Before You Retire, Answer These 5 Questions First

Before You Retire, Answer These 5 Questions First

December 01, 2022
Share |

You want your transition into retirement to be a happy one, but knowing where and how to start can be overwhelming. One of the best ways to alleviate uncertainty is planning ahead. For those close to retirement, here are some key questions that may be running through your mind as you start to plan for this life-changing milestone. 

1. How Do I Know If I’m on Track to Reach My Retirement Income Goals?

On average, Social Security covers about 30% of one’s income in retirement. (1) Where will the other 70% come from? It’s essential to have a proper cash flow plan for retirement so you can maintain a consistent income. There are a few potential sources of retirement income, including working part-time, retirement accounts, pensions, fixed annuities, savings, and other investments. Looking at all these income sources, you’ll want to determine if they’ll cover your needs. 

If your projected expenses don’t match your income and savings, you’ll either need to reconsider your expenses or increase your retirement income. Consider working part-time, contributing more to your retirement accounts, and developing a strategy to generate more income from your retirement portfolio. This can be done by ensuring your asset allocation still meets your risk tolerance and time horizon, and investing in assets that will diversify your income stream.

2. How Should I Invest During Retirement?

Market volatility can mean the difference between living comfortably in retirement or just scraping by. Facing a decline in the early years of retirement can be disastrous. Considering those who retire during or near a bear market are 31% more likely to run out of money, it is crucial to understand how your investments may react during an economic downturn. (2)

It’s important to regularly analyze your portfolio to ensure that it lines up with your risk level and that you haven’t become too reliant on any one asset category. It may be time to diversify your portfolio (if you haven’t already), rebalance, and utilize a Monte Carlo simulation to stress-test your plan. This can help you see how your portfolio will react to various market conditions.

3. When Should I Take Social Security Benefits?

Social Security benefits can be claimed between the ages of 62 and 70; however, the timing of benefits will impact the total amount received. 

Early Retirement

You can start receiving benefits as early as 62, but your monthly benefit will be lower than if you waited longer. Your basic benefit is reduced by a fraction of a percent for each month you begin receiving benefits prior to full retirement age. Retiring early can permanently reduce your benefit by up to 30%. (3)

Full Retirement Age

Your full retirement age (FRA) changes based on the year you were born. FRA is 66 for those born between 1943 and 1954 and increases by two months for every year after that you were born until it settles at age 67 for those born in 1960 or later. If you wait until you reach full retirement age to begin collecting your Social Security benefits, you will receive your full benefit amount. 

Delayed Benefits

If you’re still working or don’t need the money immediately, you can delay receiving your benefits. Your benefit will increase by 8% for each year that you delay. (4) You cannot delay and increase your benefit indefinitely, though. Once you reach age 70, the amount of benefits you receive will not increase any further. 

Be sure to reference your Social Security statement in the years leading up to retirement. This important document tells you a lot about your expected benefits, so it can help you in your decision-making process. 

In general, the best time for you to claim your benefits depends on your personal situation and health. If you expect to live longer than average, your overall lifetime benefit will be greater if you delay claiming your benefits to increase your benefit amount. If the opposite is true and you see little chance of making it into your mid-80s, you would likely receive a greater lifetime benefit by taking it sooner, even though it would be a smaller monthly payment. 

4. How Much Can I Spend in Retirement?

As the saying goes: “It’s not how much you make, but how much you get to keep that matters.” This is especially true as you approach retirement. Once your income sources become fixed, managing and minimizing your taxes should be your top priority. Your income plan during retirement will also play a major role in how long your money will last and how much will be lost to taxes.

Each retirement asset has different tax characteristics, whether it be a 401(k), a Roth IRA, an annuity, or some form of equity compensation, and understanding the timing of distributions from each source is a significant part of managing your overall spending in retirement.

5. What Is One of the Biggest Threats to My Retirement Goal?

Unexpected expenses are typically the biggest threat during retirement, and healthcare is certainly at the top of that list. Choosing the appropriate insurance coverage is the first step to take when planning for unexpected healthcare costs in retirement. According to a report by HealthView Services Financial, the amount needed to cover healthcare costs for a healthy 65-year-old couple retiring in 2021 is $387,644. (5) For those who had employer healthcare coverage, retirement may mean paying more for medical insurance (Medicare Parts B and D and Medicare Supplement policies). Even with insurance, some expenses will be paid out of pocket.

Planning for unexpected healthcare costs begins with choosing appropriate insurance. For those aged 65 and above who are eligible for Medicare, it means understanding options under Medicare and choosing insurance to supplement Medicare. Take a look at your eligibility and premium estimates to get an idea of what to expect. Thorough research of your supplemental coverage options can help ensure your healthcare costs won’t eat into your retirement savings.

Take the Next Step

The good news is you don’t have to plan for retirement on your own. We at Stratos Wealth Partners have the tools and resources to help you navigate your retirement transition with confidence. Schedule a complimentary introductory call by reaching out to us at 330-576-3912 or lguiney@stratoswp.com

About Liam

Liam Guiney is partner, financial advisor, and client portfolio manager at Stratos Wealth Partners, an independent investment advisory firm providing personalized financial plans to help clients pursue their goals. With over 20 years of experience, Liam is dedicated to walking his clients through their financial opportunities and challenges, simplifying the complex so they can focus on what’s most important to them. Liam is known for building long-lasting relationships and focusing on individual needs to develop strategies that will help his clients prepare for their ideal retirements. 

Liam graduated from the University of North Carolina Greensboro with a bachelor’s degree and earned a Master of Science at Wake Forest University. He is also a CERTIFIED FINANCIAL PLANNER™ professional. When he’s not working, Liam spends his free time with his wife, Alice, and their son, Nicholas. You can often find him exercising, golfing, or supporting his favorite community organizations through fundraising and volunteering, such as Catholic Charities, the Make-A-Wish Foundation, and cancer research organizations. To learn more about Liam, connect with him on LinkedIn. Or, watch his latest webinar: 5 Questions You Should Answer Before You Retire

This material was prepared for Liam Guiney’s use. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. 

_____________________

(1) Social Security fact sheet, https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf

(2) Safeguarding retirement in a bear market, Vanguard Research, June 2020, https://corporate.vanguard.com/content/dam/corp/research/pdf/Safeguarding-retirement-in-a-bear-market-US-ISGSRBM_062020_A4_Online.pdf

(3) AARP, How much does early retirement reduce social security benefits?https://www.aarp.org/retirement/social-security/questions-answers/how-much-does-early-retirement-reduce-benefits.html#:~:text=Filing%20at%2062%2C%2060%20months,benefits%20when%20you%20turn%2062.

(4) Maximum Social Security benefit: What is it, how is it figured? https://www.investopedia.com/ask/answers/102814/what-maximum-i-can-receive-my-social-security-retirement-benefit.asp

(5) HealthView Services, Why health needs to be part of retirement planning, July 2019. http://testing.hvsfinancial.com/hvsfinancial/wp-content/uploads/2020/03/Health-in-Retirement-Planning.pdf