Retirement Planning
Retirement planning is the process of evaluating your current financial standing and creating a strategy to help ensure that you achieve your desired retirement lifestyle. It is about matching goals with financial realities, and the focus is generally on providing a lifetime of income after your last paycheck.
Because an individual's retirement years can span decades, retirement planning generally dominates other financial goals. A successful plan put in place during your working years should address ways to help maximize growth and prepare for tax-efficient distributions.
We address the following issues when developing our retirement plans:
Define Client Goals
How do you picture your retirement? What is your retirement vision?
Take Inventory
We need to review all your assets, liabilities, and expenses. We need to uncover how much income you will realistically need to achieve your retirement vision. Then we'll need to identify and address any gaps or shortfalls.
Risks to Retirement Income
There are risks to income in retirement you may not have thought about:
Longevity Risk. Compared with previous generations, you can expect to live a longer, healthier life in retirement. This increases the risk of outliving your income.
Inflation Risk. Inflation erodes what savings can buy through increased costs and diminished purchasing power, while taxes reduce savings' returns. Inflation affects almost every aspect of a plan as it is applied to major and minor expenses, such as health care, food, home value, and entertainment.
Health and Long-Term Care Risks. The rising cost of health care is an issue across all age groups, but costs have risen disproportionately higher for retirees. Furthermore, unexpected health and long-term care expenses can easily exhaust savings. Long-term care is an issue in itself, as it may lead to a change in housing needs, and there may even be a lack of available facilities or caregivers.
Market Risk. All investment plans will carry some degree of market risk and volatility.
Business and Public Policy Risks. Risks in these areas are often hard to anticipate, but you can still prepare for certain events, such as employer bankruptcy; a reduction or elimination of employee benefits; employment risk (loss of job); too much ownership of company stock; policy changes in social security or Medicare; or changes in income tax rates, tax brackets after the death of a spouse, and estate tax rates.
Family Issues. Family issues abound in retirement, just as they do in other stages of life. The unexpected death, disability, or divorce of the retiree or an adult child can have a major impact on one's plans. The care of an adult child, grandchildren, or elderly parents could also become necessary.
Types of Distributions and Distribution Strategies
There are four main types of distributions available to retirees: rollovers, lump-sum distributions, partial distributions, and annuity distributions.
There are further issues with IRAs, RMDs, RBDs, and the timing of distributions. It's important to understand how these work and the related tax ramifications. We will need to develop a specific distribution strategy for these assets.
Implementing the Retirement Income Plan
Putting all the pieces together is the final step. Many decisions will be need to be made to close any potential shortfalls and to determine the best way to convert the available assets to an income stream. The choices involved are way too numerous to discuss, but this is certainly where the skill and experience of a financial professional will be of greatest benefit.