The Most Critical Question
in Retirement Planning
“Am I Going to Outlast My Money?”
When it comes to retirement, the big question—the one that keeps many people up at night—is “Am I going to outlast my money?”
Your answer will depend on a lot of things, and the sooner you can address them, the better. Whether retirement is 20 years away or one year away, you can take steps now to improve the probability that your money will last at least as long as you do.
We’ll cover some of the steps you can take in this article. Our ebook covers additional steps and in more detail. Download your free copy to help make sure you’re on the path to a comfortable retirement.
Want to learn more?
Download the entire ebook now.
How to Figure Out Your Retirement Expenses
How do you want to live in retirement? First-class flights abroad or discounted tours domestically? Fine dining two or three times a week or occasional splurges at a favorite restaurant?
Obviously, your vision for retirement is unique—and it can give you a good understanding about your priorities. Knowing whether and how you can afford those priorities means getting solid information about your budget and spending habits.
The problem is, many people believe that they know how much they spend yet are completely off-base. Our ebook describes a simple way to find out what you are really spending (Pages 4–5) that you can start today.
After you have a handle on what your expenses are, you can then determine what your fixed income will be in retirement. Fixed income is the money you can count on in retirement—like pensions or Social Security. Any additional income you need will likely come from your investments, and withdrawals should be done in such a way that you don’t deplete your portfolio.
5 INVESTMENT INCOME QUESTIONS
When it comes to income planning, you want to make sure your investments don’t run out in retirement. Some questions you may need to consider include:
- What are my goals in retirement?
- How much do I want to leave behind?
- Do I want to spend down my nest egg as close to zero as possible?
- What is my tax situation, and how is my portfolio positioned for taxes?
- Is my portfolio in a reasonable position to capture the global capital market rate of return?
Answering questions like these can be challenging. If you find yourself struggling with their complexity, you may want to seek out the assistance of an experienced financial advisor who can provide a big-picture perspective about your future.
When to Take Social Security Benefits
A lot of people want to take Social Security when it first becomes available at age 62. Though you may be tempted to as well, knowing your objective is the starting point in determining timing:
- Do you want to capture the most you possibly can from the Social Security system, even if it means delaying the benefits?
- Do you want to begin taking Social Security based on the overall impact to your net worth?
Ultimately, your answer to “When?” will depend on the overall objectives of your financial plan. Once you understand those, then you can analyze your options. The big picture has to be seen before the right answer can be revealed.
Our ebook gives three examples that may help you better understand your timing.
Asset Allocation in Retirement
A lot of people believe that, once they are retired, they should shift their portfolio from income-accumulating to income-producing investments. But the problem with this thinking is that a portfolio focused on traditional income-producing investments—i.e., bonds and preferred stocks—not only can decrease total potential performance but can also increase the tax impact.
The interest and dividends you receive will be taxed at income tax rates, which are typically higher than capital gains rates. This means a portfolio focused on income production will likely have a higher effective tax impact than a portfolio that is not.
So think the matter over carefully before making the switch. If you’re still unsure, consider talking with a financial advisor who can help you understand your potential portfolio strategies in light of your entire financial picture.
Retirement Insurance Plans
If investing is your offense, then insurance is your defense. The right insurance coverage can help protect you, your family, and your assets.
What insurance should you consider for retirement? Start by assessing your risks, and then determine the policies that can protect against those risks.
Coverage you may want could include:
- Health insurance: Having no health insurance is a risk far too great for most people to imagine being without, and we all know how expensive an uninsured medical issue can be.
- Long-term-care insurance or an alternative, such as a life insurance policy with a long-term-care insurance rider: If you need an extended period in a nursing home, long-term-care coverage can help you avoid exhausting your assets to pay for that stay.
- Life insurance: Some retirees need life insurance, but not everyone. If you have a special needs member in your family, you may want to carry permanent life insurance throughout retirement.
How to Pick the Right Financial Advisor
Working with a financial advisor can be a scary undertaking, especially if you are unfamiliar with financial concepts and are worried that you may be taken advantage of.
Yet a financial advisor can help bring clarity to your financial life, putting all the pieces of the puzzle together so you can see the whole picture. An advisor can guide you through all kinds of markets, give you access to ideas that you would have never known about, and provide a watchful, knowledgeable eye over your plan.
So what do you look for in an advisor? Besides expertise and experience, you should make sure your advisor is fee-only and a fiduciary. Being fee-only means that they don’t get commissions. They get paid by you and you only.
Being a fiduciary means that they are legally obligated to put your best interests first, even over their own.
Taken together, fee-only and fiduciary help eliminate potential conflicts of interest, aligning your advisor’s interests with your own.
Our complimentary ebook explores the importance of a fee-only, fiduciary advisor in more detail than we have room for in this article. We encourage you to download a copy to learn about the difference between fee-only and fee-based, as well as find out the five questions you should ask a potential financial advisor.
Download the Entire Ebook
Retirement Rule No. 1: You aren’t allowed to outlive your money. But how do you do that? This article touched on some key steps. Our ebook, The Most Critical Question in Retirement Planning, provides more steps and more insights. Download your free copy today to get practical ideas into making sure your money outlasts you in retirement.
Schedule a Complimentary Consultation
If you are feeling less than confident about your ability to make your money last throughout your retirement, then we may be able to help.
At Northstar Financial Planners, we help people make seamless transitions into retirement every day. We are a fee-only, fiduciary advisory firm in Plantation, Florida, helping individuals and couples make better decisions about their money and achieve their goals.
If you would like to see how we can help you, please contact us for a complimentary consultation. We’d love to talk with you.