Top 10 Retirement Tips For 2023

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Lists of retirement advice for the year to come generally all sound the same—but that’s not the case this year.

Retiring during a bear market is challenging enough. But the 2023 retirement outlook includes a host of other major threats, such as high inflation and rising interest rates. Taken together, these trends have created an uncertain environment that would unnerve even the most careful retirement planners.

“Retiring into a bear market makes it more likely you’ll run short of money over the long haul,” says Liz Weston, CFP, a financial advice columnist and author of “The 10 Commandments of Money.”

Current conditions arguably make 2023 the worst year for retirement since the Great Recession. But a little perspective is in order. While the S&P 500 is down about 17% year to date, it’s up about 10% since the end of 2020—and up about 50% over the past five years.

As always, your personal circumstances matter the most. Here’s a list of things to keep an eye on if you’re planning to ride off into the sunset in 2023.

1. Understand Sequence of Returns Risk

Sequence of returns risk is a fancy term that financial advisors have been throwing around for years—well since 1994, thanks to a seminal paper by William Bengen.

It may sound like an obscure financial theory. But in 2023, it’s imperative to understand this unusual category of risk. It has a direct bearing on the wealth of people who plan to retire during the difficult markets we are facing today.

Here’s the simple version: At some point during your 25-year retirement journey, there will be at least one bear market. Your finances will be much worse off if the slump occurs at the outset of your retirement rather than in the middle or at the end.

Think of it as a mirror reflection of why you’re better off if you start saving for retirement as early as possible. When you start investing early, your cash has more time to benefit from compounding returns—and when you start taking money out of retirement investments in a bear market, it decimates your principal and permanently reduces the basis for enjoying the benefits of compound growth.

Charles Schwab helpfully illustrates sequence of returns risk this way. Imagine two retirees who start with $1 million in their retirement portfolio. Each of them withdraws $50,000 per year for expenses. Investor A is hit by a 15% market decline in the first year of retirement, and as a result, runs out of cash by year 18 of retirement. Investor B is hit by a 15% market decline at year 10 of retirement, but they still have $400,000 left at year 18 of retirement.

Mitigating sequence of return risk isn’t easy. The name of the game is to minimize principal withdrawals during a market downturn early in retirement.

2. Lose Your Fear of Inflation

Nothing strikes as much fear into the hearts of retirees as inflation, and for good reason. The best-laid retirement plans can be wrecked by the rapid decline in value of the dollars you’ve socked away in your golden years.

Americans are acutely aware of the current 40-year highs in the rate of U.S. inflation. According to a recent iteration of the BMO Real Financial Progress Index, a quarter of Americans say high inflation will delay their retirement.

Not all inflation is created equal, however. The consumer price index (CPI), for example, attempts to capture the activity of all U.S. consumers—and that’s not exactly you.

For many people, the price of gas, eggs and bread has a big impact on their monthly budget. For others—say you’re retired, you don’t drive much, and you’re no longer feeding a family of five—the whims of rising prices may have far less impact.

Retired Americans should worry more about local property tax rates or the rising cost of health care. It’s really important not to let the emotional part of the inflation situation dictate real-world financial choices.

Many financial advisors and consumers fall into the habit of using a 2% or 3% annual inflation rate to simulate how your budget will evolve over the 25-year course of retirement. Average CPI inflation won’t likely remain around 7% or 8% through 2050—but it’s probably not going to be as low as 2%, either.

3. Delay Starting Social Security

Any discussion of the two items above should also involve a careful look at your plans for Social Security.

“Social Security is guaranteed income that is adjusted for inflation, which makes it incredibly valuable,” says Weston. The cost-of-living adjustment (COLA) for 2023 was a hefty 8.7%, which underscores how the program can help you cope with rising inflation.

According to Weston, a key Social Security rule of thumb is very simple: Delay taking benefits as long as possible, especially in light of high inflation.

Today’s retirees have a good shot at living past the break-even point where the larger checks you get when you delay starting benefits make up for the smaller checks you pass up in your early to mid-60s.

Here’s the second part of the plan: Tap other sources of retirement income before you start Social Security benefits, like your 401(k) or individual retirement account (IRA).

4. Rethink Where You Want to Live

Housing costs are undergoing massive changes. With mortgage rates soaring, prices in many once-hot housing markets are dropping.

Still, housing costs in many places remain too expensive for retirees. These changes might outlast the current market downturn, so take another look at where you plan to retire and perhaps reconsider where you want to spend your golden years.

5. What’s Your Health Care Gameplan?

Americans are eligible to enroll in Medicare at age 65—there can even be penalties for failing to enroll on time. Make a plan to sign up in the months leading up to your 65th birthday, giving coverage time to kick in.

Medicare enrollment is only the beginning of your retirement health care strategy.

Fidelity estimates that a typical American couple will spend $315,000 on other health care costs like copays, additional premiums, and other uncovered medical expenses during their retirement years—that’s up from $300,000 last year.

If you are forced to retire before age 65, you’ll also need to obtain health insurance on your own before Medicare kicks in. Can COBRA provide a bridge? What about the Affordable Care Act (ACA)? Does your company provide any kind of retiree health coverage? Make a plan now, before these choices are forced upon you.

6. Be Ready to Retire Early

The Employee Benefit Research Institute (EBRI) has consistently found that a significant percentage of American retirees leave the workforce earlier than planned.

In some cases, this isn’t a bad thing, and about a third say they can afford to retire early. But another third of respondents in the EBRI’s most recent survey said they had to quit because of a health problem, and a quarter said they were forced into early retirement by their companies.

A small but significant percentage retire because they have to care for a family member, such as a partner or an adult child, for example. Meanwhile, nearly 30% of the general population said they expect to work until they are 70. In reality, only 7% make it that long.

It’s important to remember people aren’t always realistic about when retirement happens. You should be starting to plan for retirement immediately, even if you aren’t planning on retiring in the near term.

7. Consider Part-Time Work

Most Americans think they will keep on working well after they eat the cake at their retirement party.

The EBRI survey found that seven in 10 workers are planning on keeping some kind of work after they officially retire. But just 27% of retirees report they collected a paycheck in retirement.

If possible, it’s a good idea to keep that income flowing. Every dollar earned is another dollar of capital preserved in your nest egg, which is essential during a bear market.

The best time to decide what kind of part-time retirement job you want is when you are still working—when you still have easy access to your contacts, you can still send emails from your company email, and when you’re still attending conferences and seminars.

Network now with an eye toward consulting. Let it be known that you’ll be available for five to 10 hours per week, or the occasional one-off project.

8. Do Not Neglect Self-Care

Another practical step to take before retiring: Take care of all those nagging medical issues you’ve been putting off.

See the doctor, see the dentist, get those tooth implants, update your eyeglass prescription or go to rehab for that aching back.

Take full advantage of all your benefits while you still have them, and while you are certain you’ll be able to visit your current medical providers.

9. IRA Contribution Limits Are Going Up

The IRS has announced higher IRA contribution limits for the first time since 2019. Retirement investors should carefully consider adjusting their 2023 contributions accordingly.

The annual limits for traditional and Roth IRAs are 8% higher in 2023, rising to $6,500 from $6,000. Note that catch-up contributions for investors who are age 50 or older remain unchanged at $1,000.

Direct contributions to Roth IRAs are only available if your modified adjusted gross income (MAGI) is below IRS limits. If you are married and file jointly, you and your spouse’s combined MAGI must be under $218,000 to make a full contribution, or less than $228,000 for a partial deposit. The limits for single filers is $138,000 and $153,000, respectively.

10. Get Professional Help

Perhaps you count yourself among the self-sufficient crowd who never sought professional assistance during your working years. Maybe you’ve done just fine that way. But now that you have to deal with retirement math and estate planning, it’s time to lean on others.

“I’d encourage everyone to consult a fee-only financial planner or accredited financial counselor if at all possible before retiring, simply because there are so many decisions that have to be made,” says Weston. “After all, you’ve never retired before, but an experienced advisor has guided many, many people through the process.”

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