For many, retirement strategy is a long race. It’s helpful to know the route.
At Legacy Planning Group, we specialize in helping people just like you develop and implement sound retirement strategies.
What does retirement mean for you? If you’re like most, you have a variety of answers. At Legacy Planning Group, our advisors can help you explore strategies for achieving those retirement goals, common retirement questions and concerns, and various ways to maintain one’s cash flow during retirement.
When approaching the retirement years, certain questions take on paramount importance. Let’s examine these questions one at a time.
The answer may depend on two main factors: How much you want to spend during retirement and how long you expect to live.
In order to develop a sound retirement planning approach, you must first decide what sources of income you anticipate having.
When it comes to preparing for the future, the investment decisions you make now are crucial to your future retirement goals.
Estimating the Cost of Retirement
How much is it expected to cost?
When preparing for retirement, one of the first questions you should ask yourself is, “How much will it cost?”
The answer may depend on two main factors: How much you want to spend in retirement and how long you expect it to last. While some are skilled at understanding spending, they may be less knowledgeable about how long they are expected to live. Have you weighed your estimated life expectancy against your total retirement assets?
Once you have estimated the income you may need in retirement, you can estimate the cost of the retirement you want.
How long will retirement last?
So, you've determined an amount that you expect to need for retirement... But for how long?
A recent study found that most adults underestimate the average life expectancy. Many plan for approximately 20 years in retirement. However, with rising life expectancy, statistics show us that it might be best to prepare for a retirement that will last 30 years. That 10–year gap could leave some people unprepared.
Have you attempted to determine the amount of money you would need for retirement? If so, are you preparing for a 20– or 30–year retirement?
How much income will I need?
Some aspects of retirement are beyond our control: inflation and healthcare costs, for example. Some are not.
A good first step in preparing for retirement is to understand your spending patterns and identify what you are spending money on. Look at your current expenses and decide which of those are expected to remain after you retire. Anything that may require additional resources during retirement should be accounted for in advance.
Creating a sound retirement plan can help you budget for both expected and unforeseen costs. Are you prepared?
Look at your current expenses and decide which of those are expected to remain. Be realistic about these "basic needs". Don't underestimate the real cost of maintaining your desired lifestyle.
Have you built a strategy for covering health care expenses for the long haul? Without a solid approach, healthcare expenses may add up quickly and alter your retirement spending.
As your retirement years draw near, withdrawals from your investment portfolio have the potential to accelerate the depletion of your assets when investment values are declining.
Consider where you'll live, both short- and long-term. Have you built a plan for funding your move? Do you understand the timing involved?
Have you made arrangements in the event that you or a loved one encounters a health issue requiring full-time care? Long-term care can be an expensive drain on family resources.
Write down your personal goals and hobbies you wish to pursue. Explore your dreams, values and priorities. How expensive do you anticipate these will be?
Does someone in your life depend on your income? Gifts to children and grandchildren — as well as financial help for these dependents — may represent an expenditure during retirement years.
Potential Sources of Income
How will you pay for retirement?
In order to decide how you are going to pay for retirement, you must first ask yourself, "Where is my money right now?"
If you were to map out your holdings on a pie chart, would you know what your investment mix would look like? Make sure you account for all your investments, from rainy-day funds to your 401(k) savings. Everything works together—regardless if they're consistent with your investment objectives, tolerance for risk, and time frame.
Getting the instruments of your retirement to work in concert may go far in realizing the retirement you imagine.
Social Security is the government-administered retirement income program. It is a complex retirement decision that requires careful planning in order to maximize its value to you and your spouse in retirement.
Many factors can affect your eligibility and annual contribution amounts to an Individual Retirement Account (IRA). We can help you determine whether you are eligible to contribute to a Traditional or a Roth IRA.
Workers who are eligible to participate in these plans can set aside a portion of their pre-tax income into an account, which then accumulates, tax deferred. We offer 401(k) plans that may be appropriate for your business.
You also may be counting on real estate—including the equity in your home—to help in retirement. Keep in mind that real estate property values can be significantly affected by economic downturns.
Taking withdrawals from a traditional portfolio exposes fixed-income investors to “sequence of returns” danger. Integrating annuities into your strategy may help mitigate this concern.
Personal savings and investments outside of retirement plans can provide income during retirement. Retirees tend to go for investments that offer monthly guaranteed income over potential returns.
Let's take a closer look...
A successful retirement is so much more than undertaking sound investment strategies. It also requires understanding "sequence of returns" danger and taking measures to mitigate the risk.
Experiencing negative returns early in retirement can deplete your portfolio more quickly than you planned and potentially undermine the sustainability of your assets. Integrating annuities into your strategy may help mitigate this concern. Annuities can help shift the risk of market volatility off your shoulders and onto the issuing insurance company.
Is an annuity right for you? With annuities, there’s no one size fits all…they’re only appropriate for specific situations and specific goals.
Annuities are versatile tools that can help you save for retirement and generate income in retirement.
An annuity is really just a long-term contract between you and an insurance company. You pay a set amount (either in a lump sum or a series of payments) and the insurance company agrees to pays you back over time, either beginning immediately or at some predetermined point in the future. The repayment can be set for a specific period of time, or for life.
Similar to a 401(k), growth within an annuity is tax-deferred, which is why they’re sometimes used as a retirement or estate planning tool. But unlike a 401(k), you won’t be eligible for a tax deduction based on your contributions to an annuity.
Fixed v.s. Variable
There are two main types of annuities:
Immediate v.s. Deferred
An immediate annuity can begin making payments to the contract holder immediately.
Deferred annuities can defer payments to a specific date in the future.
Remember, the interest portion of the immediate fixed annuity is subject to taxes. You also will have to pay taxes on the growth of the single-premium deferred annuity. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).
Fees, Charges, & Guarantees
Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits.
A surrender charge also may apply if the contract owner elects to give up the annuity before certain time-period conditions are satisfied. These are usually highest if you take out the money in the initial years of the annuity contact.
The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities are not guaranteed by the FDIC or any other government agency.
Retirement Investment Strategies
What investment strategies could help?
No matter what our occupations, most of us share a common goal of a comfortable retirement. Almost everyone looks forward to the day when they can retire and enjoy more free time. And so, the investment decisions we make in preparation for that retirement are crucial.
There are a number of factors to consider when talking about investing for retirement. Some are simple and straightforward while others require more in-depth analysis.
And that’s where this firm comes in. We specialize in helping people just like you assess their retirement investing strategies as they work to pursue their goals.
Let’s start with a question: How much will you need for retirement? Are you attempting to accumulate $1 million? Does $2 million sound about right? How about $5 million?
Or do you have a retirement income target? Say, $5,000 a month? $10,000 a month?
When it comes to investing for retirement, having a target amount in mind is critical. If you have no target, you have no way of measuring your progress toward the goal. Perhaps more to the point, you have no way of developing a strategy to pursue that goal.
Without a clear retirement objective, you may be saving too little or taking too much risk.
Are you a risk taker or are you risk adverse? Are you comfortable with the level of risk necessary to pursue your objectives? If not, it may be more realistic to adjust your objectives.
Are you detail oriented or would you prefer a hands-off approach? Do you want to dig through the financial statements of companies or would you prefer to have a professional do that for you?
Finally, are you a patient, conservative investor or do you tend to be more aggressive in your approach?
How did you create your portfolio? Do you follow the pundits or take a more disciplined approach?
Remember, magazines and television select content to attract additional subscribers and buyers or boost ratings. Their advice may be incomplete and can easily be skewed.
A disciplined approach involves adopting and sticking to a sound strategy. It includes selecting investments that are consistent with your goals, time frame, and objectives. And it normally includes diversifying among asset classes. Finally, a disciplined approach means following your strategy rather than making spur-of-the-moment decisions based on a “hot tip.”
Sound Investment Strategies
Uniquely tailored to you
There are a number of criteria to keep in mind as you consider investing for retirement. Here are some scenarios that might sound familiar:
How much should we be setting aside in our employers’ qualified retirement plans? Are stocks appropriate for people who are in their 60s? What role can annuities play in my retirement portfolio? If short-term interest rates remain low, should I consider a different approach to my asset allocation?
All of these are great questions, and we are here to help with the answers. It’s important to remember that individual recommendations will vary with each situation. Each person's circumstances are unique. Any strategy ought to reflect their particular risk tolerance, time horizon, and goals.
At Legacy Planning Group, we can help you create a retirement investment strategy that is uniquely tailored to you.