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Creating a Retirement Income Strategy

by Sergio Mariaca on Nov 11, 2017 8:00:00 AM |Share:

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Today’s retirees face a retirement landscape that is very different from the one their parents saw. Americans are living longer and enjoying active lifestyles, and may need to rely on their retirement strategies for longer.

Recent changes to Social Security claiming rules, rising health-care costs, and turbulent markets make maintaining a comfortable retirement lifestyle more challenging than ever. This article answers some common questions about retirement income preparation and presents you with ideas to guide your own thinking.

What Is a Retirement Income Strategy?

A retirement-income strategy is designed to allow you to pursue your retirement goals while helping to ensure that your money lasts as long as you do. An ideal income strategy will cover your basic expenses through guaranteed income, hedge against longevity and rising costs by pursuing growth, and give you enough flexibility to adapt to changing circumstances. For most retirees, Social Security benefits and withdrawals from personal savings will account for a significant percentage of their retirement income. To create a personal retirement-income strategy, start by answering two questions:

How Much Income Will I Need to Live Comfortably in Retirement?

To begin to answer that question, you must have an idea of your retirement goals and their associated financial costs. One way to organize your thoughts about income is to think of them as a hierarchy of needs, wants, and dreams. Classifying your retirement expenses in these terms can help you understand how much income you will need for essential expenses and how much you will want for discretionary expenses that can be reduced in a pinch. If you can cover most of your basic needs through guaranteed sources of income, you have a lot more flexibility to adapt your retirement portfolio to changing market environments. It also may be useful to use a top-down approach to estimate how much of your current income you will need to replace in retirement. Though many people worry that they will need to replace their entire pre-retirement paycheck when they retire, that’s usually not true. Research by Fidelity found that most high-earning Americans only need to replace between 55 percent and 72 percent of their preretirement income to maintain their lifestyle once they retire.1 Since that estimate is averaged across different income levels and lifestyle goals, it may not be valid for your personal situation. That’s one of the many reasons why it’s a good idea to work with a professional who can create a customized analysis of your retirement.

Where Will I Get My Income in Retirement?

Most retirees depend on a mix of reliable income from sources like Social Security or pensions and withdrawals from their retirement savings. Others supplement those sources with income from rental properties, businesses, or encore careers. There is no one-size-fits-all solution; a diversified income strategy should combine enough guaranteed income to cover essential expenses, with potential growth to fight inflation, and be flexible enough to keep up with changing priorities and market conditions. * Identifying your known sources of retirement income will help you estimate how much you will need to generate from your investments each year. One study found that workers who earn between $50,000 and $300,000 preretirement should count on generating about 45 percent of their retirement income from their retirement portfolio.2 Again, this is an estimate that may not hold true for your personal situation, but it may be useful as a starting point for analysis. Another factor to consider is how much income can be generated by your portfolio without running out during your lifetime. While you may have heard about the “4 percent” rule of thumb for annual retirement withdrawals, research suggests that most retirees cannot rely on a simple yardstick for something so complex.It’s very difficult to know in advance what you can safely withdraw from your portfolio each year, since it depends on many interdependent variables, like market performance, expected life span, inflation, and more. As professionals we use sophisticated software and test many assumptions to help our clients prepare for a variety of scenarios. One major risk that today’s retirees have to contend with is the effect of volatility and market corrections on their portfolio returns. If you are forced to withdraw too much from your investments during periods of poor performance, you risk emptying your portfolio too fast. By building flexibility into your strategy and carefully managing risk, you can help reduce the effects of these negative periods on your retirement.

How Can I Maximize Social Security Benefits Under the New Rules?

One of the most important decisions you and, if you are married, your spouse will have to make is when to start claiming Social Security benefits. Since Social Security benefits are guaranteed for life and will increase over time with inflation, they form the foundation of most retirement-income strategies. Married couples have more claiming options to consider, and the right claiming strategy can help increase joint income and leave a larger survivor’s benefit to a spouse, though it might mean giving up some income early in retirement or working longer. The rules of Social Security allow a worker or spouse to begin claiming benefits as early as age sixty-two, but beneficiaries accrue delayed retirement credits for every month they delay claiming until age seventy. By waiting, you can collect up to 8 percent more each year. iv Married couples also have the option of allowing one spouse to claim a spousal benefit on the other person’s work record, if the benefit is larger than their own or they do not qualify for a personal benefit.

Social Security rules recently changed, and two claiming strategies (“file and suspend” and “claim now, claim more later”) are going away. Some couples who are already using these strategies or meet age requirements may still be able to take advantage of them. If you believe that you should be grandfathered in under the old Social Security rules, contact your financial professional immediately. Though the expiration of these two advanced claiming strategies takes away some options for retirees, making the right choice about when to claim is still critical to maximizing this essential source of income. For most retirees, two main questions will drive their Social Security claiming decisions:

  • How long do you and your spouse expect to live?
  • Can you afford to delay claiming benefits to accrue additional credits?

 In general, if at least one member of a couple expects to live until age eighty, deferring benefits to claim more money later may make sense, if you can afford to do so. However, if health issues or family history make a long life span unlikely, claiming benefits earlier may be wiser. If you would like help analyzing your options, a financial professional can run the numbers on different claiming scenarios to help you make a more educated decision.

Should I Retire Early or Wait?

 Some retirees are counting the days until they can pack their desks and go. Others identify closely with their work and can’t imagine life without a career. Wherever you fall on that spectrum, the choice of when to retire can have an enormous impact on your retirement strategies. Don’t forget about health insurance and medical care as well. If you currently receive health coverage through your employer, you might get sticker shock when you see what it would cost to purchase Medicare or private insurance. Delaying retirement for even a few years can substantially increase your retirement savings and improve your retirement options. However, there are other lifestyle factors to consider. If you are confident in your retirement preparations and have a strong desire to stop working and start your next phase of life, retiring now might be worth the additional risk. Part of creating a personal retirement strategy is understanding which risks you’re willing to embrace.

How We Can Help

 Saving and investing for retirement is just the first step. Developing an income strategy and maintaining it over time is a very different challenge. If you’re not certain about your retirement strategies, you’re not alone. A 2015 survey found that just 22 percent of Americans feel very confident about having enough money to live comfortably in their retirement years.4 We take an approach to retirement income that is based on an analysis of your personal financial situation and your goals for retirement. We’ll work with you to identify sources of income and develop a cash flow strategy that takes into account the timing of future expenses and balances income with your need for growth to protect against rising costs.

We developed this article to be used in tandem with the Retirement Budget Worksheet. I recommend that you set aside a few hours with your spouse or loved ones, gather your bills and statements, and complete the worksheet together. The process of developing some income estimates can give you more confidence and a sense of control over your finances.

Create Your Retirement Budget

 

Footnotes, disclosures, and sources: These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information. Guarantees are based on the claims-paying ability of the issuer and do not protect against market fluctuations. We have not independently verified the information available through the following links. The links are provided to you as a matter of interest. We make no claim as to their accuracy or reliability. *Diversification cannot guarantee a profit or entirely eliminate the risk of investment losses. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

1) “Where will my retirement income come from?” Fidelity. https://www.fidelity.com/viewpoints/retirement/retirement-income-sources [Accessed 16 February 2016] 2)“Where will my retirement income come from?” Fidelity. https://www.fidelity.com/viewpoints/retirement/retirement-income-sources [Accessed 16 February 2016] 3)“Leveraging Behavioral Simulation to Enhance the Four Percent Rule.” PwC. http://www.pwc.com/us/en/insurance/publications/assets/pwc-behavioralsimulation-four-percent-rule.pdf [Accessed 16 February 2016]

 4)“Social Security Benefits.” Social Security Administration. https://www.ssa.gov/oact/quickcalc/early_late.html [Accessed 16 February 2016] v “2015 Retirement Confidence Survey Fact Sheet #1.” Employee Benefit Research Institute and Greenwald & Associates. https://www.ebri.org/files/RCS15.FS-1. Conf3.pdf [Accessed 16 February 2016]

How Much Income Do You Actually Need in Retirement?

by Sergio Mariaca on Nov 8, 2017 8:30:00 AM |Share:

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One of the most common questions that we get from clients nearing retirement is, “How much income am I going to need to be comfortable?” It’s an important question that gets right at the heart of the retirement puzzle.

Although we wish we could give you a round number right here, that just isn’t possible. Too much depends on your personal situation. What is possible is to think ahead about your lifestyle and financial needs and come up with some approximations that can be used to develop a personalized retirement strategy.

We can arrive at an approximation of your target retirement income by answering a few broad questions:

How much are you spending each month right now?

The easiest place to start when developing a retirement budget is to understand where your money is currently being spent. Our detailed worksheet breaks down your expenses by category. The most accurate way to gauge your household spending is to look at your bills, bank statements, credit card statements, and other financial accounts to see where your money is actually going.

How will certain expenses change in retirement?

Your spending patterns will change in retirement. For example, many homeowners pay off their mortgages by retirement, significantly reducing their fixed housing costs. Research shows that food and job-related costs tend to drop because retirees have more time to shop and prepare meals, and no longer pay for a professional wardrobe or commuting costs.1 On the other hand, many retirees see increases in discretional spending as they take advantage of more time for hobbies, travel, and fun.

What major expenses should you plan for?

Once you have a handle on your monthly budget, the next step is to think about any large, one-off purchases that you will likely make in retirement. Buying a new car, updating your appliances, or taking on major home improvement projects may require extra cash at some point in the future. You should also think about the big items on your bucket list: a once-in-a-lifetime vacation, a new boat or RV, or large philanthropic gifts will definitely need to be considered in your income strategies.

What’s the next step?

The work doesn’t stop once you have developed your initial retirement income estimate. There’s a lot of additional analysis to be done to help determine how much income you will need at different stages of your retirement and where that income will come from. We take a look at many other important factors in your personal retirement income calculations, including:

Longevity & health history: Advances in medicine and healthcare mean that many Americans can expect to spend 30 years or more in retirement. According to actuarial tables, there’s an 18% chance that at least one member of a 65-year-old couple will live to see 95.2 We take a look at your personal situation and health history to help ensure your income lasts as long as you need.

Inflation: Increases in the price of goods and services mean that your expenses will rise over time. 3.2% inflation, the long-term average annual price increase, will cause prices to double in just 22.5 years.3 We also consider other types of inflation; many simple inflation calculators don’t account for increases in food, gas, and healthcare costs since these volatile categories are usually excluded from the headline Consumer Price Index. However, do they affect your personal bottom line? You bet they do.

If you’re worried about retirement, we want you to know that you’re not alone. We have helped many people just like you protect their lifestyles and develop a personalized strategy for their future income needs.

Find Answers to Your Retirement Questions

Footnotes, disclosures, and sources:

These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

We have not independently verified the information available through the following links. The links are provided to you as a matter of interest. We make no claim as to their accuracy or reliability.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

 

1) http://www.pensionresearchcouncil.org/pdf/2007-04-23-Hurst.pdf

2) http://www.actuary.org/files/Risky-Business_Discussion-Paper_June_2013.pdf

3) http://inflationdata.com/Inflation/Inflation_Rate/Long_Term_Inflation.asp

 

 

 

Are You Prepared for Retirement?

by Sergio Mariaca on Nov 6, 2017 8:35:00 AM |Share:

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prepared4retirement.jpg Market corrections and volatility during retirement can be unnerving, but they are part and parcel of being a stock investor in today’s markets. In the long term, research shows that the stock market has delivered positive returns.1 However, in the short term, markets can fluctuate dramatically due to many factors. For instance, in the 20-year period between 1995 and 2014, the S&P 500 returned 9.9 percent2, but during that same period, the S&P 500 suffered multiple years of negative returns:

  • Between March 2000 and October 2002, the S&P 500 lost 49.2 percent.3
  • Between October 2007 and March 2009, the S&P 500 lost 56.4 percent.4

During these downturns many investors lost significant portfolio value, and some missed out on the market recoveries that followed by failing to stay invested. Here are a few guidelines that can help you make it through volatility in retirement.

Build volatility into retirement assumptions

We can’t predict market movements with any certainty, but we can expect a retirement lasting 20 or 30 years to see periods of decline. Retirement strategies predicated on steady returns may fall short when markets swing. Sophisticated software that tests a variety of market conditions can help create retirement strategies that are designed to weather the bad times.

Choose a suitable mix of investments for your objectives

One of the most powerful tools investors use to help mitigate the effects of downturns and volatility is a proper asset allocation strategy built around your needs. We don’t believe in cookie-cutter strategies; your retirement portfolio should be as individual as you are. Diversification —mixing a wide variety of investments inside your portfolio— may help VOLATILITY and MARKET DECLINES during retirement are INEVITABLE.

Stay flexible and keep cash on hand

Unlike younger investors, retirees can’t always just wait out periods of volatility. Taking withdrawals when your portfolio has lost significant value can harm your overall retirement picture by depleting your savings, so it’s critical to build some flexibility into your strategies. One way to help you avoid selling investments that have lost money is to have a significant cash reserve.

Work with a Professional

There are many benefits to working with a financial professional, many of which come into play when markets decline or become volatile. A financial professional can help you

  • understand your personal risk tolerance and develop personalized objectives and strategies,
  • create a suitable mix of investments and stay diversified*,
  • avoid emotional decision-making and make informed choices,
  • stay informed about changing market conditions and how they may affect your retirement.

The Bottom Line

 Keep calm and carry on. Volatility and market downturns are a normal part of market cycles. As a retiree, you can expect to live through many periods of volatility and perhaps even a bear market or two. We cannot predict the timing or duration of these downturns, but research and experience have taught us that flexible, personalized strategies built on rigorous testing can help investors pursue success in many market environments. If you have any questions about how volatility may affect your retirement picture, please contact us to discuss your personal situation.

Avoid These Crucial Retirement Mistakes

 

Footnotes, disclosures, and sources: These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker/ Dealer, or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker/ Dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information. *Diversification cannot guarantee a profit or entirely eliminate the risk of investment losses. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results. The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in an index. Consult your financial professional before making any investment decision. We have not independently verified the information available through the following links. The links are provided to you as a matter of interest. We make no claim as to their accuracy or reliability.

1) “Annual Returns on Stock, T-Bonds, and T-Bills: 1928–Current.” NYU Stern. http:// pages.stern.nyu.edu/~adamodar/New_Home_ Page/datafile/histretSP.html [Accessed 6 November 2015]

2) “Guide to the Markets®.” J.P. Morgan. https://www.jpmorganfunds.com/ blobcontentheader/202/900/1158474868049_ jp-littlebook.pdf [Accessed 6 November 2015]

3) Yahoo Finance. S&P 500 price return between March 24, 2000 and October 9, 2002.

4) Yahoo Finance. S&P 500 price return between 10/9/2007 and 3/5/2009.

 

Should You Downsize After Retirement?

by Sergio Mariaca on Nov 2, 2017 8:35:00 AM |Share:

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It’s a question as old as retirement itself:  now that the children are gone, should you downsize your home?

Maybe move to your favorite vacation spot to enjoy the sunshine and natural beauty? Or should you stay put, relaxing in familiar surroundings and a community you know well? Today’s retirees enjoy more freedom than ever to choose where and how they live. Many retirees choose to downsize or move to be closer to family, to reduce housing costs, or to move into a smaller home. As with most important personal and financial decisions, there are pros and cons to downsizing your home that you should consider.

 

A New Home for A New Chapter

Here are some of the potential advantages to downsizing and moving into a smaller house:

1. You Could Free Up Additional Capital for Your Retirement

For many retirees, their house is both their biggest asset and their biggest expense. If you have significant wealth tied to your home’s equity, selling and downsizing can provide liquid assets to boost your retirement savings, especially if your home has a high market value and you sell at a good time. However, to make the most of this opportunity, you have to avoid the temptation to spend the windfall immediately. A financial professional can help you determine whether selling your home and socking away some of the profits is a smart move. Though most taxpayers will be able to exclude some of the capital gains on a primary home from federal taxes, a tax professional can offer advice on your personal situation.

2.You Can Choose a Home That Suits Your Retirement Lifestyle

Many home owners live close to work or their children’s school. Choosing a home that suits your post work life may be a better financial and psychological fit. Downsizing to a smaller property often means less maintenance, less time doing household chores, and more time enjoying hobbies and travel. Your current home or neighborhood may also not be conducive to aging independently. If you’re concerned about getting older, you can consider moving to a continuing-care community or a neighborhood with better infrastructure for aging.

3. You May Enjoy the Simplicity of Starting Over

Now that the kids are gone, do you really need all that space? Many retired Americans enjoy doing away with the clutter of decades and starting over in a smaller home. If you feel as though you own too many things or your home is too big to manage, you might appreciate the freedom of downsizing.

 

Home is Where the Heart Is

There are also some potential disadvantages associated with selling your home and downsizing in retirement. Think through these potential pitfalls before you post that “For Sale” sign in the yard.

1. You May Lose Connection with Family and Community

If your family members and friends live close to your current home, moving to a new area could mean losing touch with the people closest to you. Don’t underestimate the importance of feeling connected to the people and places you love. If you have strong ties to your community, you might find it hard to replicate that same sense of belonging in your new locale, especially without the benefit of work or child rearing to foster new connections. Take the time to think about how you would build a support network in your new home.

2. You May Have Less Room for Family and Friends

If you enjoy hosting big family celebrations or want your loved ones to stay over, a smaller home might make it hard to continue the tradition. Retirees who still support (or expect to support) adult children should also consider whether the children might “boomerang” home in the future. Think carefully about what role you expect to play in your family’s life after retirement and whether downsizing supports your goals

3. The Financial Savings May Be Less Than You Think

Though downsizing has the potential benefit of reducing the time and expense of maintaining a home, it may not save you as much money overall as you might think. Consider the expense of selling the old house and buying a new one, as well as the cost of moving, in your decision. You should also think holistically about car insurance, utility rates, and property taxes in your new location. Once you factor in all these costs, you might find that the annual savings aren’t worth the move.

Bottom Line

Think long and hard before making such a permanent and life-changing decision as selling your home and moving. If you have considered all your options and believe that moving is the right decision, consider trying out your new neighborhood with a short-term lease before making the move permanent. If you have questions about downsizing or would like help calculating the costs and benefits of a move, give us a call.

 

These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker Dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker Dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

 

The Four Phases of Retirement 5/23/2012

by Sergio Mariaca on May 23, 2012 10:28:00 AM |Share:

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Years ago, when you mentioned the concept of retirement, visions of a long and relaxing stretch of time after your career came to mind. Most people envisioned having a 20-30 year time span filled with activities such as traveling to exotic locations, leisurely days of relaxation and recreation and time with grandchildren. The possibility of long-term care was usually the only concerning issue in retirement.

Times have certainly changed!

Today the concept of retirement has taken on a new meaning. The cost of living has become very expensive and those who would like to enjoy their mature years are finding that it is becoming less and less financially feasible. In order to realize their dreams, retirees are finding that simply living off of social security and a savings account is not enough.

Social security, which is typically a component of any retirement plan, was never intended to be the sole source of retirement for anybody. To reach any sort of comfortable retirement income, people today will need quite a bit more than what social security can provide. The Social Security Administration recently stated that 96% of American workers are covered by social security, (including non-working spouses who are also eligible for payments) however, the amount you are eligible for can be different depending on when you start to collect. Even though in most circumstances you cannot collect Social Security until age 62, there is an even higher benefit offered to those who wait until age 70 to start. Although social security should be a part of your retirement planning, for purposes of this article, we want to point out that social security will most often not help satisfy someone’s retirement income needs.

Some people have saved their entire lives with the intent of being able to enjoy the golden years, but when putting together a plan for living comfortably from these savings, they now have to take into consideration many factors, including:

  • The impact of inflation.

  • How much you can afford to take out of your retirement plan each year.

  •  What required minimum distributions, if any, do you need to take from your retirement plan.

  •  What financial benefits you may have if you delay your retirement.

  •  What mortgages, large debts and bills you may have outstanding.

  •  The total amount of wealth you have collected and saved for retirement.

  •  Your health and long-term care costs during retirement.

These are just a few of the complex issues that retirees need to consider. A good strategy for approaching and preparing for retirement is through a well-executed, long-term plan. Sadly, the reality for many people is that their lifetime may have included unexpected situations like an untimely death, a divorce, an unfortunate disability, or any one of a number of unpredictable and unpreventable obstacles that changed or altered even the best of intentions. As a result, many people today find themselves in the twilight of their working years having saved less for their retirement than they anticipated and scrambling to find a way to compensate or make up for the cash they will need­­ to realize the retirement they once desired.

Those who are in their 50s and 60s without large retirement accounts may not have the time to receive the full benefits from compounding the returns on their investments. Also in today’s low interest rate environment, many of your safer choices will not grow as fast as they would have when interest rates were higher. Your retirement savings can still have the opportunity to grow by the time you need to access your funds. The tax law provides a few provisions for individuals over 50 that are continuing or even starting to save for their retirement. If you are 50 or older you can put up to $6,000 ($1,000 more than younger savers) in your regular IRA or Roth IRA. If you are over 50 years old you can also add an extra $5,000 to a 401(k) plan (compared to your younger co-workers). IRAs and 401(k) plans provide for tax-deferred growth, while Roth IRAs can offer tax-free growth. These options are always attractive for those still working and over age 50, but there are many restrictions and guidelines on who can participate and to what extent. This is an area where we can help. For clients who are interested in learning how to maximize your retirement savings we always enjoy the opportunity to discuss your specific situation and plans.

Today, many people are delaying their actual retirement date. Every year you continue to work can help your planning in two ways. First, delaying retirement means there is another year you are working and earning an income and saving for retirement. Second, because you are still working, you may not need to use your retirement savings that year for financial help. Delaying your retirement allows your nest egg to hopefully grow for another year.

For many Americans, retirement today can be broken down into four phases:

1.      Pre-retirement;

2.      Early retirement;

3.      Full retirement; and

4.      Final retirement.

Let’s take a brief look at
each of these stages.

Pre-retirement Phase

Pre-retirement is that time period when you begin to take a look at slowing down and begin to plan your life after your career. This is the time you should ask yourself how much money you will need and how you can make the most of your retirement. As a starting point, most experts suggest that you will not need your full earnings to carry you through retirement but a high percentage of it. Obviously, the percentage is higher if you earn less, and can be lower if you earn more. Although everyone’s situation is different, one of the keys to success is to consider preparing an active budget of your expected expenses in retirement. You can then review how much you have saved and invested to meet your unique situation.

Remember, most people in retirement pare back certain expenses like commuting costs and clothes that are required for work. However, some incur additional expenses such as health care. It is crucial in this phase that you map out what you want your retirement to look like and how and where you expect to live so that you can begin to plan for life after your career has ended. This time period is also helpful to think about setting some goals you can stick to and monitor your cash flow.

Early Retirement Phase

The next stage is the early stage of retirement. During this phase, many people can still have a lot of energy and enthusiasm and therefore can focus on enjoying physical sports (like golf and tennis) and traveling. During this phase it is important to have a plan for cash flow. It can be very likely that your expenses will be higher in these early years due to potentially more extensive travel and activities.

It is not unusual today for many individuals in this early stage to work on a part-time basis. In addition to traditional work, many people in this stage also still work on boards of trustees and volunteer at not-for-profit organizations.  

The increase in life expectancy can affect your decisions during this stage. Also, many people during this stage need to replace or supplement corporate benefits such as life and health insurance and, if you work part time, possibly disability insurance.

The challenges of this early retirement phase are not just financial. They can also be about filling time. Many retired clients find themselves looking for work often part time, simply out of boredom. Although early retirement may sound appealing, it is important to think through the financial and non-financial implications for making this decision. It is essential that during this period that you hold a full review of your estate plan so any unexpected situations do not interrupt the comfort of you or your loved ones. This is another area where we can offer assistance to clients.

Full Retirement Phase

This next stage is the middle of your retirement cycle. By now, you have hopefully realized your travel dreams and fulfilled many of the goals you had planned for in your retirement.  

Although you may be in good health, many people during this phase are more likely to decide to slow down and may possibly find more enjoyment in activities that are less fatiguing and slower paced. The hassles of traveling don’t sound as tolerable. Instead, local events and the pursuit of hobbies that are less physically tasking sound more appealing.

During this phase many people belong to groups or clubs that meet regularly and provide social interaction. Your expenses may actually be lower than in the early retirement phase if your activities (such as traveling) have minimized.

In today’s low interest rate environment, many experts are recommending that withdrawals from retirement plans be more conservative than those taken during periods of higher interest rates. This is why we like to sit with clients to help determine an appropriate withdrawal schedule.

Final Retirement Phase

The final years of retirement are the last stage. This is when you may find yourself battling the physical and mental challenges of old age. During this final phase, some retirees move out of their homes and into assisted care facilities or even nursing homes. Many times medical expenses, including prescription drugs, take up a significant share of your monthly income. You can even become restricted in your activities due to physical limitations.

Conclusion

Regardless of your age or which phase you are in or approaching, here are some important things that you need to constantly review and consider:

1)   Realize that your cash flow needs can be different for each phase of retirement. Your early phase and final phase have the potential to have the most expenses. Expenses can usually be lower in the full or pre-retirement stage. 

2)   People are living longer. Better health habits, advances in medicine, and many new drugs have extended people's lives longer than prior generations. It is imperative to monitor and review your investment choices on a regular basis to give yourself the best possibility of meeting the cash flow needs you will require throughout each phase of retirement. 

3)   It is imperative to periodically rebalance your investment portfolios to reflect the various changing priorities and living patterns as you go through each of these retirement stages. You should systematically revisit how you can adjust your portfolio based upon your actual life and health changes, goals, needs, objectives, and risk tolerances. 

4)   It is essential to review your needs for long-term care and other costs (like medical and burial expenses) before and during retirement. 

5)   It is crucial to constantly monitor your cash distributions from your retirement savings. We have experienced a significant decline in interest rates over the last decade and that can affect your portfolio. In this low interest rate environment it is even more essential that you have a strategy for taking distributions from your portfolio. In the past, a larger distribution rate might have been acceptable, however, with today's low interest rates it is imperative to make sure that your withdrawal rates are reasonable and will be sustainable over the long-term.

The bottom line is that throughout each stage of retirement it is wise to make sure that you plan and monitor. Remember, the only thing that is constant is change! Our role is to help and assist you through each stage of your retirement. We take great pride and satisfaction in reviewing each of our client’s individual situations and needs. Our goal is to fully understand and review your retirement and estate planning needs. Please call us at
(561) 650-8061 if you have any questions or need any assistance and we will be happy to help you.


This article is for informational purposes only.  This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer or financial professional. A Roth IRA distribution is qualified if you’ve had the account for at least five years and/or the distribution is made after you’ve reached age 59 ½. This article provided by MDP, Inc.  © 2012 MDP, Inc.


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