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Reassessing Retirement Assumptions

There is no “typical” retirement

Many baby boomers want one and believe that they will have one, and their futures may indeed unfold as planned. For others, the story will be different. Just as there is no routine retirement, there are no rote financial moves that should be made before or during this phase of life, and no universal truths about the retirement experience. Here are some commonly held assumptions that may or may not prove true for you, depending on your financial and lifestyle circumstances. Your retirement plan should be created and periodically revised with an understanding of the unique circumstances of your life and your unique financial objectives. There is no such thing as generic retirement planning.

Should you take Social Security as late as possible?

Generally speaking, this is a smart move. Under the current Social Security system, you can start receiving benefits between 62 and 70. While claiming at age 62 puts income in your bank account at the earliest possible opportunity, that decision comes at a cost. Claiming at age 62 reduces the monthly benefit by 25% while waiting until age 70 increases the benefit by 32%.1

So why would anyone apply for Social Security benefits in their early 60s? The fact is, some seniors really need the income now. Some have health issues or the prospect of hereditary diseases influencing their choice. Single retirees don’t have a second, spousal income to count on, and that is another factor in the decision.

For most people, waiting longer implies a larger lifetime payout from America’s retirement trust. Not everyone can bank on longevity or relative affluence.

You could live another 25 years after you retire

According to the Society of Actuaries, for a 65-year old couple in average health, there is a better than 55% chance one of them will live to age 92 and a 1 in 4 chance that one of them will reach age 97. That’s why as longevity improves for Americans, retirement plans need to be recalculated to cover someone who must receive a sustainable income through their mid-90s at a minimum.

Should you step back from growth investing as you get older?

As many investors age, they shift portfolio assets into investment vehicles that offer less risk than stocks and stock funds. This is a well-regarded, long-established tenet of asset allocation. But it doesn’t apply to everyone. You may need to invest for growth well into your 60s or 70s. There are some retirement planners who actually favor aggressive growth investing for life, arguing that the rewards outweigh the risks at any age.

Should you invest in the way that most others invest?

Again, just as there is no typical retirement, there is no typical asset allocation strategy or investment that works for everyone. Your time horizon, your risk tolerance, and your current retirement nest egg represent just three of the variables to consider when you evaluate whether you should or should not enter into a particular investment.

Does converting to a Roth IRA or Roth 401(k) make sense?

Not necessarily. If you are mulling a Roth IRA or Roth 401(k) conversion, the big question is whether the tax savings in the end will be worth the tax you will pay on the conversion today. The younger you are, the greater the possibility that your highest-earning years are in the future. If you are older and at or near your peak earning potential, the conversion may not be worth it at all.

Should I take a lump sum pension payout?

Some corporations are offering current and/or former workers a choice of receiving pension plan assets in a lump sum payout instead of periodic payments. They aren’t doing this out of generosity, they are doing it because actuaries have advised them to lessen their retirement obligations to loyal employees.

For many pension plan participants, electing not to take the lump sum and sticking with the lifelong periodic payments may make more sense in the long run. The question is, can the retiree invest the lump sum in such a way that might produce more money over the long run, or not? The lump sum payout does offer liquidity and flexibility that the periodic payments don’t, but there are few things as economically reassuring as predictable, recurring retirement income.

Will increased spending in your 60s hurt you in your 80s?

Some couples withdraw much more than they should from their savings in the early years of retirement. After a few years, they notice a drawdown happening – their portfolio isn’t returning enough to replenish their retirement savings, and so the concern of outliving their money grows. This is a good argument for living beneath your means while still carefully planning and budgeting some adventures along
the way.

Talk to the professionals

Do-it-yourself estate planning is not recommended, especially if your estate is complex enough to trigger financial, legal and emotional issues among your heirs upon your passing.

Keep in mind, money isn’t the only reason for an estate plan. You may not be a multimillionaire yet, but if you own a business, have a blended family, have kids with special needs, worry about dementia, or can’t stand the thought of probate delays plus probate fees whittling away at assets you have amassed … well, these are all good reasons to create and maintain an estate planning strategy.

Having a fiduciary on your side can help preserve your estate

Straightforward vehicles like trusts and limited partnerships can protect assets, while offering different ways to hold title to assets through IRAs or annuities. Discussing the assets you want protected with a fiduciary who can serve as a kind of financial quarterback can be a good way to address your specific situation.

Let experience be your guide

If you are saving for retirement, but not taking advantage of tax-deferred investing, it could have a dramatic impact on your future. Consider consulting with an experienced representative today on how tax deferral can positively affect the growth of your retirement assets.

About Mike Albertson

The Founder and CEO of Tradewell Tax & Financial, Mike is also a fee-based Investment Advisor Representative and Fiduciary who is required to put his clients’ interests before his own. In 2002 Mike entered into the financial services sector as a way to learn about people and help them.

Since those early days his practice has grown into one of the Fort Wayne region’s best investment management firms.  Applying his unique quarterbacking approach to traditional planning and investment management, Mike supervises a full-time team of attorneys, Enrolled Agent, tax advisors, and insurance professionals.

 

Mike Albertson is an Investment Adviser Representative. Advisory services offered through Secure Asset Management, LLC (SAM) a Registered Investment Adviser.

Tradewell Tax and Financial is not affiliated with Secure Asset Management

Representatives of Tradewell Tax and Financial are authorized in states where they are properly registered. Mike Albertson: FL, IN, KY, OH, SC. Clients who are not residents of these states cannot be serviced.

This website is not intended to provide investment, legal, or tax advice, nor to effect securities transactions or to render personal advice for compensation. Tradewell Tax & Financial is not engaged in the practice of law.

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There are no assurances that you will achieve your investment objectives. All investment strategies have the potential for profit or loss. Changes in investment strategies, economic conditions, contributions, or withdrawals may materially alter the performance of your portfolio. Past performance is no guarantee of future success. We provide no guarantee that any portfolio will match or outperform any benchmark.

Recommendations and advice are based on information provided by the client that is presumed to be accurate. The financial planning process is not stagnant and must be adjusted based upon changes in the client's personal and financial situation, liquidity needs, investment objectives, and risk tolerance. Clients are responsible for notifying us immediately if their personal and financial circumstances or goals change.