Navigating Retirement in Sonoma County
It’s hard to imagine a more picturesque place to retire than Sonoma County. As the heart of California’s wine country, Sonoma County is home to more than 435 wineries, expansive national parks, miles of Pacific Coastline, and restaurants and entertainment for every taste and style.
But all of this beauty can come at a cost: Sonoma County is among the most expensive counties in California. Housing costs in the county are among the highest in the nation. Add to this the lure of fine wines and dining and it can be easy to blow through a retirement budget. The good news is that there are steps you can take to help you navigate retirement in Sonoma County with confidence.
Your investments will likely become a significant source of your income in retirement alongside Social Security. It’s important to establish a disciplined withdrawal strategy before you retire to ensure your investments can last for the duration of your retirement.
The key to a retirement withdrawal strategy is determining the appropriate sustainable withdrawal rate based on your savings and lifestyle. A common rule of thumb is to withdraw 4 percent (adjusted for inflation) of your investments each year for 30 years without running out of money, but this equation doesn’t work for everyone, and your situation may point to a different rate. For instance, if you work longer, you may have a shorter retirement and thus be able to withdraw more from your portfolio each year. Retiring earlier, on the other hand, may mean you need to reduce your withdrawal rate to make sure you don’t run out of money.
The mix of investments you use also impacts your withdrawal rate. Stocks historically provide more growth potential, which can enable a higher withdrawal rate, but this also comes at the cost of higher risk of price swings.
Talk to a financial advisor at Montgomery Taylor Wealth Management about your risk tolerance as you near and enter retirement.
Healthcare is among the largest retirement expenses for most retirees. How you plan for healthcare in retirement, especially when you’re retiring in a high cost-of-living area like Sonoma County, plays a major role in your overall retirement journey.
As you near retirement, you’ll have to decide how to pay for healthcare when you no longer have access to your employer’s plan. Medicare doesn’t kick in until age 65, so if you retire before age 65, you’ll need to find other healthcare options.
Once you turn 65, you can enroll in Medicare. While traditional Medicare Parts A and B coverage is the same everywhere, Part C (Medicare Advantage), Part D (prescription coverage) and Medigap supplement plan costs can vary by location.
Take some time to consider the level of coverage you’ll need in retirement. Medicare Part A is free, but all other parts of Medicare, including Part B, carry premiums. If you don’t enroll in Medicare Part B when you are first eligible, you may be penalized with higher premiums when you do enroll later in life. While health insurance can be expensive, being underinsured when a medical emergency occurs can be more expensive.
When planning for retirement, people often focus on their individual situation and forget to factor in how their broader family may impact their retirement. Today’s retirees are increasingly being called upon to help adult children or aging loved ones emotionally, physically and financially. It behooves any retirees and near-retirees to put careful thought into how they’ll handle family concerns in retirement.
As you prepare to retire in Sonoma County, think about the type of support you may want to give your family after you retire and what it will cost. Do you want to help pay for your grandchildren’s college education? Are your own children still struggling to find their independence? How long will you support them and to what degree? Will your own parents need caregiving? Who will provide this and at what cost?
You may also want to think about how you’ll help loved ones who step in to help you as you age. If you have people depending on you for any type of support, you may want to consider life insurance. Life insurance can provide a living benefit to help pay for long-term care or the death benefit can serve as a form of reimbursement for family members who care for loved ones before they pass away.
The real estate mantra is no less relevant in retirement. Where you retire has a significant impact on how much your retirement will cost. Sonoma County is not an inexpensive place to retire. Sonoma County’s overall cost of living is nearly 60 points above the national average and nearly 10 points above the average for all of California. You can expect to pay more than the average American for everyday items like groceries and transportation, as well as healthcare and housing. This doesn’t mean you can’t have a long and fruitful retirement in Sonoma County; it just means that you’ll have to plan to make it happen.
Location also applies to your proximity to the things that matter most to you in retirement. This can include medical facilities, including access to medical specialists and specialty treatments, but also access to activities you enjoy, be it hiking or wine tasting, and the people you love. Before you commit to retiring in a certain location, make sure you’ve considered how you’ll access the things you need and want in retirement.
One way to make retiring in Sonoma County more affordable is to continue working in retirement. A recent survey shows that more than two-thirds of people expect to continue working in some capacity after retirement. While continuing to work may not sound like the retirement you dreamt of, studies have actually found that working in retirement can benefit both your bank account and your state of mind.
On the financial side, working longer gives you more time to save and less years your savings will need to last. Each year you delay taking Social Security until age 70, your benefit amount increases. Your employer may also help cover the cost of health insurance, which, as mentioned earlier, is a major cost burden for a lot of retirees. Even just a part-time job in retirement can help ease the financial burden of retirement.
On the psychological side, working in retirement can help you stay engaged and active later in life. One of the biggest emotional hurdles for retirees is a loss of their sense of purpose. Working, even just part-time, can help retirees feel connected and important. It can also help you stay connected to your community.
Think outside the box. You needn’t work in the same field after you retire. In fact, retirement can be a great time to find a job that aligns with your passions or hobbies. These second-act careers can be sources of overall life satisfaction for retirees.
Before retirement, work is often the biggest part of most people’s days – everything gets scheduled around your work, giving your days a predictable structure and routine. Once you retire, however, this structural bedrock disappears. Suddenly, grocery shopping can be a Wednesday chore and laundry can happen every day.
While this can bring a sense of freedom (no more crowded checkout lines!), it can also create a feeling of aimlessness. It’s easy to put things off when you have no set deadline and let each day just blur into the next. Having a routine even in retirement can actually be helpful. Even something as simple as waking up at the same time or making Tuesdays chore day can help retirees stay grounded.
Planning how you’ll spend your days can bring reassurance. Having nothing but free time may sound like a blessing, but it can easily become daunting if you don’t have a plan for how you’ll fill that time. Think about the activities you want to do in retirement and how you can use them to build structure into your days. This daily planning can also help you prepare financially for retirement – it’s far easier to estimate how much retirement will cost when you know what you’ll spend your days doing.
Navigating retirement revolves around two critical numbers: How old you are when you retire and how long you live in retirement. You can control the first of these numbers, but the second is largely up to chance. While family history and your personal health can help estimate your life expectancy, no one can know for certain when they will pass away. Thus, none of us can be certain how long our retirement will last.
This is why longevity risk is becoming an increasingly important consideration for retirees. The average life expectancy for someone born in Sonoma County is around 82 years of age, three years longer than the average U.S. population. Longevity is particularly important for women to consider, as studies show they tend to live four years longer than men in Sonoma County.
To help mitigate longevity risk, consider increasing your sources of guaranteed income, such as Social Security or pension income. The more guaranteed income you have, the less you’ll need to rely on your investments for regular income. This will allow you to use a lower withdrawal rate on your investments, increasing their own chances of a long life.
Ideally, all of your necessary expenses will be covered by guaranteed sources of income. By doing this, you can create more flexibility in your spending and investment withdrawals. Building flexibility into your retirement plan can help combat uncertainty.
Retirement can bring with it a lot of unknowns. If you have a concern that isn’t addressed here, contact the team at Montgomery Taylor Wealth Management. Montgomery Taylor Wealth Management is a Santa Rosa-based firm serving the greater Sonoma County area. Our team of financial advisors, Certified Public Accountants (CPAs) and estate planning attorneys provide clients with integrated, complete financial advice to help simplify life and maximize opportunities. If you plan to retire in Sonoma County, contact us to see how we can help.