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Planning for Retirement


Traditionally, retirement has centered on three things: Social Security, personal savings and a pension. With pensions becoming less common, Americans saving less, and Social Security benefits often falling short for covering basic expenses in retirement, investors may need to find a way to strengthen the shakiest part of their retirement strategy. The weakest part of the retirement picture for savers that we typically see is a dramatic lack in understanding of what our clients spend and what they will ultimately need in retirement. People certainly aren’t saving enough and it’s usually not intentional. We find that they just don’t understand or realize where most of their money goes. Today we see a household structure where both spouses are on overdrive with their career, activities, and family needs, that they fail to pay attention to their finances. They buy out of convenience. Having a conversation with their spouse, a budget and a proper financial plan gets put on the back burner because of the ultimate anxiety it causes. We are seeing a trend where people aren’t getting rich retirement packages previous generations were given and social security benefits are being shrunk; the responsibility of saving and having money in retirement is on you!

 It is critical for investors to have an accurate calculation of how much money they'll need for retirement. We always say, ‘retirement is a numbers thing not an age thing’. People automatically assume they will spend less in retirement, however, most people will end up spending about the same as they do now. (https://www.aarp.org/work/retirement-planning/info-2015/nest-egg-retirement-amount.html) The word “budget” makes most people cringe, but taking a moment to figure out what your expenses are now, can help us determine what we are going to need later. Not to mention help you get an idea of how much we can put towards saving for your more immediate goals, as well as retirement. 

Medical expenses in retirement are another area that becomes one of the largest concerns. The truth is, the average couple will spend over $250,000 in healthcare costs in retirement alone, not including out-of-pocket expenses or long-term care. (http://money.cnn.com/2015/12/30/retirement/retirement-health-care-costs/index.html)  Medicare and Medicare supplement costs can be confusing. People should know it’s not always free. Premiums for Medicare are income driven and the supplements have a range of premiums based on healthcare needs and desired out-of-pocket costs. Discussing this with a professional is important. Make sure you are including these expenses in your retirement spending.

Additionally, people don’t always understand how their income will be taxed. Some mistakenly think that their tax bracket will be lower, when it could be the same if most of your savings are in pre-tax accounts. Also, social security could be taxable. There is so much to consider and this amplifies what they must save to pay for additional taxes.

Longevity is also something people are subconsciously aware of, but don’t realize the impact that it has on the cost of their retirement, or perhaps just aren’t willing to admit that someday it will be a reality.  Not only are we living longer and that means having to save more, but the likeliness of needing long term care services are extraordinarily high. Long term care (home care, assisted living and nursing home care etc.) is not covered by Medicare or health insurance. The cost can be very expensive and is on the rise. The national average median cost for a semi private room in a nursing home last year was $7,148 per month! (https://www.genworth.com/about-us/industry-expertise/cost-of-care.html). Having to pay for care can quickly drain a savings and impact your family-specifically a spouse that does not yet need care. Being able to private pay or pay for care with insurance can also have an impact on the quality of care you receive and the facility that you are able to choose. We spend a lot of time talking about this with our clients and creating a plan so that they have options down the road.

34% of the workforce has no savings for retirement and 51% has no private pension coverage. (Source: Social Security Administration, socialsecurity.gov, June 2015.) People are relying on their social security! Those who take their Social Security prior to their Full Retirement Age (FRA) lose approximately 25% of their benefits, but those who defer past their FRA could increase their benefits by roughly 32%. (https://www.ssa.gov/policy/docs/ssb/v74n4/v74n4p21.html). If you are healthy and likely to be receiving benefits for a while, filing social security early can be cutting you out of thousands of dollars in benefits over your lifetime. It’s also important to take into consideration not only your age but: Will your benefits be coordinated with those of your spouse? Are you planning on working in retirement? Have you planned for how your required minimum distributions will affect your income mix and Social Security benefit? There is much to consider, and meeting with a financial advisor who has the tools to help plan, can help you make the most out of your retirement assets.

Part of the process of creating a financial plan is reviewing your investment portfolio and make sure you are taking on an appropriate amount of risk and diversification. It’s important to not only understand how much can be gained, but what the exposure is to potential loss and to have the correct balance. What are the fees that you are taking on and is there value provided for those costs? Do you have the timeline to accommodate a full market correction? What are the proper products to fit these needs? We often say annuities are like prescription drugs- it might be the perfect solution for one person’s needs but a terrible idea for someone else. What is needed will be determined by your overall plan!

As we mentioned above, planning well for taxes and knowing how specific accounts are taxed in retirement is important as well. The more tax-free savings (i.e. ROTH) is paramount in retirement vs. other accounts like traditional 401 or IRA that are taxable as income. You need a good balance of benefits today vs. the value of benefits in retirement.

Talk to an advisor- find one that specializes in planning for retirement and knows the questions to ask. A strong understanding of income needs and goals is so important to the ultimate success of a retirement plan. It goes beyond what any online retirement calculator can solve and helps to get a deeper understanding of what your specific retirement looks like. Having a good advisor means having someone who can hold you accountable to your goals along the way, ensure you achieve a successful retirement, and educate you to understand WHY you need to save and how much. They will coach you on what you can cut out of the budget now to “find money” that isn’t necessarily affecting your current quality of life so you can save even more!  

Not paying attention and knowing where your money is going the BIGGEST MISTAKE you can make in a financial plan.  Peter Drucker, management consultant and educator, said, “What gets measured, gets managed”, and this is true of your money too. The sooner you start tracking and planning the sooner you can start creating a plan to reach your goals!

 

Securities, investment advisory and financial planning services offered through qualified registered representatives of MML Investors Services, LLC Member SIPC (www.sipc.org) 300 Corporate Parkway, Suite 216N Amherst, NY 14226. 716-852-1321. Wilcox Financial is not a subsidiary or affiliate of MML Investors Services, LLC or its affiliated companies. CRN202002-225955