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Pre and Post Retirement Financial Planning

I get a lot of questions regarding pre- and post-retirement planning, but today I wanted to address one that is most frequently asked.

I’m retiring at the end of this year. I used a fee-based advisor five years ago to ensure I was on the right track to retire. Based on prior analysis and goals, I have accumulated enough assets to retire as planned. What are the top five areas that I should ask my advisor to focus on now that I’m changing from the accumulation phase to the drawdown phase?

Great question!

Well, first off congratulations on having a plan for your retirement!

First Steps

Now that you have reached your asset goal, here is what you would look at as you enter retirement. Keep in mind that once your paycheck stops, you become totally dependent on your pension and social security plus the income from your investments.

The first thing you and your financial advisor should do is segment your planned spending between three categories: (1) needs, (2) wants, and (3) wishes. Put a price tag to each one.

Needs: What do you need to live on? (food, clothing, housing, utilities, etc.)
Wants: What would you like to spend money on? (travel, cars, recreation, etc.)
Wishes: What would you buy if you had the money? (boat, second home, etc.)

A good retirement plan will determine your probability of success. If the probability of running out of money is high, you can adjust your spending plans before problems arise.

Think About All Possible Outcomes

Meet with your financial planner and discuss what worries you. Most people entering retirement fear major financial losses. Are you concerned about medical expenses? How would premature death affect you and your spouse? What if you lived too long? How will inflation affect your plans?

Determine the effect of these concerns on your lifestyle. Discuss what you can do to minimize these concerns.

How much risk are you taking? Many people don’t really know. As you enter retirement you are most vulnerable to sequence-of-return risks. Major financial losses just before or after retirement can ruin your plan.

Ask your advisor to determine your portfolio’s Risk Number. This determines how your portfolio would withstand the kind of losses incurred during the last recession, for example. Should you be making some changes?

Ask your financial advisor to review the ownership and beneficiary designation of all your assets. That includes your financial assets as well as your home and anything else of value.

Your financial planner should be able to address these issues. You have worked a lifetime to get to this point. You want to make sure that the retirement that you dreamed of will become reality.

How Unsteady Is Your Retirement Strategy?

The government’s General Accounting Office (GAO) reports that 48% of people aged 55 and approaching retirement have nothing in retirement savings. That statistic is not quite right, but the reality isn’t too much better.

Percentages of People With a Retirement Plan

The GAO counts those who have nothing in an IRA or 401(k) plan as having saved nothing for retirement. But what they don’t know – or know and don’t take into account – is that retirees may have sources of income outside of their retirement plan savings.

Having a traditional pension that pays you a guaranteed income for life is the equivalent of hundreds of thousands in retirement savings. It’s one of the major benefits that public sector employees enjoy. Many corporations have eliminated pensions and offer 401(k) type plans called “defined contribution” plans. However, some businesses still do offer these.

That leaves about 29% of Americans without pensions or savings, but that’s not the complete story. People who have saved or invested in investment accounts that are not classified as “retirement accounts” are included in that 29%. Your home is an investment and many older Americans own their own homes. Unfortunately, a lot of older homeowners still have mortgages and carry credit card debt.

So that 48% number is not as bad as it seems. But it is a fact that too many older Americans are increasingly reliant on Social Security for retirement income. That’s a problem.

The Problem With Relying on Social Security

Social Security is shaky and getting shakier. Its reserves will be depleted in about 15 years. If Congress does not fix that, the Social Security Administration will have to reduce benefits. With the rise of health care costs, a large part of people’s Social Security check will go to Medicare. Medicare Part B premiums are automatically deducted from one’s Social Security check.

The bottom line for those over 55 and hoping to retire one day is to think ahead. Do some planning and don’t assume that retirement is going to take care of itself. Your retirement savings are your insurance policy against having to reduce your lifestyle after your paycheck stops.

Final Thoughts

Take the time to get a comprehensive retirement plan. The benefit of a plan is that it tells you, in actual numbers, how much money you will need to retire and how much you will be able to spend during retirement. Find an advisor – an experienced Certified Financial Planner™ professional – who will guide you. Do it now before time slips away.

Create A Financial Plan With Korving & Company today.

7 Common Misconceptions about Retirement Banner

Debunking 7 Common Misconceptions About Retirement

Conventional retirement savings advice can lead you astray. Instead of following the standard financial advice, buck the conventional and find financial freedom in retirement.

Misconception #1: I’ll die before I am 90 so I should use that as my planning age.

According to the life insurance industry, one-quarter of 65-year-old men in average health will live to age 93 and women will live to 96. Your retirement plan should show what happens if you live too long.

Misconception #2: Medicare will take care of healthcare costs in retirement.

Typically, Medicare pays a little more than half of a retiree’s medical bills. Average out-of-pocket expenses in retirement are around $5,400. Medicare generally does not cover long-term care. Most of the cost comes out of your pocket unless you have long-term care insurance.

Misconception #3: A conservative portfolio is appropriate for me in retirement.

For retirees facing 30-plus years of retirement, a no-risk portfolio of bonds and CDs is very risky because inflation erodes the purchasing power of this type of portfolio. Just look at the way the price of groceries has risen in the last 10 years. Unless you are extraordinarily wealthy, retirees should invest a portion of their portfolio in equities.

Misconception #4: It’s best if I claim Social Security benefits at age 62.

Claiming Social Security early can be a costly move. Based on life expectancy, claiming at age 62 means you have a 90% chance of failing to get the highest lifetime Social Security benefits.

Misconception #5: I’ll remain healthy enough in retirement to make financial decisions myself.

As we age most people begin to have memory problems and decision-making becomes more difficult. Scam artists focus on the elderly because they are easiest to confuse. Retirees should seek help from an advisor to manage money in retirement before they become ill or their decision-making ability begins to decline.

Misconception #6: My taxes will be low in retirement.

If retirees need as much income as they did during their working years to maintain their lifestyle, it is not realistic to think that their tax burden will be less. Keep in mind that distributions from most retirement plans are fully taxable as ordinary income. Tax rates are now at the lowest level in decades and many in Congress are proposing raising tax rates.

Misconception #7: I can safely withdraw 4 percent of my assets annually and not run out of money.

The “4% Rule” is not infallible. A retirement plan should include projections that show what would happen if your investment results don’t meet your expectations. This is especially important if market losses occur around the time you retire.

Create A Financial Plan With Korving & Company

Financial planning explained

Here’s some good news: you can positively affect your level of economic success by planning for your future instead of “winging” it. Without a goal, and a plan to get there, people usually spend years chasing short-term objectives while their long-term objectives get farther away.

Financial Planning: Closing In On Retirement

Most of the people who have come to us for a financial plan are getting very close to retirement. They want to know:
• If they can retire,and when to start financial planning
• When they can retire and
• If they can live in the style to which they are accustomed.

But waiting until retirement is just around the corner leaves little time to make corrections. The ideal time to create a financial plan is when you’re young.

Financial Planning: Roadmapping

A financial plan is like a roadmap. It’s a map in time instead of space. Like a road trip, there are places you want to stop along the way, and a destination you want to reach. The stops along the way may be marriage, a home, college for the kids, cars, vacations or starting your own business. The destination may be retirement or leaving a legacy.

Along the route there are hazards to contend with: financial risks, illness, disability or even death.

Financial planning forces you to focus on the things you can control – like earning and saving – and understand that part of the future is outside of your control. It can point out ways to protect against risks that are outside your control.

A plan will identify resources you will need to reach your objectives; the professional advisors who will help you with the legal issues and determine who will provide the financial guidance you will require. A plan will even guide your beneficiaries and heirs once you are gone.

A plan does not execute itself. Like a map, you need to check it from time to time to make sure you are on the right road.

And, if you make the wrong turn and get lost, you need to be able to stop and ask directions. This is where a financial planner, the one who helped you set up your plan in the first place, is the right person to ask.

Financial Planning: Protect Against Risks

Arie and Stephen Korving are both CFP™ (CERTIFIED FINANCIAL PLANNER™) Practitioners. To find out more about Financial Planning and what it can do for you, call us 757-638-5490 or use our contact page for a free consultation.

The Risks of Do-It-Yourself Retirement Plans

A report recently published by the Federal Reserve Bank on the economic well-being of U.S. households discusses what people have saved for retirement versus what they will actually need, commonly known as the “retirement gap.” The survey found that only 47 percent of DIY investors were comfortable with handling their own 401(k)s, IRAs or other outside retirement accounts.

How To Have A Comfortable Retirement

No one plans to live in poverty in retirement. But one of the biggest problems for the majority of current workers is that they don’t plan … period. So what can we do to live better in retirement?

Save, save, save and start early. The biggest tool that anyone has is time. Time is the magic that makes compound interest a miracle. There is no substitute for starting early, and that means as soon as you leave school and begin work. Those who begin saving in their 20s saving $50 a month will end up with more money that those who started in their 40s.
Don’t retire early. People are living longer than ever before. Unless you are already rich, retiring early has at least three pernicious effects. First, your income stops and you begin drawing down your savings. Second, your pension and social security payments are much lower than if you wait. Third, you will spend more time as a retiree, forcing you to reduce spending to stretch your savings dollars.
After you retire from your main job and if you are physically able, find a paying job that will supplement your other income sources.
Find a way to cut costs. One of the best ways to reduce the cost of living during retirement is to be out of debt and that includes mortgage debt. It also pays, once you are empty nesters, to downsize the home. This has the effect of reducing taxes, utility and maintenance costs.

And once you are retired, get a copy of my book, Before I Go, so that you will be ready for the next stage on your journey.

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