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The 7 Biggest Concerns Clients Have When Preparing for Retirement

Over the years, financial professionals have met with hundreds of clients and they mostly have the same concerns. In fact, there are seven concerns that stand out from the rest. These are the main points people looking to retire are most worried about.

1. When can I stop working?

How do you figure out when to retire, to stop working, or even to slow down?  This depends on where you want to be in retirement. How much income do you want and need in retirement? How much will you spend on expenses during retirement? Figuring this out will help you answer this question.

You have to realize that when it comes to retirement, it isn’t just about stopping work, it’s also about retiring towards something. You have to paint a picture of where you want to be and what you’re going to do with your life after you’ve stopped working. When you know your goal, it will help keep you on track, and allow you to easily visualize what life will look like during retirement.

2. How much can I spend in retirement and how do I avoid outliving my assets?

A significant number of those preparing for retirement are concerned that they might outlive their money.  Many have usually accumulated a large number of assets and resources but the concern is that they don’t want to die broke. Many do not want to use up all of their money, and want to leave something for their heirs.

Since we can’t control the age that we’re going to live until, we need to strategize around how much we’re going to spend in retirement. While some studies suggest that one needs to spend around 80 percent of what they spent while working, this isn’t usually the case since the first 10 years of retirement are usually the years where you’re going to spend more.

You need to know how much you’re going to spend along with your investment returns and calculate inflation, and factor in taxes. You also need to look at your Social Security and how much you’re going to need in case of emergency and any big-ticket purchases you may want or need. It seems overwhelming which is why a financial professional can be helpful in organizing and putting it all on the right track.

Figuring out how much you spend is more of a discovery. You actually need to experience the expenses to have an idea of how much you spend. A lot of people don’t have any idea of how much they spend. That lack of knowledge can be costing large amounts of money each year. Figuring out how much you spend will take some time and while there are retirement calculators, their depth can only go so far. It’s not an exact science but planning it and looking at your plan each year helps you stay the course, and make adjustments.

3. Should I start collecting Social Security?

Many have the mindset of taking Social Security as soon as possible since it is free money. However, if you delay Social Security until the age of 70, you’ll have 8% more benefit. While others may need Social Security earlier than usual, it’s something that needs to be looked into and compared to other assets you have.

Maybe you have other assets you can look into taking aside from Social Security. It’s still the same money, it’s just in a different pocket. There are special rules depending on your spouse’s Social Security, if you’re divorced or widowed, etc. You may also opt to take it earlier if you’re looking to maintain a lower tax bracket before you reach the age of 70. However, all of these options need to be reviewed.

4. Are my investments properly allocated for a successful retirement?

When you are in retirement, no matter how much money you have, you have to be in a different mindset than when you were working. Many people are concerned with their investment allocation since their portfolio will become a source of income when they reach retirement. Of course you can’t just put it in high risk, you also need a plan to protect your portfolio just in case something drastic happens with the market.

One of the best ways to approach this is to have money in three buckets. The first bucket is in the 1 to 3-year category, which is a no risk cash investment. The second in a 3-10 year medium risk investment strategy. Then finally, the 10 year + bucket for the longer term because we know we’ll be living for quite a long time in retirement.

5. Which assets should I draw down from in retirement?

Many clients have numerous sources of income. They have their IRA, their 401k, their joint account, etc. Each of these assets may be invested in a different way. Nonqualified assets usually have taxable gains so you have to consider drawing money from that in line with your tax strategy.

There are also fixed income streams such as a pension plan or Social Security. So it’s all about knowing what assets can provide you maximum income without really driving down the potential of your money in the long term. Pensions have become rare these days. Most corporations don’t have pensions anymore and you have to look at alternatives if you want other sources of fixed income streams in retirement.

6. What should I do with my home?

Usually the home isn’t part of the retirement plan but it depends on your goal. Do you plan on staying, or do you plan on moving somewhere else during retirement? You need to figure out where you want to be. If you’re moving, then sell the home and use the money from the sale.

If you’ve invested hundreds of thousands or millions of dollars in a house that you’re not going to use, it’s only going to become a detriment if you end up not using that money.

7. How do I protect myself if I get sick in retirement?

This is one area many people are very concerned about because long term illness isn’t covered by benefits such as Medicare. Medical expenses can take a lot of money if left unprotected. Many of our clients create a separate investment portfolio, taking some of their assets and marking the portfolio dedicated to long term care. You can invest in it differently and if nothing goes wrong, the money can be passed down to heirs.


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Larry Heller, Not Your Average Advisor.

 

A CFP® (Certified Financial Planner) and a former CPA.

Has helped solve complex financial planning for 20+ yrs.

Member of Wealth Management Think Tank.

A financial advisor think tank that meets monthly to discuss investment strategies and planning opportunities.

Larry is approached regularly by the respected journals.

“Journal of Financial Planning”, and “The Wall Street Journal”.