Retirement Blueprints – What’s Your Game Plan?
If you think retirement planning is about income – you’re right.
If you think that is not a complex question – you’re wrong. The ceiling of complexity can be confounding.
Are you thinking about retirement? Do you have a sense of what opportunities and landmines await? Who is determining and explaining your risks? Counting on an inheritance? Estate tax problems could eliminate the money. Does your FA know what Q to ask? Complexity of retirement rules – IRAs subject to income and estate tax.
An informed decision is the key to your retirement distribution questions:
Question #1: What amount of income will I have using sound growth and withdrawal percentages. If that income produced is inadequate to live on or if I have to take out too much so it will not last me my life time – what are my planning options?:
Questions #2: What will really happen to my investments in early, mid and late retirement? Consideration of various types of markets in early retirement and their effect on asset retention
Question #3: What do I need to know about retirement distributions:
Post retirement investment portfolios
Many people – and even many planners – do not realize that the distributions you choose to take and the types of investments you take them from can make a big difference in the security of your retirement income.
Most people underestimate how long they will need their assets
How much is your retirement going to cost?
How much of your retirement did you buy this year?
How much of your retirement did you spend this year?
One thing about retirement that is for sure is – economic conditions will have an impact that you just have to see as you go.
If you did retirement planning before the market drops of 2000-2002, it’s time for an update. Retirees who kept their withdrawals below 4% are probably OK. If you were counting on a distribution stream of 5 or 6 or 7% - you could be in trouble.
Let’s take a closer look at Question #1 from yesterday. What amount of income will I have using sound growth and withdrawal percentages? If that income produced is inadequate to live on or if I would have to take out too much so it will not last me my life-time – what are my other planning options?:
Some other questions that pop up when retirement income is not adequate are:
Everyone who retired in the late 90’s or early this century has had their retirement impacted on by the market drops.
Let’s take a closer look at Questions #2 from Monday. What will really happen to my investments in early, mid and late retirement?
If your retirement income analysis predicted an 8% increase in your portfolio – and it actually dropped by 40% - now what?
The consideration of various types of markets in early retirement and their effect on your future asset retention is a critical analysis for you right now.
Even if your portfolio didn’t drop – it just maintained itself – there’s an impact. What about the market recover in the last half of 2003? From portfolios I’ve reviewed recently, people had returns anywhere from 4% in bonds to 20% in large caps to 40% in a properly diversified portfolios with good money managers. Recently the market headed down again – for no discernable reason except profit taking and investor psychology far as I can see. I you breathed a sign of relief when the market turned last year – and decided to continue procrastination by not having a competent advisor review your portfolio and get you into the right asset mix and money managers – what are you waiting for? Another down market?
Here’s one of my favorite strategies to stretch your retirement assets. I’m not talking about reducing spending – although that’s a great thing to do if you can without impacting on your quality of life. I’m talking about split funding your retirement. Taking a 5 or 7 or 10 year payout so other assets can be left to grow, guaranteed growth on some of the money (6%), working budget to match the three stages of retirement and assessing what your family history indicates your retirement will be like.
How about different planning for phases of retirement – there are two ways of looking at it – lifestyle and IRS rules relating to IRA distributions.
Active to 75 - Transition 75-85 - Passive 85 and beyond
Pre-required IRA distributions up to 70 – Partial Distributions to about 80 – High distributions requiring reinvestment for future years 80 and beyond.
Planning is very different for each stage.
How many different investment classes are there – and which ones are right for a retiree?
Post retirement investment portfolios – what should they include? If you don’t know the answer to that question, you’re in trouble already. This is a test and failure could result in a very skimpy retirement lifestyle.
Do you understand withdrawal rates and conservation strategies? If you portfolio drops, does your advisor have to call you to suggest a temporary hiatus on spending or are you already aware of that?
Most people underestimate how long they will need their assets. The stakes are high. The ceiling of complexity gets worse in retirement. Maybe the stakes too high to do it alone? What does your family history suggest will happen to you in retirement? Good health until death? Longevity? How old were you grandparents? You parents – they’re still here? Great! The older they get the better for you. How do you eat compared to your elders? Do you cook fresh or eat preservatives every day? You can’t age like the Hunzas if you don’t find out what the right eating plan is for you. I’m not suggesting yogurt. Modern yogurt really isn’t good for anyone.
Get some real health advice, get some real financial advice.
As someone said to me recently, you’d think people would want good advice but they stick their head in the sand - it’s their money, it’s their future.
Do yourself a favor – get a financial advisor who knows what they’re doing. If you’re not sure about yours – pay someone for a second opinion. Hire someone with credentials. Hire someone with experience. Learn what they ask you to learn. Read what they ask you to read. Eat the elephant one bite at a time. Your future could depend on it.
Are you counting on an inheritance for your retirement?
I had an interesting case a few months ago. A man with some assets – inherited – but who saves absolutely nothing on his own. He’s 50 and wondering how retirement will look. Because he is self-employed, there is no pension plan and only moderate social security.
He’s really counting on an inheritance from his dad. Dad has sonny’s name on an account that is currently worth about two million dollars. Sound like that should work, right? Dad is 80 and comes from a line of people that live to their 90s and beyond. He owns a business and pulls down close to a million dollars a year. As I dug into the facts behind the obvious, I found the business buyout agreement would not set a solid value for IRS estate tax purposes. The buy-out amount was set too low and did not have an annual review escalation clause in it. If, instead of the 1 million dollar value that dad placed on the business, the IRS comes in and values it at 10,000,000 – what will happen? Unless dad dies in 2010 – and they have not changed the estate tax laws – the higher business valuation will suck all the cash out of the estate – including sonny’s 2 million.
Could the situation be changed? Sure, but dad doesn’t want to talk about it. He thinks everything will be OK. Or maybe he doesn’t really care, since he won’t be here. So should sonny count on that inheritance for his retirement planning?
This is the same situation that exists when parents don’t do any long-term care planning. Don’t count your retirement chickens before they’re hatched.
Make an informed decision:
If your assets won’t fully support your retirement to age 100 – then what?
Are you willing to come to grips with reality?
Who is determining and explaining your risks?