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Planning your retirement can be overwhelming, to say the least. It is a completely new experience, as you have likely never planned for retirement before. It may be helpful to find an advisor to help you along the way. You will need to put a lot of trust in this person, so you need to be comfortable with them. You need an advisor who will educate you on your options so that you will feel confident in your decisions. Take notes and ask a lot of questions. You may have had a stockbroker or advisor for many years whose job was to make you money and who had a mindset of accumulating assets; now, when planning your retirement, you need an advisor whose mindset and expertise is in the distribution of assets.
When you start taking distributions from different accounts, you want to make sure it is in the most tax-efficient manner possible, which can potentially add years to your retirement plan. In addition, maximizing Social Security could add thousands of dollars a year to your income. Anyone considering claiming Social Security should consult an advisor. Once you claim Social Security, it is difficult to make changes, so you want to get it right and maximize it if possible. The Social Security office will tell you your options, but they will not tell you how or when to file to maximize and get the most benefit possible. Also, if a spouse passes away, the surviving spouse will only continue to receive one Social Security check, which makes maximizing even more important. If it happens early in retirement, the surviving spouse may have to live 20+ more years with thousands less in guaranteed income.
An experienced advisor will be able to help with those things and more, like life insurance, long-term care, and spend down, to name a few, but you will still need help with the rest.
For all the education, training, experience, and resources an advisor may have, the one thing they don’t know is what retirement means to you. So, before you meet with your advisor, ask yourself this one simple question:
What are my needs, wants, and wishes?
If you have a spouse or significant other, it is important that they are involved from the onset of the discussion.
First, start with your needs. Needs are necessities, like paying your mortgage or rent, food, utilities, health care, taxes, Medicare, and insurance. Insurance is a big part of your budget. You have auto and home, life, final expense, health or Medicare Part B, Part D and Medicare Supplement, dental, and hopefully some type of long-term care insurance. Besides your mortgage, which, with any luck, you will pay off one day, your needs will be part of your monthly bills going forward, and you will likely have some increases every year.
Next up are wants and wishes. Your wants and wishes are somewhat interchangeable and come down to personal preference and available assets. One person’s want is another person’s wish, and vice versa.
Wants can be as simple as going out to dinner with friends once a week or playing golf twice a month, or they can be something costlier, like going on a cruise every year. Depending on your assets, a costly vacation may have to be a wish every few years instead of a want every year. If you have grandkids, and they live nearby, great! But, if not, spending money on airfare a few times a year can really eat into your retirement money. Then, there is your legacy. Most people want to leave something to their children and/or grandkids. For some, it is a want; for others, a wish. A family emergency or an unexpected home or auto repair can quickly turn a want into a wish.
Anything else that costs money also needs to be discussed: holidays, hobbies, annual events, churches, charities, and last, but certainly not least, our beloved pets. Maybe a retiree needs to take care of a parent, or perhaps a child, their spouse, and a grandchild or two need to come live with Grandma and Grandpa for a while until they get back on their feet. Those types of unexpected things, even short-term, can really put a strain on retirement income.
Your advisor could then take all the info provided and divide your assets into different “buckets” of money. The first bucket pays for needs. Then, they will see what wants and wishes you can afford while also saving funds for an emergency, should one arise. Your plan needs to be comprehensive enough to cover what you know, able to absorb some things that may not be foreseen, and able to avoid risk from economic downturns while still having the potential to capture gains to keep up with inflation. A plan needs to be all those things and still adaptable in case of a catastrophic life event, like losing a spouse early in retirement.
When a spouse does pass away, it often generates more questions. Can the surviving spouse afford to live on one Social Security check? Can they afford their house or apartment, or will they need to downsize? Has it been decided that the surviving spouse will go live with one of their children? What if there aren’t any children? Should they consider downsizing now? When should they consider a reverse mortgage? These questions need to be addressed before a plan is finalized.
A retirement plan is not a “set it and forget it” situation. An annual review is very important to any plan, and so is communication. If something happens mid-year and you have to access some funds unexpectedly, don’t wait until your annual review to call your advisor and let them know a change needs to be made. An annual review should be done on all financial and insurance policies as well.
Regardless of whether you are getting ready to retire or just starting to plan, it all comes down to that one simple question:
What are your needs, wants, and wishes?
Source: Forbes
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