Retirement Planning

Part Five of the six-step process

This month’s Investor’s Edge column continues my 6-part series on the financial planning process.  Someone recently asked me if this series was in any particular order.  The answer is “no.” All six steps are equally critical to the success of the process and are not addressed in any order. However, we might all agree that this step is most effective the sooner we begin. It is never too soon to begin your retirement planning. The basic question one must answer is: How much money will you have to have when you want to retire that will allow you to afford what you will need and want during retirement, and that you will not outlive? 

Retirement is like a long vacation in Las Vegas. The goal is to enjoy it the fullest, but not so fully that you run out of money. – Jonathan Clements

Jonathon Clements is a longtime Wall Street Journal personal-finance columnist.  His quote on retirement is a good and important one.  He is saying, essentially, “Do not run out of money while retired.”  After nearly 35 years of asking people soon to retire, or newly retired, what their biggest concern is, the most frequent response has been, “Outliving my money.”  What’s interesting about that is they had money and had spent a reasonable amount of time on retirement planning. That is less and less the case today.  Recent findings in the 2019 Retirement Confidence Survey (RCS) conducted by the Employee Benefit Research Institute are shocking. A sizable percentage of workers say they have no or very little money in savings and investments. The RCS survey showed 40% of worker’s total value of their household’s savings and investments, excluding the value of their primary home and any pension plans, is less than $25,000. This includes 19% who say they have less than $1,000 in savings.  Approximately one in ten report having $25,000–$49,999 and another 9% say they have between $50,000–$99,999.  About two in ten report having $100,000–$249,999, and lastly, 23% said they have saved $250,000 or more. 

“Retirement is wonderful if you have two essentials—much to live on and much to live for,”is one of my favorite quotes on retirement.  Retiring should be a wonderful, easy, and relaxing time of your life. I teach people how to retire securely. Whether you’re far from it, or long retired, I can help you invest for retirement. I have many useful tools to help. My RACE program is a proprietary planning tool I devised to help both future retirees and those already in their retirement years. Blackhawk Wealth Advisors provides a Retirement Analysis & Cash-flow Evaluation service to help you determine when you can retire, how much you can spend during your retirement, and how long your retirement savings are expected to last. This helps determine the amount of money you need to plan to save and invest in order to retire comfortably. In my career counseling people wanting to retire soon, I have often determined the best advice is to keep working. 

Retirement planning, with all its inherent considerations, all unique to every individual, is virtually impossible to capture in this limited space. Age, life expectancy, health conditions, marital status, employment circumstances, risk tolerance, family matters, tax consequence, and many more important variables need to be addressed. There are, though, three key elements of retirement planning we should all be aware of: time, taxes and spending.

Timing your retirement can be critical to your long-term financial life—especially when it comes to taking withdrawals from your retirement account. The month and year you choose to start taking income can make a huge difference.  People who retired in 2007 or 2008 are all too aware how a bad investment market combined with portfolio withdrawals can diminish the sustainability of those withdrawals by several years. In cases of bear markets, those able to delay retirement and continue working, receiving earned income rather than living on retirement savings, are in much better shape to avoid running out of money during their lifetimes.

Know your tax bracket. Staying in a low tax bracket can help retirees minimize the tax they pay on their retirement savings. When your income reaches specified thresholds, you pay gradually higher amounts of tax on the additional income. Be aware of the tax rate schedules, tax tables and cost-of-living adjustments for certain tax items for the tax year of your retirement and the year after. If you have taxable investment accounts, or ROTH IRA’s, blending withdrawals from these other accounts with retirement accounts will usually lower your income tax liability.

Know what you spend. Many people believe their expenses will go down in retirement, but the reality depends on the type of lifestyle you want to have. Do you plan to travel?  Start a new hobby? Help out your children and grandchildren? These all cost money, and usually more than you expect. And don’t forget about healthcare costs. It’s important to understand what Medicare and supplemental health policies will provide and what you’ll be paying out of pocket. Once you have a firm grasp on your expenses, you can strategically plan your withdrawals from taxable accounts.

Take control of your financial future with a sound retirement plan. Don’t expect Social Security to provide for your retirement life needs. Social Security is rarely enough to cover more than the most basic living needs. And with the average monthly Social Security benefit coming in around $1,250 and growing slowly, this fact isn’t going to change anytime soon. 

I hope you enjoyed part 5 of my 6-part series on the financial planning process. Look for the last part, Estate Planning, in the October issue of ALIVE Magazine’s Investor’s Edge column.