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Retiring With Confidence

Retiring With Confidence

February 22, 2024

Much is written about the classic financial mistakes that plague start-ups, family businesses, corporations, charities, etc. Some classic financial missteps have been known to plague retirees, too. Calling them "missteps" may be a bit harsh, as not all of them represent errors in judgment but maybe just a lack of information or planning. Either way, becoming aware of these potential pitfalls may help you to avoid falling into them in the future. 

Managing Social Security. 

Did you know that Social Security benefits are structured to rise about 8% for every year you delay receiving them after your full retirement age? So, is waiting a few years to apply for benefits an idea you might consider? It's worth considering because filing for your monthly benefits before you reach your full retirement age can mean comparatively smaller monthly payments. However, if you can hold off and delay receiving your benefits, you could potentially enjoy higher payments in the long run.

Managing medical costs. 

Have you ever thought about how much money you might need to cover healthcare expenses during your retirement years? Well, one report estimates that the average couple retiring at age 65 can expect to need a staggering $315,000! This amount includes health care expenses even with additional coverage such as Medicare Part D, Medigap, and dental insurance. It's definitely a significant amount, but having a strategy in place can help you be better prepared for these potential costs. So, it's important to plan ahead and consider the financial implications of your healthcare needs.

Understanding longevity. 

By living longer, both men and women have the power to greatly impact multiple aspects of our financial future. According to the Social Security Administration's actuarial calculations, a 65-year-old man has a 34% chance, while a 65-year-old woman has a 45% chance of reaching the age of 90!  It indicates that the possibility of enjoying a retirement period of 20,30, or even 40 years is not only possible but should be expected. 

Living a longer life does come with additional expenses that are not always immediately apparent. It is important to acknowledge the costs associated with medical care, living assistance, and the potential burden placed on loved ones. Therefore, it is wise to at least consider long-term care insurance as a viable option. It is important to keep this in mind when planning for retirement and ensure that you have enough financial resources to sustain a potentially long and fulfilling retirement journey.

Managing withdrawals is crucial

You may be familiar with the concept of the "4% rule," which suggests withdrawing approximately 4% of your retirement savings each year. However, this conventional rule has been challenged in light of factors such as inflation, volatile markets, longer lifespans, and more. The goal during retirement is to maintain your desired lifestyle and avoid the fear of running out of money. It is essential to have a clear understanding of the "Price Tag" of your retirement beforehand, to ensure you are well-prepared for any unexpected circumstances. 

When individuals retire, it is common for them to have a combination of taxable and tax-advantaged (retirement) accounts that they have been saving into. It is important to thoroughly assess your situation, objectives, and willingness to take risks when determining the order in which you withdraw funds from these accounts.

There are different opinions regarding the order in which withdrawals from various accounts should be prioritized. One viewpoint suggests beginning with taxable accounts to allow tax-deferred savings more time to potentially increase. Other perspectives propose proportional withdrawals that aim to minimize the tax impact by utilizing a combination of taxable and tax-deferred accounts, followed by Roth accounts. Again, everyone’s unique situation will dictate what solution is best for them and their family.

Legislation Changes.

The introduction of the SECURE Act and its subsequent version, SECURE Act 2.0, has further complicated the distribution of certain accounts and the associated tax implications for retirees and their beneficiaries. These changes significantly differ from the rules that were in place prior to 2019.

As an example, if your children were to inherit the remaining balance of your retirement accounts, they would be given a 10-year timeframe to withdraw the entire account balances under the newly implemented regulations. It is possible they would also have to take RMD's (Required Minimum Distributions) each year during this period as well. This could pose a significant problem for them, especially if they're in their earning years and could potentially result in a hefty tax bill. In this scenario, deviating from the conventional withdrawal strategy may be a wise decision to alleviate the future burden on your beneficiaries.

Since there is no universal approach that suits everyone, it is crucial to consider your own preferences for distributing your estate among your spouse and other beneficiaries. Your hard-earned assets should be protected and preserved. By taking these factors into consideration and seeking expert guidance, you can establish a well-planned retirement for yourself and your loved ones.




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This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.