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Retirement Anxiety Syndrome
Are you suffering from Retirement Anxiety Syndrome? Retirement can be one of the most stressful times for most Americans. A recent study shows that 74% of Americans are not ready for retirement. Most Americans have not planned for it. Why? Because Retirement Planning can be overwhelming, stress inducing and complex. It doesn’t have to be that way. If you Plan, you have a much greater chance of success. Our 7 Pillars of Retirement Planning™, can help you establish goals and strategies in 7 key areas for your retirement years.
Common Questions
The most common questions that persist in people’s minds that are at or near retirement are:
- Will I have enough monthly income to meet my monthly expenses?
- Will my retirement nest egg last throughout my lifetime?
- What about healthcare?
- What about Long-Term Care?
- How do I minimize my taxes?
- What risks will I incur?
- How do I plan a legacy for my children?
Common Mistakes
Interestingly, many of the common concerns and questions ultimately become common retirement mistakes. In other words, your concerns are VALID and often turn into retirement mistakes:
- Not accounting for Long-Term Care needs
- Not planning for a LONG retirement, i.e. running out of money
- Misunderstanding Social Security claiming strategies
- Missing the Medicare claiming window
- Underestimating monthly budget needs
- Improper withdrawal strategy from investment pool
- Investing too conservatively
- Not planning for TAXES
7 Pillars Retirement Planning™ Model
There are 7 Pillars to retirement planning. They are all large, complex, and quickly changing!
If you can put the pieces of this puzzle together, you’ll be the hero in your retirement!
…Most people need a guide to help them along
Let’s take a look at each one of these in a little more detail.
Income Planning
If you are like most people, the most concerning part about retirement is whether you can meet your monthly expenses with a given amount of income. So the first part of retirement planning includes an estimate of your monthly cash flow requirements necessary to meet the lifestyle you would like to have. You should analyze your current monthly spending plan and categorize your retirement needs including fixed expenses, discretionary spending, emergencies, travel, and healthcare requirements. Discuss with your spouse any debt pay-off scenarios and how that may impact your cash flow and long term nest egg.
Next, analyze your expected income available from the various sources available to you.
For many people, Social Security is the major and sometimes the only component of their retirement plan. It may also be the only benefit you have that is a Lifetime Benefit. So getting it right is very important! Maximizing your Social Security benefit can make the difference between living fairly well or not.
Be sure to examine all the claiming strategies available. You can increase your monthly payment significantly by avoiding the temptation of claiming too early. Also consider spousal benefits, how your benefits will be taxed, whether you will continue working or not, and how some pension benefits may impact your monthly Social Security benefit.
If you are fortunate enough to have a pension, it is important to analyze the plethora of claiming options available to you. Such options have a life-long effect and are critical to your income planning for you and your spouse.
One area to explore is the lump sum option vs the monthly annuity option. Another area to examine is the Joint and Survivorship benefit may have multiple options and each option may have a ‘revert-to’ clauses. Above all, timing your retirement date may yield a different monthly amount. Sort through all of the nuances and determine the best claiming option for you.
If your “guaranteed” income sources don’t meet your monthly expenses, and you can’t trim expenses any further, then you may want to analyze the impact of tapping into your other assets to bridge the income “gap.” You may hear some people call funding the income gap a “retirement paycheck.”
Basically, bridging the income “gap” means withdrawing money from your invested assets to maintain the lifestyle that you want. The challenge is to make sure that by doing so, you don’t jeopardize your long term goals, such as paying for long-term care. There may be tax implications as well.
Investment Planning
Investment planning can help alleviate the concern about outliving your money. Develop an understanding of your risk tolerance for investing. Apply those rules to a well thought out diversified portfolio.
If you are ambitious to learn about what investing style is for you, check out Investment Styles and determine if you are Active or Passive investor.
Depending on your situation, develop a portfolio design (stocks, bonds, other assets) that fit your risk tolerance and investing style. Your invested assets throughout your retirement time horizon should generally last until you are age 95 unless there are compelling reasons to plan for a shorter time period, such as a known serious health issue. Make sure to include money for long-term care at the end of your retirement time horizon.
Is a “Bucket Strategy” Best for You?
If you are like most people, you have worked hard for the money you have and you want the best retirement that you can afford. It’s also nice to sleep well at night knowing that you have a strategy to cover yourself. It’s critical to navigate the complexity of investment planning, run various retirement scenarios, and come up with a written Plan with recommendations and actions so you can have the best lifestyle possible. In doing so, you may benefit from a “bucket strategy”. One form of a “bucket” strategy for your investment planning is in terms of these 3 buckets:
- Emergency fund and ‘Income Gap’ funding
- Short/medium-term goals
- Long-term Investment bucket intended to fund long-term goals, such as long-term care
Seek out a finance professional to help you through this, especially with your risk tolerance assessment, the portfolio design, and whether that pool of assets can last throughout your retirement!
Healthcare
There is a myriad of claiming options for Medicare. Part A (hospitalization). Part B (medical). Part C (Medicare Advantage) and Part D (Prescriptions). There are also “gap” plans that can be added to traditional Medicare. Or instead of Medicare plus “gap”, you can opt for a Medicare Advantage plan. Whew! That’s a lot of possible combinations! The only way to sort through all that to get the best possible plan for YOU is to have a Medicare specialist provide you with various quotations. Then you can compare the services and costs.
Keep in mind, your neighbor’s Medicare plan may not be best for you. Everyone is different and has different medical and prescription requirements. Often times, even spouses will have a different Medicare plans, depending on their individual medical situation.
Keep in mind that claiming Medicare is no longer linked to Social Security and has its own claiming strategy and timing. If you don’t apply in a timely matter, a penalty may be added to your yearly premiums – forever!
Long-Term Care
Important note: Long-Term Care is not covered by Medicare.
With the soaring cost of nursing home care now averaging well over $90,000 per year in Michigan, Long-Term Care (LTC) is a critical component of retirement planning and your risk management plan. Determine if you can self-fund or if LTC insurance is a viable option for you. Some life insurance hybrid policies can also be a useful strategy.
It is true that Medicaid may be invoked for long-term care, but that is only after significant qualifications are met, such as only $2,000 in assets and one home. It is not a pleasant option.
Tax Planning
Nobody wants to pay more taxes than they have to. What’s a really bad situation is when you end up with a surprise tax bill for lack of tax planning. Run some projections on what your tax bill will be when you first retire and compare that to a later tax bill, at 70 1/2 for example, when RMDs kick in. You want to know in advance how you can minimize those tax payments in later years!
Roth Conversions can be a useful tool to help reduce those later year taxes and add significant dollars to your overall asset pool through your retirement years. But when do you convert? How much should you convert? Those are all critical questions that you, your Planner, and your CPA need to tackle!
Estate and Legacy Planning
Estate Planning isn’t just for the wealthy. Everyone needs a Will, Power of Attorney, Medical Power of Attorney and Beneficiary Designations. Not having these documents in place can cause great consternation at times of crisis. It’s best to have your wishes nailed down in writing.
Not everyone needs a trust, but your Estate Planning Attorney can advise you the pros and cons. Generally, a trust is advisable if you have significant assets, want to specifically exclude certain individual(s), are a blended family with children from previous marriages, or simply want to avoid the public probate process.
Risk Management
Details around Risk Management are beyond the scope of this article. But know that there are several risks to consider during retirement:
- Market and economic uncertainties
- Income protection
- Cybersecurity – learn about Protecting Your Financial Data
If you focus on the above 7 pillars of retirement planning, you should be in a good position to understand where you are at, and what you need to do, financially, to meet your retirement goals.
7 Pillars Retirement Planning™ – We Can Help You Put the Pieces Together
We can be that guide to help you along
We help ease your anxieties about retirement by helping you visualize your retirement possibilities, creating a personalized Retirement Plan – your path toward a fulfilling retirement
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About Kastler Financial Planning
We are a fiduciary firm, providing fee-only, advice-only professional financial services with affordable and transparent fees. Our core purpose is to help improve your financial situation and to help you Visualize Your Retirement Possibilities. We do not sell financial products. We believe everyone should have access to financial advice without the pressure or bias of product sales or commissions.
We perform these services either as hourly, a one-time fee-only project, or as on-going financial planning, depending on your needs. Whether you live in our backyard or across the country, we aim for a pleasant client experience through our secure, all-digital Financial Planning Process.
Contact Us
If you have any question on how our services may apply to you, please contact us at the number below or submit an email through our Contact Us form.
7 Pillars Retirement Planning Resources
Check out some of these valuable resources…
- Social Security Retirement Planner – Estimate your benefits, apply for benefits and a host of other information
- Working While on Social Security – How Working Affects Your Benefits
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