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The Right Plan That’s Right for You
You are in the final stretch! You courted the idea of retirement for a long time. You made a plan and started taking steps toward the big day. You only have a few short years left before the big day. So how do you envision spending your retirement? What do you want to do and where do you want to go? Retirement doesn’t necessarily mean just sitting around on the porch all day. Eventually you get the urge for something more. You want to go, see, and do all those things you have been dreaming of. Most new retirees become as active, if not even more active, than when they were working full time. Before you make the final leap to retirement, here are a few things for you to think about as you embark on your retirement planning journey:
Before you make the final leap to retirement, here are a few things for you to think about as you embark on your retirement planning journey.
Work with Your Financial Professional & Align Your Target Date Accordingly
You are in the final stretch! The end is in sight! But before you cross that finish line into retirement, consult with your financial planner and tax professional to make sure you and your plan can finish the game strong. There are many aspects to consider: Pension, Social Security, Portfolio performance, Health Insurance, Taxes, etc. Have your advisor evaluate your target retirement date aligns with your plan. Also, be sure to go over your employer’s retirement benefits and policy. Also, prepare how you will inform your employer.
Reduce Risks
While working and building your nest egg, your advisor may have had much of your portfolio in semi-riskier vehicles like stocks. That worked because you had time for the market to correct itself if it took a dive. Now that your retirement is in sight, it is best to reduce risk where possible within your portfolio. There is a small window of time just before and just after your retirement date called, “The Retirement Red Zone”. Should the market have a serious downturn, it could have seriously negative effects on your portfolio which you may not have the time to wait for a market correction. Work with your advisor to ensure your assets are protected and remain on track with your plan.
Recalculate Income and Expenses
If you didn’t do it before, you need to do it now. During these last couple of years before you retire, you need to know exactly what comes in, what goes out and where it goes. Calculate your income, expenses, savings and spending for one year. If you don’t already have a budget, make one. What costs can you keep and which ones can you do without? Begin to plan how you will live within your new retirement budget.
Catch Up Provisions in Retirement Accounts
You are in the prime of your career and likely making the most money you’ve ever earned. Now is the time to make sure you are maximizing your retirement accounts and adding as much as you are allowed. With your financial planning team make it a part of your plan to contribute specific amounts to each type of retirement account. Check the IRS website for the most current Catch-Up Contribution amounts for each type of account.
Payment Snowball to Eliminate Debt
Have you been overwhelmed by the amount of debt you’ve accumulated? Do you know the easiest and one of the most effective methods to use to get out of most, if not all, of your debt? The fastest and smartest way is the snowball method.
Here’s how to do it:
- • Make a list, in order of balance owed, of all debts from smallest to largest. This may also coincide with the minimum payment due.
- • Make your minimum payments due on all accounts except the smallest.
- • On the smallest, pay as much extra as you can each month until that one is paid off.
- • Next, apply the total amount of the payment you had been making, on the smallest debt, toward the monthly payment of the next smallest.
- • Keep rolling those payments over to the next until they are all paid off.
In the example below, you can see how an extra $50.00 was paid every month toward Card 1, totaling a $100.00 payment. Once Card 1 was paid off, that total payment amount of $100.00 was added to the minimum payment on Card 2 which was $75.00. Now that payment every month will be $175.00. And the process repeats until all debt is eliminated.
Long Term Care Insurance: Don’t Go Broke in a Nursing Home!
Where do you want to spend your final years? Most people say in their own home. Back in 1950 the cost for around the clock care was absolutely nothing. In 2020 the average cost of 24-hour care per month ranges between $9,00.00 – $12,000.00 depending on where you live and the type of care you need. So why such a huge difference in cost? It’s not inflation. In 1950, there weren’t any nursing homes. People aged in place with their kids and even grandkids all living together. Everyone pitched in to help in caring for grandma or grandpa. Today, most people do not want to live with their kids. Or the kids don’t want to be responsible for taking care of their parents as they are building their own careers and taking care of their own kids. So what is the solution? Long Term Care Insurance. LTC insurance provides the income needed later for the care you will need while giving you the power to decide where and how these services will be provided. However, odds are the older you get, the more difficult it is to qualify. So act now to get this coverage in place.
Asset Allocation: The Bucket Plan
Remember the old saying, “Don’t Put All of Your Eggs in One Basket”? Well the bucket plan strategy is a system of allocating your total portfolio assets into three “baskets” or “buckets”. The smallest bucket is the “Now” Bucket. It consists of a small portion of your assets reserved at little to no market risk for immediate use. These assets are kept liquid, typically in savings accounts and ready for immediate or emergency use. Next your “Soon” Bucket is for the first 10 years of retirement. While this portion is invested, it is done so conservatively, and is set up for moderate growth to offset inflation. The last bucket is the “Later” bucket which is planned for long-term growth which can withstand market volatility. This would be reserved for final care, final expenses and leaving something behind.
Retirement Paycheck (Play Check)
What if you had the ability, once you retired, to keep receiving money, every month just like when you were working and getting a paycheck. Only instead of having to pay bills and expenses with it, you could turn the Pay Check into a Play Check? You could use it to accomplish all those items on your Bucket List. You wouldn’t have to worry about unexpected expenses that can creep up, like when the hot water tank blows, or the car breaks down. So how will you replace the income from your career? One option is an Annuity. You can purchase one through yearly premiums or pay up front for the whole policy. Then later, once you retire, you have guaranteed income for life. Some of these policies can even continue to pay to a spouse or dependents. If you have not already worked with your financial professional, act now and inquire if this is something you can add to your portfolio.
Filing for Social Security, Medicare and Medicare Gap
Depending on when you are planning to retire, you may or may not yet qualify for filing for Social Security or Medicare. You are not eligible for Medicare until age 65. If you are retiring early, you will need to replace your employer’s health insurance by getting it through the Market Place. Depending on your health care costs and the cost of purchasing a plan, this may be another reason to hold off retiring a little longer than you had first anticipated. Also, depending on your portfolio, it may be more beneficial to hold off filing for Social Security until age 70 to maximize the amount of monthly benefit you will receive. There is also spousal filing as well. It all can be a little tricky and this is yet another reason to seek the advice of your financial advisor. Here are a couple of links to the US Government websites for Medicare and Social Security to find out more.
https://www.ssa.gov/ https://www.medicare.gov/
Don’t Wait, Buy It Now!
If you are still working, consider making big purchases now while you are still employed & earning a paycheck. There may be items you need or want that you would need to meet income conditions for such as a loan, a second home, an RV or a sports car. It is much easier to be approved for these types of loans while still employed. Also, if you plan to retire before you qualify for medicare, take care of any medical expenses while you still have health insurance through your employer. Get another pair of glasses or stock up on contacts, get as much dental work done as you can, and definitely take care of any minor surgeries you may need while still having coverage to reduce your out of pocket expense later.
Good guidance inspires the confidence to stay on course with our wider variety of financial solutions.
What’s next?
Centrus Financial Strategies is a financial services firm that takes a tax smart approach to designing financial plans that meet clients where they are and works with them to achieve their retirement dreams.
We work each day to achieve and sustain a trusted advisor relationship with our clients. We look to both our people and proven processes to get the job done. In this capacity, we have the wisdom and the tools to take our clients to their desired destination. We can guide, direct, inform and counsel our clients so that they can achieve their best life.
To learn more, feel free to visit us at centrusfs.com, or call us at 888-534-9994 to set a 15-minute consultation. We look forward to speaking with you.
