Deciding when to retire

August 1, 2013

For many working Americans, the most important financial decision they will ever make is deciding when to retire.

Retirement age can vary greatly from one person to another. Obviously, very wealthy professionals, executives, business owners and others may have the means to retire comfortably whenever they’ve had enough of the daily grind.

But for the vast majority of working Americans, retirement is something that must be planned and paid for through a lifetime of saving and investing. Until you’ve saved sufficient assets to fund a viable retirement, your options are very limited.

There are a number of factors to consider in planning for your retirement. Whether you work through these issues on your own or with the help of a financial advisor, you need to give serious consideration to when and how you wish to retire.

Here are several questions you need to answer before you can set a retirement date:

How much money will you need each month to pay your bills? In some cases, you may be able to live on less than you did during your working years, but in my experience working with clients, I find that they often spend more in retirement because they have more leisure time. They may travel more and become involved in more outside activities. The other factor to keep in mind is inflation. The cost of living tends to double about every 25 years, so you’re going to need twice as much money to cover your expenses in 25 years than you need now.

How’s your health? If your health is declining, you may have no choice but to retire as soon as possible. But if your health is still good and you have the interest and energy to continue working, you might want to work beyond age 65—either full- or part-time. By working longer, you can use your earnings to live on rather than tap into your retirement savings, and can even add to that savings and give your investments more time to grow.

What is your family’s history of longevity? If your parents or most of your family has a history of living well beyond age 65, it will be important for you to build up an investment nest egg that can sustain you for two or three more decades. That may mean that you’ll have to work well into your sixties and possibly beyond to build up a large enough retirement account to get you through your golden years.

The biggest mistake would be to retire too soon. While the lure of carefree retirement days may tempt you to leave the work force early, you need to be sure you have enough assets and income to pay the bills for two or three decades to come.

Before you take any action, you might want to discuss your situation with your tax advisor or financial advisor to see which course of action would make the most sense for you.

Dream a Little Dream: Know where you want to go

July 10, 2012

People often think defining an investment strategy is the first step in creating a solid financial plan. Slow down. Before you even begin to gather all the information you’ll need to form an investment strategy, sit down on the porch or patio or in front of the fireplace (with your spouse or partner if you have one) and let your mind roam.

What do you really want from life? If you could do anything you want, what would you do? Don’t put financial restrictions on yourself now. Dream. Stretch a little. Once you have that dream defined and you know roughly where you want to go, you can begin to determine what role a financial plan can have in helping you live that dream. 

A good investment strategy begins by identifying your specific individual goals and the time you have to achieve them. Those highly personal decisions, very often driven by your love of others, will suggest your strategy. Your strategy may include shorter- and longer-term objectives.

Are you investing to buy a house, pay for college or to retire with sufficient income to support the lifestyle you desire? How much money will you want for each objective? When will you need it? How can you get there? Will you have to make trade-offs to achieve those goals? Which take the highest priority?

The answers to all of those questions will help you determine your individual strategy. Without that strategy it is nearly impossible to know how to invest.

Don’t Forget These Five Retirement Challenges

March 13, 2012

People who are approaching retirement tend to ask themselves certain questions, sometimes repeatedly:

Am I investing enough?
Am I investing aggressively enough?
Am I making the most of my tax-saving opportunities?

You can greatly increase your peace of mind concerning your retirement nest egg by following your financial advisor’s guidelines for generating income in retirement. As you plan, there are five major risks to keep in mind.

1. Longevity. Thanks to improvements in diet and medicine, we’re all living longer. Your money will have to last longer, too. While your life expectancy at age 65 is about 20 years, life expectancy is an average. Half of us will spend more than 20 years in retirement and half won’t. It is prudent to plan for more than 20 years of retirement income.

2. Rising prices. Inflation doesn’t disappear from your life after you retire. Assuming you are no longer working but want to keep your lifestyle intact, you will have to give yourself a raise from your retirement savings. Some people plan to spend less money in retirement, but that may not be the best thinking. True, you may spend less on things like housing and transportation. But health care and long-term care—services that you are likely to use quite a bit as you get older—is expensive and costs are rising by approximately 8 percent annually.

3. Medical and long-term care costs. Statistically, people tend to spend a great deal of money on health care in their later years. Total health care spending can easily rise into the six-figure range if you do not have employer-sponsored post-retirement medical insurance. And today’s employers are increasingly unlikely to provide retiree health benefits. Long-term care costs also are high and rising. According to AARP, nursing home care costs approximately $75,000 a year, on average. To help mitigate these risks, your retirement income planning might include life insurance or long-term care insurance products.

4. Taxes. During the past 50 years, tax rates have been at current levels or lower only 10 percent of the time. The current economic and political climate is increasing the odds of tax rates reverting to pre-1980s levels. This means the tax savings that investors enjoyed during their working years could be more than offset by higher taxes in retirement.

5. Investment risk. Finally, we can plan for the impact of the stock and bond markets. It’s essential—but not easy—to find the right balance between bonds that preserve capital and investing aggressively enough to ensure that your portfolio growth keeps up with inflation. Otherwise, your assets and income might not support your standard of living as inflation erodes your purchasing power. In retirement, stocks should continue to be a significant part of your portfolio. The stock market’s rate of return and volatility may help you generate a sustainable income over a long period of time.

The only thing that’s a given about the retirement landscape is that it will keep changing. It’s critical for investors to prepare for certain (and uncertain!) risks. A thoughtful income strategy and comprehensive financial plan can help you address the five key challenges while working toward the retirement lifestyle you desire.

Wealth Enhancement Group

Health Care Reform Timeline

January 20, 2011

2010 –New Coverage Options
• Health care tax credit for small employers
• Children covered to age 26
• High-risk pools

2011 –New Taxes
• Medicare tax rate increases 0.9% for higher-income taxpayers
• New 3.8% tax on unearned income for higher-income taxpayers

2011 –Medicare Changes
• Part D
• Medicare Supplement
• Medicare Advantage

2014–Exchanges and Subsidies
• State Health Insurance Exchanges
• Premium subsidies for individuals with incomes below $47K (based on CBO estimate for 2016)

2014–Individual and Employer Coverage Requirements
• Employers with more than 50 employees
• Individuals who can find workplace, exchange, or other policies that cost less than 8% of their income

With the recent elections, we’ll have to watch and see what happens in the meantime, there is new legislation, which goes by the name Patient Protection and Affordable Care Act.

There are two main pieces of Health Care Reform
• One piece aims to make health coverage nearly universal by requiring employers to provide insurance and requiring individuals to buy it (tax credits & subsidies help pay for it).

• Part two tries to make Medicare, a popular and effective, but expensive, program that serving people 65 and older, more efficient.

Ten Thing You Should Know About Medicare – Part Two

January 18, 2011

6. Medicare doesn’t cover all your expenses.
You may find that each part of Medicare has some things it doesn’t cover.

7. Start by looking at what you have now.
Look at your current health coverage. For example, if you have group coverage from your job, or retiree insurance from a former employer, you’ll want to see how this coverage fits with Medicare.

8. You won’t want to put this off.
Timing matters when you’re choosing Medicare coverage.
Your enrollment window begins just before you turn 65 or when you become eligible for Medicare due to disability.

9. It’s smart to review your choices once a year.
Once you choose your Medicare coverage, you’re not locked into that choice. You’ll have the chance to change your choices at least once a year. That’s why it makes sense to check your coverage every year to make sure it still fits your health needs.

10. Don’t be afraid to ask for help.
There’s help available for everyone making Medicare choices. And there’s extra help with the cost of Medicare for people with little income and few assets.

Open enrollment starts on November 15. You are limited in when you can change your Medicare health plan during the year. You can switch during the Annual Coordinated Election Period which runs from November 15 through December 31 every year.

New coverage starts January 1. During this period you can change your choice of health coverage, and add, drop or change Medicare drug coverage.

A licensed broker can help you with these specifics.

Ten Thing You Should Know About Medicare – Part One

January 13, 2011

1. There are two ways to get Medicare, turn age 65 or become disabled.
Your biggest decision is choosing between Original Medicare (Part A and Part B) and the Medicare Advantage plan. If you choose Original Medicare, decide whether to buy a stand alone prescription drug plan or Medigap (Medicare supplemental insurance) policy. If you choose Medicare Advantage, pick a specific plan from a specific company.

2. There is drug coverage available.
Medicare now includes prescription drug coverage also known as Part D.
This coverage is optional. You can get prescription drug coverage through a Medicare Advantage plan. Some of them include drug coverage. Or you can enroll in a standalone Part D prescription drug plan to go with your Original Medicare coverage.
This is important to know: If you don’t sign up for Part D prescription drug coverage as soon as you become eligible for Medicare, you may pay a penalty on your premium unless you qualify for an exception.

3. Even for covered expenses, you’ll pay a share of the cost.
Medicare helps you get the health care you need when you’re sick, but you’ll still be expected to pay a share of the cost. You contribute to Medicare by paying taxes while you work. When you start to use your Medicare benefits, you’ll pay a share of the costs of the care you receive.

4. Your share may be larger than you expect.
If you choose Medicare Parts A and B, you’ll find that there are some expenses Medicare doesn’t cover. If you are seriously ill, these gaps create big bills. Some people who choose Medicare Parts A and B also buy a Medicare supplement insurance policy. Another alternative is to choose a Medicare Advantage plan that can also help you avoid these gaps.

5. Where you live makes a difference.
Medicare Parts A and B are the same across the United States. But other parts of Medicare (Parts C and D) are offered by private companies and may be available in specific counties, states, or regions, and not in others. There are Part C or Part D plans that offer nationwide coverage.

Your Health and Wealth in Retirement

January 11, 2011

Traditionally, there have been 5 things that may impact retirement savings during retirement:
• Inflation
• Market volatility
• Taxes
• Health care costs
• Longevity
A comprehensive study by LPL Financial, United HealthCare, Age Wave and Northstar Research found that health care expenses are the #1 worry for people nearing and in retirement.

Why? People feel unprepared, overwhelmed and frustrated. Health care planning is one of the things you need to think about and understand how it may impact your financial situation, especially your distribution planning. Consider overall health, you should plan for good health and you should plan for not-so-good health, also called planning for the “certainty of uncertainty.”

It also helps to understand the types of available insurance, such as Medicare, Medicaid and Supplemental.

AgeWave, LPL Financial and UnitedHealthcare, Health and Wealth Planning in Retirement Survey, July 2010
LPL Financial and Northstar Research Partners, Advisor Health Insurance Study, May 2010