different advantages. An annuity may solve a different problem. Cash-value life insurance may serve another purpose.

Instead of looking for one perfect product, consider how different financial tools can work together.

Tax-Deferred Retirement Accounts

Traditional 401(k)s and IRAs generally allow money to grow tax-deferred, with qualifying taxable distributions included in income when withdrawn. These accounts can be extremely valuable accumulation tools, but retirement planning should also consider the taxation of future distributions.

Roth Accounts

Qualified Roth distributions can provide tax-free retirement income when IRS requirements are met. This creates valuable tax diversification for many retirement strategies.

Fixed Indexed Annuities

A fixed indexed annuity is an insurance product that can credit interest based partly on the performance of an external market index while protecting the contract’s value from direct losses caused by negative index performance, subject to the contract’s terms.

Different products may use:

• Caps
• Participation rates
• Spreads
• Fixed-interest strategies
• Income riders

An annuity does not mean your money is invested directly in the stock market. For some retirees, annuities can be considered as part of a strategy designed to create predictable or guaranteed lifetime income, subject to the financial strength and claims-paying ability of the issuing insurance company.

Indexed Universal Life Insurance

For certain individuals, a properly structured Indexed Universal Life insurance policy, commonly called an IUL, can provide another potential retirement-planning bucket.

IUL is permanent life insurance that can build cash value. Interest-crediting potential can be linked to the performance of a market index, while the cash value is not directly invested in that index.

When properly designed, adequately funded and carefully managed, an IUL may provide:

• Permanent life insurance protection
• Cash-value accumulation potential
• Downside protection from negative index-crediting periods through a contractual floor
• Tax-deferred cash-value growth
• Potential access to policy value through withdrawals and policy loans
• Living-benefit options on certain policies
• Legacy protection for beneficiaries

Proper structure matters. An IUL designed primarily around maximum death benefit can behave very differently from an IUL designed to emphasize cash accumulation and potential future income.

Policy charges, funding levels, loans, withdrawals, index-crediting methods and policy performance all matter.

And while properly structured policy loans and withdrawals may provide tax-advantaged access under current tax law, life insurance should not simply be marketed as “tax-free retirement” without understanding the conditions involved. A policy that lapses with outstanding loans can create tax consequences. (Learn more: Is IUL Tax-Free?)

That’s why the words Properly Structured IUL matter. The strategy is not just owning an IUL. It is designing and funding it correctly for the objective.

Don’t Ignore Sequence-of-Returns Risk

There is another retirement risk people often underestimate.

Imagine two investors who experience exactly the same average investment return over their lifetimes. One experiences a major market decline at age 45. The other experiences the same decline at age 65, immediately after retiring and beginning withdrawals.

The impact may be dramatically different. When you’re still working, you may have years to recover. When you are retired and simultaneously withdrawing money from a declining portfolio, those withdrawals can make recovery more difficult.

This is known as sequence-of-returns risk. That is one reason retirement-income planning should be different from accumulation planning.

The objective begins shifting from “How much can I accumulate?” to “How do I turn what I accumulated into sustainable income?”

Retirement Planning Isn’t Only About Money

There is another part of retirement that doesn’t appear on a financial statement. What are you actually going to do when you retire?

For decades, work may have provided:

• Structure
• Relationships
• Goals
• Responsibility
• Social interaction
• A sense of purpose

Then suddenly Friday afternoon arrives and there is no Monday morning office.

Successful retirement planning should include thinking about:

• How you will spend your time
• Where you want to live
• Travel
• Family
• Friends and community
• Faith
• Volunteering
• Hobbies
• Health and exercise
• Continuing to work part-time
• Starting a business or passion project

Financial freedom has considerably less value if you haven’t decided what you want that freedom for.

The Retirement Question Most People Are Asking Wrong

Many people ask “How much money do I need to retire?” That is important, but incomplete. A better set of questions is:

• How much monthly income will I need?
• Where will that income come from?
• How much of it could be taxable?
• What happens if the market falls early in my retirement?
• What happens if I live longer than expected?
• What happens if I or my spouse becomes seriously ill?
• What money will I leave behind?
• And what do I actually want retirement to look like?

Those questions lead to a retirement strategy. A number in a 401(k) does not.

Retirement Planning in Boca Raton, Florida

For individuals and families approaching retirement in Boca Raton, Palm Beach County and throughout Florida, retirement planning often involves coordinating several strategies rather than relying on a single product. That can include reviewing:

• Existing life insurance
• 401(k) and IRA assets
• 401(k) rollover options
• Social Security timing
• Retirement-income needs
• Fixed indexed annuities
• Indexed Universal Life insurance
• Living benefits
• Tax-advantaged retirement strategies
• Legacy and estate-planning objectives

At The Life Insurance Professionals, our focus is helping clients understand how these pieces may work together.

There isn’t one retirement product that is right for everybody. The goal is to determine what needs to be protected, what needs to grow, what needs to produce income and what you ultimately want to leave behind.

Frequently Asked Questions About Retirement Planning

How much money do I need to retire?

There is no universal retirement number. Your income needs depend on your lifestyle, housing expenses, debt, healthcare costs, retirement age, Social Security, pensions, taxes and other income sources. A useful retirement plan begins by estimating the monthly income your lifestyle actually requires.

Should I roll over my 401(k) when I retire?

Not automatically. A 401(k) rollover may offer additional investment, insurance or income-planning choices, but keeping assets in an employer plan can also have advantages. Compare fees, investment choices, withdrawal options, creditor protections, taxes and your retirement-income objectives before making a decision.

Can an annuity provide retirement income for life?

Certain annuities can provide guaranteed lifetime-income options. Guarantees depend on the specific contract and the financial strength and claims-paying ability of the issuing insurance company. Riders may involve additional costs and conditions.

Can IUL be used for retirement income?

A properly structured and funded Indexed Universal Life insurance policy can potentially build cash value that may later be accessed through policy loans and withdrawals. Policy performance is not guaranteed beyond contractual guarantees, and improper funding, excessive loans or a policy lapse can significantly change the results and tax treatment.

What are living benefits in life insurance?

Living-benefit riders may allow an insured person to access a portion of the policy’s death benefit while still alive after qualifying events such as certain critical, chronic or terminal illnesses. Availability, definitions and benefit amounts vary by company and policy.

What is tax-advantaged retirement income?

Tax-advantaged retirement income can come from several sources depending on individual circumstances, including qualified Roth distributions and properly managed cash-value life insurance strategies. Tax laws and individual circumstances can change, so tax questions should be reviewed with a qualified tax professional.

Build a Retirement Strategy Before You Need One

The five years before retirement can be some of the most important years of your financial life. You still have time to make adjustments.

• You can review your debt.
• You can evaluate your Social Security options.
• You can examine your 401(k).
• You can decide how much market exposure you’re comfortable carrying into retirement.
• You can explore retirement-income strategies.
• You can review life insurance and living benefits.

And you can determine whether strategies involving annuities, Roth accounts or properly structured Indexed Universal Life insurance belong in your overall plan.

The objective isn’t simply to accumulate the biggest account balance possible. It is to create a plan designed to help you protect what you’ve built, generate retirement income, reduce unnecessary risk and taxes where appropriate, and leave a financial legacy to the people you care about.

The Life Insurance Professionals helps individuals and families in Boca Raton, across Florida and nationwide evaluate life insurance, Indexed Universal Life, living benefits, annuities, 401(k) rollover strategies and retirement-income options.

Schedule a conversation to review your current retirement strategy and identify whether there are gaps worth addressing.

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Insurance and annuity products contain limitations, exclusions, charges and eligibility requirements. Indexed Universal Life is life insurance and is not a direct investment in a market index. Policy loans and withdrawals reduce available cash value and death benefits and may cause a policy to lapse. Tax treatment depends on individual circumstances. Consult appropriate tax, legal or financial professionals regarding your specific situation.