Planning for Retirement: 4 Factors to Consider

Planning ahead will help ensure you have a comfortable retirement. From outlining health care costs to laying out an estate plan, a thoughtful approach can help you sustain your lifestyle during retirement. Below, we break down four key factors to consider, and how to develop a retirement plan that works for you.

Key Takeaways

• It’s important to plan for your retirement income. Where will your funds come from?
• Also consider your healthcare costs in retirement, which may not be entirely covered by Medicare.
• Make sure that you account for taxes, too. Some withdrawals from retirement accounts are taxable, while others are not.
• Create an estate plan so your assets are distributed the way you want them to be after your death.

1. Your Income

Once your paychecks stop, how will you pay your bills? As you near retirement, take a close look at your sources of income. You should also consider the type of lifestyle you want to live and any potential health issues to help determine how much you should save.

Below are common sources of income in retirement.

• Workplace Retirement Plans: Retirement savings plans such as 401(k)s and individual retirement accounts (IRAs) are often the largest source of income for retirees. Other options include 403(b) plans, which are offered by many public schools and non-profits, and 457 plans, which are offered by governments and non-profits.
• Social Security: Backed by the federal government and adjusted for inflation, Social Security provides a consistent source of income throughout retirement. Depending on your circumstances, you may decide to start collecting benefits as soon as you’re eligible (age 62) or delay collecting them until you reach the maximum benefit amount (age 70). Keep in mind that your monthly benefit amount will be less if you start collecting early.
• Pension plans: Though less common than defined contribution plans like 401(k)s, pensions provide a steady stream of income during retirement. Benefits are calculated using a formula that takes into account your highest salary plus your years of service.

Another option is to collect Social Security at your full retirement age, which is either age 66 or age 67, depending on your birth year.

2. Your Healthcare Costs

While an increase in medical expenses is common as you age, it can feel overwhelming as it happens. But there are ways to plan. First, consider your health right now. Next, look at your family tree. Together, they can give you a sense of potential health issues and even your own life expectancy.

Here are a few ways to cover medical expenses.

• Medicare: Medicare is a federal health insurance program that provides coverage for people age 65 and older, and for some disabled people under age 65. The program consists of four parts, each of which covers different health-related expenses. Exploring your Medicare options is a great first step when it comes to covering routine costs. These include Part A (hospital insurance), Part B (medical insurance) and Part D (prescriptions). Medicare Part C, or Medicare Advantage, is the equivalent of Parts A and B coverage combined, along with some preventative services such as vision and dental. It is delivered through private insurance companies. This guide can help you learn more about Medicare eligibility requirements, enrollment periods, and costs. 
• Health Savings Accounts: Also known as HSAs, health savings accounts are tax-advantaged accounts that are available only with a qualified, high-deductible health plan. HSAs allow you to accrue savings during your working years and apply those savings to your medical expenses after you retire. HSAs also have some unique tax benefits, including tax-free access to funds if the funds are used to pay for qualified medical expenses. 
• Long-Term Care: Hybrid policies combine life insurance with long-term care benefits that may help you pay for the costs of in-home care, assisted living, a nursing home or other related expenses that Medicare may not cover. Long-term or chronic care riders, available at an additional cost, may also be added to life insurance policies, allowing you to access a portion of your policy’s benefit early for care expenses.

3. Your Taxes

To help reduce your tax bite, it’s important to have a clear sense of which sources of income are considered taxable and which of them are tax-free. Pension payments and withdrawals from traditional, non-Roth retirement accounts (e.g. traditional, non-Roth 401(k)s and traditional, non-Roth IRAs) are generally taxable. Social Security benefits may be taxable, depending on your income. Qualified withdrawals from Roth accounts (e.g. Roth 401(k)s, Roth IRAs and Roth 403(b)s) are tax-free.

Work with an Ameriprise financial advisor and your tax professional to identify ways to help reduce your taxes and ensure you have a tax-smart draw-down strategy. 

4. Your Estate Plan

Establishing a comprehensive estate plan is an important part of the retirement planning process. Your estate plan should take into account your existing assets and how you want them to be distributed at the event of your death. Although this may be difficult to think about, estate planning has some significant benefits, including protecting your assets and ensuring that your wishes are fulfilled. If you currently have dependents, it can also provide certain protections for them. Once you retire, it’s a good idea to revisit your estate plan and make any adjustments as needed.

Find out more about wills and estate planning.

Charitable giving can also be part of the estate planning process. In addition to helping you build a lasting legacy, a charitable giving strategy can carry certain tax advantages.

Ameriprise also offers personal trust services designed to help you manage asset distributions, set up charitable trusts, and protect your heirs. This will ensure that your wishes are honored and that your assets are distributed as directed.

How Much Do Most People Have Saved for Retirement?

The average retirement account balance, according to Vanguard, was $134,128 in 2023. The median—that is, half of investors saved more, and half saved less—was $35,286.

At Retirement, What Do Most People Have Saved?

For those age 65 and older, the average retirement account balance in 2023 was $272,588, according to Vanguard. The median account balance for this age group was $88,488.

How Much Equity Do Most People Have in Their Homes?

According to the Federal Reserve Board, homeowners have about 73% equity in their homes (or the other real estate they own) as of Q2 2024.

The Bottom Line

Retirement planning can be overwhelming. That’s why it’s helpful to break it down into smaller pieces, like these four factors. In addition, an advisor can help you determine the most tax-efficient strategy for distributing your retirement savings and how to invest so that you benefit from potential growth but don’t incur more risk than you’re comfortable with.

Work with an Ameriprise Financial Advisor to Create a Personalized Plan

Retirement is the biggest financial goal for most people and is often the source of many questions. Whether you’re still planning or already retired, an Ameriprise financial advisor can help answer your questions about retirement, so you feel more confident about your future. 

If you already work with an advisor at another firm, Ameriprise advisors will provide a second opinion to help you discover what you might be missing. The introductory conversation is free, and it can help you put your priorities in perspective based on your financial goals and needs. 

Learn more and start looking at advisor profiles.

Learn 10 ways that an advisor can help you prepare for a secure retirement.

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.

Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by a financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

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