June 14, 2024
When it comes to planning for retirement, determining your personal identity—and associated goals—is an important (and often overlooked) step.
Jeff Montgomery, 70, has always been an active, highly engaged person—and he's no different in retirement.
Upon retiring at age 63, the former managing partner of a London private equity firm first transplanted his wife and teenage daughter to Tokyo and immersed himself in Japan's jazz scene, a pet interest. Afterward, the family relocated to Colorado, where they rebuilt a ski chalet into a full-time residence. "When your identity is all about ambition and working toward a goal, you can't just give that up," he reflects.
Jeff's high-achieving version of retirement, which also includes serving on charitable boards, is not for everyone. However, it does raise an important question: What do you want your retirement to look like—and how much planning have you done to realize it?
"Retirement planning doesn't begin and end with the size of your nest egg," says Justin Richards, CFP®, CWS®, a Colorado-based senior financial planner for Schwab Wealth Advisory. "It's just as important to consider how you'll spend your time, especially given the extra hours you'll gain once you stop working. Without a plan, many retirees can feel aimless and unfulfilled."
But how do you begin to plan the retirement that's right for you? While everyone's experience is unique, retirees often fall into one of five categories. Read on to discover which type most resonates with you—and what to consider as you near and enter retirement.
The Dynamo
You love your career, and you pride yourself on being productive and useful.
According to the Pew Research Center, roughly 20% of adults ages 65 and older are still employed.1 "I have a client who's 79 years old and still a practicing lawyer," Justin says. "He's invested 100% in stocks because he never wants to quit working and is mainly concerned with leaving a legacy."
Full- or part-time work can deliver a sense of purpose—to say nothing of extra income, which can help extend your retirement savings. Jeff, for example, consulted for his old firm for five years after resigning his partnership in 2017. "Consulting allowed me to remain engaged while still leaving time for family and new projects," he says.
Be that as it may, working in retirement can affect:
- Medicare premiums: Although retirees generally don't pay premiums for Medicare Part A, which covers hospitalization, they typically pay premiums for Part B, which covers outpatient visits, as well as Part D for private prescription drug coverage—unless they're covered under a qualified employer health insurance plan. The additional earnings can push those premiums up if your total annual income exceeds certain thresholds, though you may be able to appeal the increase after you retire.
A premium on premiums
The higher your income, the more Medicare Part B and private Part D coverage will cost.
- 2022 income, single filer
- 2022 income, married filing jointly
- Part B premium
- Part D premium
-
2022 income, single filer
$103,000 or less
>
2022 income, married filing jointly
$206,000 or less
>
Part B premium
$174.70
>
Part D premium
Plan premium (varies)
>
-
2022 income, single filer
$103,001 to $129,000
>
See AlsoI’m a Bank Teller: 5 Banking Services Retirees Should Be Using but Aren’tHow to Plan for Retirement | U.S. BankRetirees Reveal the Smartest Money Moves They Made in Their Early YearsStart Planning for Retirement Today2022 income, married filing jointly
$206,001 to $258,000
>
Part B premium
$244.60
>
Part D premium
Plan premium + $12.90
>
-
2022 income, single filer
$129,001 to $161,000
>
2022 income, married filing jointly
$258,001 to $322,000
>
Part B premium
$349.40
>
Part D premium
Plan premium + $33.30
>
-
2022 income, single filer
$161,001 to $193,000
>
2022 income, married filing jointly
$322,001 to $386,000
>
Part B premium
$454.20
>
Part D premium
Plan premium + $53.80
>
-
2022 income, single filer
$193,001 to $499,999
>
2022 income, married filing jointly
$386,001 to $749,999
>
Part B premium
$559.00
>
Part D premium
Plan premium + $74.20
>
-
2022 income, single filer
$500,000 or more
>
2022 income, married filing jointly
$750,000 or more
>
Part B premium
$594.00
>
Part D premium
Plan premium + $81.00
>
- Pension benefits: Working part-time may influence your pension payout, which typically is calculated using your average salary for the last three or five years of work. If your part-time income is significantly less than your full-time income, you could see a drastic reduction in your benefit.
- Social Security benefits: Starting in the month you reach full retirement age, there's no limit on how much you can earn and still receive your full benefit. However, if you collect benefits prior to reaching your full retirement age (between 66 and 67, depending on birth year), your payouts could be reduced. For example, if you're under full retirement age for all of 2024, your benefits will be reduced by $1 for every $2 you earn above the annual limit of $22,320.
"If you have ample retirement savings and don't need the income, you might consider whether something like volunteering your time makes more sense," Justin says (see "The Philanthropist").
The Adventurer
You stay active, are in good health, and have always wanted to fill up your passport pages.
"Today's retirees generally are healthier, live longer, and want to do more than their predecessors," observes Kate Goesel, CFP®, a senior manager with Schwab's Centralized Planning Group in Chicago. "But the more you do, the more money you may need to do it, especially as it pertains to travel."
A common rule of thumb is to plan for your retirement expenses to equal 80% to 100% of your current expenses. If you have big travel plans, however, you may need upwards of 120%, at least in your early retirement years.
To help foot the added costs, retirees who plan to travel extensively often downsize or move to a lower-cost city.
Retirees traveling internationally should also beware that Original Medicare typically won't pay for health care expenses incurred outside the U.S. While some Medicare Advantage and Medigap plans may offer coverage abroad, you may need to budget for additional travel insurance that covers emergency medical expenses.
The Philanthropist
You enjoy giving back and want to dedicate more of your time to worthy causes.
Roughly a quarter of U.S. retirees spend part of their time volunteering, lending their connections, experience, and knowledge to nonprofit organizations. "These acts of service often provide a renewed sense of purpose and a new source of joy for retirees," Justin says.
There are generally two ways to volunteer your time:
- Make a regular commitment: "Enlisting in a regular shift at a local charity is an ideal fit for people who are ready to retire but still want to remain active," Kate says. However, be aware that volunteer hours are not tax-deductible.2
- Serve on a board: Those with corporate experience often find they can leverage those skills by serving on a nonprofit board. Nevertheless, many organizations require board members to make a financial commitment, either personally or through fundraising. If you're not willing or able to meet that expectation, supporting the organization in another way may be a better option.
The Homebody
You're done with work, and you dream of gardening, golf, and grandkids.
For many people, retirement means fully decompressing from a lifetime of work. "Not everyone is looking for a second career or monthslong travel," Justin says. "Some people just want to enjoy a quieter life at home."
If your vision includes hours in the garden or long walks around your neighborhood, your home should reflect those desires. "Relocating is a common part of the retirement puzzle, whether to be closer to family, reduce living expenses and taxes, or live in a more walkable location," Kate says.
However, if your current home is right where you want to be, you may still need to age-proof it. The National Association of Home Builders (NAHB) recommends consulting with an occupational therapist and a Certified Aging-in-Place Specialist (CAPS), who can recommend common features to consider, such as widening doorways for wheelchair access or installing handrails, particularly in bathrooms.
"There's also a movement among retirees to build guesthouses, or accessory dwelling units, on their properties," says Anna Sinatra, CFP®, CWS®, a financial planner for Schwab Wealth Advisory in Phoenix. "Doing so allows them to rent out the dwellings for extra income in the early years of retirement—and provides an easy place to house a live-in caregiver should the need arise."
To find a CAPS in your area
Call the NAHB at 800-368-5242 or visit the website, select Professionals with Home Building Designations, then CAPS.
Call the NAHB at 800-368-5242 or visit the website, select Professionals with Home Building Designations, then CAPS.
Call the NAHB at 800-368-5242 or visit the website, select Professionals with Home Building Designations, then CAPS.
The Joiner
You value community and want a curated retirement experience.
Resort-style retirement communities are growing in popularity—and it's not hard to understand why. The Villages in central Florida, for example, has more than 50 golf courses—as well as basketball, bocce, swimming, tennis, and, of course, pickleball—along with social clubs and entertainment complexes. There's something for everyone.
Such amenities might seem superfluous to some, but residents of retirement communities report better emotional, intellectual, physical, and social wellness than those who live in the community at large.3 Plus, independent-living communities typically offer a more maintenance-free lifestyle, with some including housekeeping, meals, and even transportation.
For retirees who enjoy an active, independent lifestyle but have an eye on the future, life plan communities (often called continuing care retirement communities, or CCRCs) can offer the best of both worlds. They offer independent living as well as access to higher levels of care—such as assisted living or skilled nursing—on an as-needed basis.
Of course, life plan communities often have costs to match their utility, with average entrance fees of $402,000 and rents that average more than $3,500 per month, according to the National Investment Center for Seniors Housing & Care. More amenities or a higher level of care usually means higher monthly costs. That said, the IRS may recognize a percentage of both the entrance fee and monthly fee as a medical expense deduction.
"Clients who don't wish to rent their home or keep it as an inheritance asset sometimes sell their real estate to assist with funding entrance fees," Justin says. In that case, you'll want to understand the potential capital gains liabilities of selling your home. Simply subtract your cost basis (the price you paid for the house, plus closing costs and outlays for major improvements) from the sale price. You'll be able to exclude the first $250,000 in profit ($500,000 if married filing jointly) from the sale, provided it's your primary residence, you've owned it for at least two years, and you have lived there for at least two of the past five years.
To find a CCRC in your area
Visit the U.S. Administration on Aging's Eldercare Locator, or call 800-677-1116.
Visit the U.S. Administration on Aging's Eldercare Locator, or call 800-677-1116.
Visit the U.S. Administration on Aging's Eldercare Locator, or call 800-677-1116.
Start early
"Although I decided at age 60 that I wanted to retire at 63, the planning started 20 years earlier," Jeff Montgomery recalls. "My retirement wasn't a single event but rather a slow and steady process that included not just the right financial advisors but also building friendships and a sense of community."
"Don't wait until you get to retirement to start thinking about what you want from this next phase of life," Kate says. "The sooner you start planning, the more time you have to fine-tune your vision—and adjust as necessary to help make your dreams a reality."
The No. 1 risk to your retirement
Long-term care costs can upend even the best-laid plans.
Along with newfound freedoms, retirement can also mean confronting discomfiting end-of-life scenarios. "The biggest derailer of retirement by far is long-term care," says financial planner Kate Goesel. "Even those with substantial retirement savings can be caught short by end-of-life expenses."
Consider that the average woman needs long-term care for 3.7 years, and the average man for 2.2 years,4 according to the U.S. Department of Health and Human Services' Administration for Community Living. What's more, the median annual cost of a private room in an assisted living facility in 2023 was $116,8005—an expense not covered by Medicare.
If unforeseen medical issues make staying at home difficult, it's possible your home's equity could be used to fund long-term care. Another option is long-term care insurance—although many policies don't cover the first 90 days of care, nor do they typically cover nonrefundable first- and last-month deposits. Family support often supplements these options, with adult children taking on caregiving duties for elderly parents. The AARP's Family Caregiving site is an excellent resource for retirees facing such responsibilities.
Long-term care costs can upend even the best-laid plans.
Along with newfound freedoms, retirement can also mean confronting discomfiting end-of-life scenarios. "The biggest derailer of retirement by far is long-term care," says financial planner Kate Goesel. "Even those with substantial retirement savings can be caught short by end-of-life expenses."
Consider that the average woman needs long-term care for 3.7 years, and the average man for 2.2 years,4 according to the U.S. Department of Health and Human Services' Administration for Community Living. What's more, the median annual cost of a private room in an assisted living facility in 2023 was $116,8005—an expense not covered by Medicare.
If unforeseen medical issues make staying at home difficult, it's possible your home's equity could be used to fund long-term care. Another option is long-term care insurance—although many policies don't cover the first 90 days of care, nor do they typically cover nonrefundable first- and last-month deposits. Family support often supplements these options, with adult children taking on caregiving duties for elderly parents. The AARP's Family Caregiving site is an excellent resource for retirees facing such responsibilities.
Consider that the average woman needs long-term care for 3.7 years, and the average man for 2.2 years,4 according to the U.S. Department of Health and Human Services' Administration for Community Living. What's more, the median annual cost of a private room in an assisted living facility in 2023 was $116,8005—an expense not covered by Medicare.
If unforeseen medical issues make staying at home difficult, it's possible your home's equity could be used to fund long-term care. Another option is long-term care insurance—although many policies don't cover the first 90 days of care, nor do they typically cover nonrefundable first- and last-month deposits. Family support often supplements these options, with adult children taking on caregiving duties for elderly parents. The AARP's Family Caregiving site is an excellent resource for retirees facing such responsibilities.
" role="dialog" aria-label="Long-term care costs can upend even the best-laid plans.
Along with newfound freedoms, retirement can also mean confronting discomfiting end-of-life scenarios. "The biggest derailer of retirement by far is long-term care," says financial planner Kate Goesel. "Even those with substantial retirement savings can be caught short by end-of-life expenses."
Consider that the average woman needs long-term care for 3.7 years, and the average man for 2.2 years,4 according to the U.S. Department of Health and Human Services' Administration for Community Living. What's more, the median annual cost of a private room in an assisted living facility in 2023 was $116,8005—an expense not covered by Medicare.
If unforeseen medical issues make staying at home difficult, it's possible your home's equity could be used to fund long-term care. Another option is long-term care insurance—although many policies don't cover the first 90 days of care, nor do they typically cover nonrefundable first- and last-month deposits. Family support often supplements these options, with adult children taking on caregiving duties for elderly parents. The AARP's Family Caregiving site is an excellent resource for retirees facing such responsibilities.
" id="body_disclosure--media_disclosure--192711" >Long-term care costs can upend even the best-laid plans.
Along with newfound freedoms, retirement can also mean confronting discomfiting end-of-life scenarios. "The biggest derailer of retirement by far is long-term care," says financial planner Kate Goesel. "Even those with substantial retirement savings can be caught short by end-of-life expenses."
Consider that the average woman needs long-term care for 3.7 years, and the average man for 2.2 years,4 according to the U.S. Department of Health and Human Services' Administration for Community Living. What's more, the median annual cost of a private room in an assisted living facility in 2023 was $116,8005—an expense not covered by Medicare.
If unforeseen medical issues make staying at home difficult, it's possible your home's equity could be used to fund long-term care. Another option is long-term care insurance—although many policies don't cover the first 90 days of care, nor do they typically cover nonrefundable first- and last-month deposits. Family support often supplements these options, with adult children taking on caregiving duties for elderly parents. The AARP's Family Caregiving site is an excellent resource for retirees facing such responsibilities.
1Richard Fry and Dana Braga, "Older Workers Are Growing in Number and Earning Higher Wages," pewresearch.org, 12/14/2023.
2"Providing Disaster Relief through Charitable Organizations: Working with Volunteers," irs.gov, 03/04/2024.
3"The Age Well Study," matherinstitute.com, 06/09/2023.
4"How Much Care Will You Need?" LongTermCare.gov, 02/18/2020.
5"Cost of Care Survey," genworth.com, 12/2023.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
Investing involves risk, including loss of principal.
The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager) to help answer questions about specific situations or needs prior to taking any action based upon this information.
Schwab Wealth Advisory™ ("SWA") is a non‐discretionary investment advisory program sponsored by Charles Schwab & Co., Inc. ("Schwab"). Schwab Wealth Advisory, Inc. ("SWAI") is a Registered Investment Adviser and provides portfolio management for the SWA program. Schwab and SWAI are affiliates and are subsidiaries of The Charles Schwab Corporation.
Jeff Montgomery is not a client of Schwab and was not compensated by Schwab for their comments. The experience described may not be the experience of all clients and is no guarantee of future performance or success.
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