Managing Retirement Concerns
The 3 biggest fears our retirees deal with are:
- Running out of money
- Becoming a burden on their children
- Losing their independence/span of control
Running Out of Money
One of the best ways to deal with the first fear of running out of money is to make sure you have a good grasp of your budget. We have our clients utilize Quicken to track their expenses for two years leading up to retirement.
Some other important questions that must be answered to determine retirement expenses are:
- Do you have any expenses that are currently paid by your employer that will now be paid by you? (health insurance, transportation, etc.)
- Have you budgeted for additional travel expenses since most retirees increase travel significantly during retirement?
- Are you planning on staying in your current residence or downsizing/relocating?
- If relocating, we recommend renting for a year unless you already know the area very well
If our clients have an accurate budget, we can develop an income plan to meet their retirement income needs. Having a significant amount of retirement income from guaranteed sources (social security, pension, annuities) will relieve some retirement anxiety.
The 3 unknown variables that can have a major impact on financial independence cash flow are:
- Investment rate of return
You need to have realistic expectations on your portfolio rate of return and to make sure you budget for an increase in taxes or inflation. Otherwise, you will be forced to take more risk with your investment portfolio which could be disastrous. It is important to talk to your financial adviser to determine if your portfolio withdrawal rate is sustainable and the likelihood of ever running out of money. We prefer to withdrawal 4% or less of a clients portfolio during financial independence. We recommend keeping at least one year of expenses in cash at all times during retirement so you are not forced to liquidate investments if they have significantly dropped in value. It’s also important to develop a strategy for your Qualified (401k, IRA), Non-Qualified (non-retirement assets) and Tax-Free (Roth IRA & Roth 401k) asset withdrawals to optimize the effect of taxes on your portfolio withdrawals.
Becoming a Burden/Losing Independence
How are you planning on paying for long term care needs? Who would do the caring for you and who would help you handle paperwork such as bill paying, finding the most appropriate facility for care? If you are healthy, acquiring a long term care policy can protect your assets from liquidation in the event of a long term care need.
Confirm all important estate planning documents have been drafted such as:
- Last Will and Testament
- Medical Directives
- Power of Attorney
If your estate planning documents were drafted a long time ago, confirm they still meet your desires.