What’s the Role of Financial Planning in Retirement?

Andrew Weber is a senior director of Planning Philosophy, Research and Guidance at Northwestern Mutual.

Financial planning for retirement is an important focus at every stage of life. During your working years, it’s about balancing tax-efficient retirement savings with budgeting and other financial goals. Protecting your wealth is equally important to living the life you want. Things shift when you head into retirement. You transition from building your nest egg to generating income from your savings.

This phase can be difficult because it requires more strategic income and tax planning. At Northwestern Mutual, we believe the right financial professional can help ensure that your savings will last through your life. They can also help you leave a legacy that’s in line with your values.

In fact, research has indicated that advisors may be able to help people spend 15 percent more.¹ A study in the Journal of Retirement found that more than 4,000 households were able to find an additional 15 percent of income when using a financial advisor.

Here are some of the reasons financial planning is so important—especially in retirement.

Why you still need a financial plan in retirement

Tuning your income machine

If you’re still working, your main income source is likely your job. Receiving regular paychecks makes it easier to budget and plan for the future. But when you retire, your income will come from multiple sources. That often includes:

1. 401(k)s, IRAs and other types of retirement accounts
2. Social Security
3. Annuities
4. Pensions
5. Accumulated cash value in a life insurance policy²
6. Other investments such as real estate, REITs and brokerage accounts

If you’re retired, you have to think about where your money is coming from, how much money you have and the right pace to spend at. Some income sources may be guaranteed, while others can fluctuate with the markets. Every source of income comes with different rules and tax treatment. Some of your retirement income streams may be tax-free, others may be tax-deferred, and some sources are taxed as ordinary income. This is known as the tax triangle, and generating income from all three categories can ease your tax burden in retirement.

Beginning at age 73, you’ll also have to take required minimum distributions (RMDs) from tax-deferred retirement accounts. There are a lot of moving parts to consider. Without professional guidance, you could end up paying more in taxes, drawing down your nest egg too quickly, or being more conservative than necessary.

Living for today while protecting your legacy

Every dollar spent (or unspent) in retirement can affect your legacy plan. Some people like to see their legacy in action during their lifetime, a concept popularly known as “giving while living.” For example, by spending less now, you could give money to a grandchild to go to college. This may feel more meaningful to you than leaving a pile of money to your loved ones after you’re gone. Or you might feel called to build multigenerational wealth for your family. In this case, wealth preservation is key.

Your legacy will be unique to you, but at Northwestern Mutual, we believe an experienced financial advisor can help you make a personalized plan that maximizes your income. They may suggest a donor-advised fund or other tax-friendly ways to approach charitable giving.

Navigating economic uncertainties

You want to enjoy your life when you’re no longer working—not worry over market dips and your retirement portfolio. A financial professional can take those concerns off your shoulders and modify your income plan accordingly. Economic conditions will likely come into play when deciding which accounts to draw on for income.

Long-term stock market growth has historically come with setbacks along the way. Think of it as taking one step forward, two steps back. If market dips coincide with retirement withdrawals, it could deplete your nest egg at a faster clip. This is called sequence of returns risk. Taking steps to mitigate this risk could help prevent you from outliving your savings.

Lots of retirees assume they’ll get a 6 percent or 7 percent return on their investments over time, so they rely on the 4 percent rule to calculate income withdrawals from their portfolio. But returns may be higher or lower than that target in any given year. If you don't plan well, you could quickly and easily end up overspending. These types of retirement rules of thumb can be helpful, but they’re no substitute for personalized advice.

A retirement financial advisor can help you get the most out of your money, so you can spend more in retirement than you thought was possible—not less. Staying invested during retirement can also help you keep pace with inflation over the decades.

Accounting for other retirement income risks

Even the best retirement plan has its vulnerabilities. Below are other income risks that a financial advisor can help you navigate:

1. Taxes: Being strategic about your retirement income plan can help reduce your tax liability during this phase of your life.
2. Health care: Medicare premiums, prescriptions, doctors’ visits and other health care expenses can add up fast in retirement.
3. Long-term care: If you opt out of long-term care insurance, you should have a plan for how you’d handle getting the care you need. Otherwise, it could put an emotional strain on your loved ones. You’ll want to identify who would step into a caregiving role if needed and how you’d pay for your care. In some cases, you may need to spend down your assets to qualify for Medicaid. Planning for long-term care can be complicated, but a financial advisor can help you move forward with intention.
4. Longevity: Living a long, happy life is the ultimate goal—and you want to make sure your finances can go the distance.

Whether you’re still working or approaching the career finish line, a big part of financial planning for retirement is figuring out ways to give yourself more control. Having a financial professional by your side can make all the difference—and allow you to enjoy your retirement with less stress.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER® and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.