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Think you are ready for retirement? Answer these 6 questions first...

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If you are thinking about retirement, or are nearing retirement, its go time. We call this the time period the “retirement red zone.” Do you have enough? Will it last? When should you retire? These are some of the many questions you’ll be facing as you make important decisions about your future.


Very often, the questions we ask are about more than just money, as you will see below. And, if you know the answers to these following questions, you’ll be well on your way to a more secure retirement:

1. How long do you plan on being in retirement? 

What a crazy question, right? The answer should be, “as long as possible!” This number will depend on your health and your spouse’s health. Did your parents live a long time? Do you have good genes? If you answered yes to both, and you are at traditional retirement age of 65, then plan on a retirement of easily 30+ years. People are simply living longer. My dad died at age 97, and my mom at age 95. I’m planning for age 100.

2. Do you have adequate medical coverage?

Maybe you are one of the lucky few that have done well and retired early. Did you factor in the cost of health insurance before being eligible for Medicare? Say you retired at age 60, and depending on health and marital status, you will most likely need $50,000 - $100,000 net after taxes to bridge the gap before Medicare kicks in. Fidelity Investments, who has been tracking retiree health care costs for more than a decade, estimates that a 65-year-old couple retiring this year will need $240,000 to cover future medical costs. That doesn't include the high cost of long-term care. Nor does it take into account additional costs you may incur if you decide to take — or are forced into — early retirement before your Medicare kicks in.

3. What is your burn rate? 

In other words, do you know how much money you will need in retirement? It’s such a simple question, but 50% of people that we see in our office don’t have a clear answer. And if you don’t know this number, how can you calculate if you have enough money to last through retirement or not? Start with putting pen to paper. List your essential living expenses, like food, gas bill, electric bill, real estate tax, car payment, etc. Next, add lifestyle expense like vacations and charitable contributions. Still not sure where to begin? Download a copy of the Income Gap Worksheet. You'll be glad you did. Knowing this number is imperative for retirement planning. We use this same worksheet to help our clients kickstart their retirement planning process. 

4. If you have a monthly shortfall, do you know where your income is going to come from?

Too many people rely on a bull market and a good economy to give them a secure retirement. If your investments continue to grow, then most likely you will succeed. But what happens when the economy turns? Imagine this scenario: You retire with $1,000,000, and all you need is 3%, or $30,000 per year ($2,500 per month). What happens if we had a market correction of -15%? Your $1,000,000 would now be $850,000, and you still need to withdraw  the $30,000 to live on! At the end of the first year, you would have an ending balance of $820,000. And then the same thing happens the following year… This is a recipe for disaster.

5. Do you have a foundation for reliable, predictable and sustainable income? 

Some of you may be lucky enough to have a pension. If so, congratulations! I recently did some retirement planning for a friend who is a retired firefighter. He needed about $6,000 a month to maintain his lifestyle. His pension was $5,000 month and he’d saved over $600,000. If his money doesn’t earn a lick of interest, and he takes out the extra $1,000 that he needs to bridge his income gap, his money would last 50 years! His pension acts as his core foundation for income. Most of us can’t say we are that lucky. According to a recent article in Kiplinger - Consider Annuities for Reliable Retirement Income, "{Annuities} may help alleviate the rational, math-based worry about running out of money." When designed and used properly, annuities help retirees create their own pension. But be careful here - not all annuities are the same, and when used incorrectly, they can do more harm than good.  The key is to be educated, and see if there’s a fit. (A good place to start is by attending one of our educational workshops, or to come in to our office for a complimentary, no-obligation consultation.)

6. Do you have a plan if you were to pass prematurely? 

This could be something as simple as checking your beneficiary designations. What if you and your spouse both died in a common accident, and your wish was to leave your 401k to your children equally? Maybe you made that decision in your recently updated Will, but if the primary beneficiary of your 401k is your spouse, and you neglected to name your children as contingent beneficiaries, then whammo… probate comes into the picture! Your 401k will go to your estate, and then probate is right in the middle before your will even comes into play. This equals time and money. Coordinate your estate plan with your retirement advisor and make sure the beneficiaries match up.

Think about this: We spend months planning and shopping for the holidays, which last a day. Many people spend countless hours planning their vacation, a time of your life that usually lasts only a week or two. High school seniors put months into figuring out where they will go to college – for four years.  So why do we put such little time into planning our retirement – a period of our lives that could last twenty-five or thirty years? Starting is always the hardest part. But we can help make it easier for you. Come in for your free consultation and start planning today!

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In Annuities, Retirement Planning, Asset Protection Planning, Estate Mangement Solutions, Income Planning