Your Financial Future: Solid plan can lead to successful retirement: Part 2
This is the second installment of our two-part series about the 10 Elements of a Successful Retirement. It takes an overall 10-point plan to have a stress-free retirement.
Last week, we covered a written plan, why budgeting is important, guaranteed income, protecting your purchasing power and the possibilities of long-term care needs.
Today, we will start by discussing Social Security integration. We discuss elements of SS several times a year because it is one of the most important assets during retirement. It lasts a lifetime and is one of a few retirement assets with inflation protection built in. Most people also receive Social Security.
Integrating SS into a retirement plan means balancing it with other income options to maximize the value. It is using strategies to maximize its impact for both spouses. This importance will be especially pertinent when we discuss point nine below. All of your assets must work in concert to provide the optimal income. Too often, people and advisors do not have a complete plan and the results are less than optimal.
Point seven is planning for longevity. Surveys show that one of the biggest fears that retirees have is that they will outlive their money. The baby boomer generation is the first in decades where many people do not have qualified pensions. That means everyone has been responsible for saving their own funds in an IRA or 401(k). Unlike pensions, these two investment types do not guarantee to provide lifetime income. If the money is invested in the stock market and there are large market corrections early in retirement, you could run out of money due to sequential risk.
If a couple both have reached the age of 65, the male has an average life expectancy to age 83 and the female until age 85. Half of all people will live longer than average. If your plan provides income for 20 years, half will run out of money.
Point eight is to minimize market risk. We just covered some of this risk above. Brokers often advise to put your money in the market 60 percent stocks and 40 percent bonds. Then they will pull out a certain percent of your total investment each month. This plan works great if the stock market co-operates and goes up 8 percent to 10 percent every year. We know that this will never be true. We have also discussed rising interest rates in other columns and how this has a negative effect on bond values. Make sure that you do not have to interrupt your retirement by taking a job to pay your bills.
Point nine deals with death of a spouse. Unless you are unfortunate and both die in an accident, one spouse is going to outlive the other. When this happens, income will go down. One SS will go away. Maybe some pension income will also be lost. Expenses do not cut in half. You still must pay property taxes, utilities and maintain the house.
If you do not have a plan to deal with these issues, you do not have a complete plan. A non-monetary part of this planning is making sure both spouses are involved in financial activities. Also, you need to have a relationship with advisors where your situation is understood and can help with the non-emotional concerns that a death can bring. This also ties in with our last point — succession planning. This is what happens when you are no longer here. It may be for a spouse, child or anyone else whose financial well being is dependent on you. It may also include legacy planning where you are determining the most tax efficient ways to deal with the distribution of assets you have accumulated over your lifetime.
If you plan for the 10 issues discussed in these two columns, you will have a much more complete plan than most Americans have. Think about the peace of mind that you will experience.
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement .com.