When Should I Retire?

Few decisions in your life are as complex and fraught with significant consequences as the decision on when to retire. For most of us, this decision will affect more than just ourselves. Your decision cannot be made in a vacuum if you have a significant other, spouse, or others that depend on your paycheck. Many will consider issues such as the size of their retirement and investment portfolios, age, physical health, and the state of the economy. Still, others look to stagnation and boredom with their careers, the availability of a pension or social security, or even an inheritance.

Many books have been written about retirement and there is a wide spectrum of opinion on when people should retire, especially given that people are generally living longer. It was not so long ago that people rarely lived into their 70’s. Today, it is common for people to live to their 90’s or beyond. The fact that our lifespans are increasing with advances in medicine and technology begs the question: should we retire at all?

A very large segment of the country retires at age 62, which coincidentally is the earliest age you can qualify for social security retirement benefits. However, for the eager beavers who decide to do so, they should know that those benefits could potentially be permanently reduced by about 25 percent. For someone who might be around until age 92, that’s a lot of income to forgo. It is possible you may spend three decades in retirement. What the heck are you going to do with yourself for all those years? Visit the grand-kids, play golf, or work in the garden?

Before you even consider the idea of when to retire, engage the services of a financial and retirement income advisor team. Ideally, you will want to work with individuals who have decades of experience working with people similar to you. You will want to look for someone who is not close to retiring themselves.  Imagine how hard it could be to find someone you can trust 10 years from now when your advisor retires.  That is the last thing you will want to do while enjoying your Golden Years.

With all this said, remember that the decision as to when to retire does not just affect you. Your loved ones deserve to be part of the conversation and the decision-making process. Make sure your planning takes into account the financial aspect of retirement and also the life and living parts. You may have bid your spouse goodbye five days a week at 8:00 am for decades. But when that stops, things will change. That change may be for the better or worse, and you need to plan for that, too.


1930518/DOFU 10-2017

Retirement Income Strategy – Case Study

The case study you will read below is just one example of the hundreds of people I have worked with.  Their situation is unique to them and although you may find similarities between their situation and yours please don’t take the recommendations we made as recommendations for your situation. Every investor is unique and requires a personalized strategy for their particular situation.  My purpose in sharing this is to hopefully convey that many tools are often used in the accumulation phase of life, but turning ones savings into income for, hopefully, the rest of your life can require different tools and strategies.

We meet with people who come from a wide variety of backgrounds, different careers, and various goals for their life and differing amounts of money to help pursue those goals.  The one thing we hear from almost everyone is this; please help me set up a strategy to spend my retirement dollars in an appropriate manner so I don’t outlive my money.  In a nutshell, what they are saying is “don’t let me go broke before I pass away”.  There are numerous studies and surveys out there that say the primary concern amongst retired people is outliving their assets.  This is a very real fear for many.  This can cause a lot of stress and anxiety during a time when you should be relaxing and having fun.  With a proper retirement income strategy, we can hopefully turn that stress and anxiety into strength and comfort.  This is one of the things we enjoy doing the most.  Here is a real life example of how we did this for one family.

When I first met with this couple, the husband was 59 and his wife was 58.  I will call them John and Kitty (not their real names) and they both wanted to retire in the next 12 months.  They had a sizable nest egg but it was scattered around in a lot of different places.  John had money in a few different retirement accounts that were at various banks invested in Certificates of Deposit (CDs), money held in his employers retirement plan invested in various bond investments, more CDs not held in retirement plans, a few savings accounts and some collectibles, for example gold and silver.  Kitty had money in a couple different retirement accounts invested in stock and bond investment options and a large percentage of the money in her employers retirement plan was invested very heavily in her company stock and other investments.  When I asked them what their plan was for their assets, they stated they always thought they would move everything to CDs.  I believe this was their plan since they were most comfortable and knowledgeable with how CDs worked and liked the interest they had been earning on their existing, older CDs.

Many times, through the course of investigating a client’s current situation and investment strategy, we are able to spotlight some potential flaws or roadblocks.  Often times these potential roadblocks are based on either outdated market information or investor emotions.  For John and Kitty it was a combination. We did some simple math and tallied up all their investments and savings and determined if, hypothetically, they could find a CD that would yield them 5% per year this would, theoretically meet their income needs in the first couple of years and would allow them not to touch their principal at all.  Unfortunately, the current reality of CD rates are such that John and Kitty will be hard pressed to find anything yielding above 1%, leaving John and Kitty with a theoretical 4% shortfall.  They shared with me they never really thought what they would do if CD’s weren’t earning in the neighborhood of 5%.  They had been saving just enough money to make retirement a reality for them using that 5% number.

Unfortunately, they never anticipated lower rates and as I talked with them further they never really considered the rising costs of goods and services as time went on.  They failed to realize they may possibly need more than 5% interest per year to pay for inflationary increases in things like food, gas, property taxes, utilities and health care.  Thankfully, they had a nice nest egg and we looked at a variety of options to see how close we could help them get to their income goal.  In the end, their new retirement income strategy had a lot of moving parts, not just buy a CD every year or two and then buy another one when it matured.  In an effort to meet their needs for retirement but still keeping in mind their risk tolerance, time horizon and general suitability, our recommendations for their new strategy involved:

  • Choosing a different social security timing strategy, in order to help maximize income in the later years.
  • Spending down some of their existing cash leaving the other assets to potentially grow at a conservative rate.
  • Pushing back retirement just one extra year (which we were really hoping to avoid but that extra year of saving money and not spending their assets made a big difference in their retirement income projections).
  • We recommended that Kitty sell her shares in her company stock as that investment no longer met John and Kitty’s current risk tolerance. Also, we felt the money should be invested in in something that was more in line with their goals and objectives.
  • Putting some money into a joint fixed annuity with an optional living benefit, for an additional cost, that carried a guarantee to provide income of a set amount per year, every year, as long as one of them was alive. They still have control of the assets in case things changed and they needed flexibility.

We explored various types of fixed annuities that allowed some growth potential but had that all important guaranteed income for life provision as well (either via annuitization or the guaranteed annual income provided by the optional living benefit rider).  We recommended using a fixed annuity with a living benefit rider.  This helped secure a place for growth of principal long term, while also providing, through the rider, certainty that there would be a minimum amount of income at some point in time.

In the end, by recommending a variety of changes to their savings and investment line up and working for one more year, they were able to retire and perhaps more importantly, they have been enjoying retirement ever sense.  In developing their retirement income strategy considerations were made to account for the rising costs of goods and services.  We accounted for one or both of them living well into their 90’s.  Lastly, we helped make sure when they both pass away, their wishes to leave a legacy to their children and grandchildren can be fulfilled.

Over the years the more and more of these strategies that we’ve developed, we have learned many people approach retirement as having a certain amount of money set aside and while that is very, very important, there is a lot more that goes in to setting up a retirement income strategy.  The strategy should account for things like longevity, taxes, the rising cost of goods and services, when to take your social security income and your wishes for what happens to your money should you be taken from us.  We hope this one real life example gives you a glimpse into some of the aspects of setting up a retirement income strategy and may help provide you with some considerations on your journey.

Article Written By Larry Tate

This is a hypothetical example for illustrative purposes only. It is not indicative of any particular investment or guarantee of future performance.  Investments will fluctuate and may be worth more or less than originally invested.  Past performance is not indicative of future results
Financial Advisors do not provide tax or legal advice and this should not be considered as such. Please consult a tax or legal professional for advice regarding your specific situation.
An annuity is a long-term, tax deferred investment vehicle designed for retirement.  Earnings are taxable as ordinary income when distributed, and if withdrawn before age 59 ½, may be subject to a 10% federal tax penalty.  If the annuity will fund an IRA or other tax qualified plan, the tax-deferral feature offers no additional value.  Not FDIC/NCUA insured. Not bank guaranteed.  Not insured by any Federal Government Agency.  There are charges and expenses associated with annuities, such as deferred sales charges for early withdrawals.  Living benefit riders and agreements are available for an additional cost and are subject to fees and restrictions.
All guarantees are based on the financial strength and claims paying ability of the issuing insurance company.
1992019/DOFU 2-2018

6 Key Questions Every Retiree SHOULD Answer


A Reality Check for Those Retired or Close To It

The clock is ticking. Baby boomers are getting within a 9 iron of their golden years. Most have finally come to grips with the fact that despite the ideal retirement pictured in glossy brochures and commercials — that retirement for most won’t be close to what they envisioned in their earlier years.

All the best laid plans, calculations and formulas have given way to one glaring reality: This is what I’ve set aside for my retirement. Now, how on earth can I make it last?

In other words, it is time for a reality check and a meaningful conversation about your retirement income strategy.

New research finds the magnitude of the retirement savings shortfall in America today is staggering. The U.S. Retirement Savings Deficits could be as high as $14 trillion*. The “American Dream” of retiring after a lifetime of work will be long delayed, if not impossible, for many.

Acting sooner rather than later can greatly improve your own retirement security.

*Source: The Retirement Savings Crisis: Is It Worse Than We Think? The National Institute on Retirement Security, June 20, 2013

Question 1:  Do you know how long your money will last if you stop working today, invest your nest egg as safely as possible and try to maintain your current standard of living?

One of the greatest fears of retirees today is running out of money before they run out of life. This is an important question to answer and lies at the heart of Retirement Income Preparation. These answers are even more critical given the difficulties in the financial markets and larger economy that have significantly impacted retirement savings over the last decade. While it would be nice to have a one-size-fits-all formula when it comes to how long your money will last, the truth is there are many factors that go into that equation.

Question 2:  Do you know which one of the 567 ways to claim your Social Security will maximize the lifetime benefits?

The Social Security Administration provides you with 567 ways to claim your benefits. The Social Security handbook has 2,728 separate rules governing your benefits, yet they provide ZERO employees to advise you on the best strategy. Choosing the right benefits at the right time could mean tens of thousands of additional dollars in retirement. Making a mistake COULD cost you up to 72% of your benefits. And it’s absolutely critical that you get it right because soon after you claim, your benefits become permanent. There are no Do Overs. Social Security is enormously complex. For a couple, age 62, there are over 100 million combinations of months for each of the two spouses to take benefits.

Source: 44 Social Security “Secrets” All Baby Boomers and Millions of Current Recipients Need to Know – Revised. By Laurence Kotlikoff, Forbes Magazine, July 3, 2012

Question 3:  Do you know the proper mix of stocks versus bonds in a retirement income portfolio?

Asset allocation is an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor’s risk tolerance, goals and investment time frame. Asset allocation is based on the principle that different assets perform differently in different market and economic conditions. One of the cornerstones of financial preparation for retirement is that an individual’s exposure to higher-risk assets like stocks should decline as his or her retirement date nears. Since risk level and portfolio return are directly related, your asset allocation should balance your need to take risk with your ability to withstand the ups and downs of the market.

Question 4:  Do you know how big of a nest egg you’ll need as you enter retirement if you’ll be retired for 20, 30 or even 40 years?

Have you ever considered how big of a nest egg you’ll need to retire comfortably if your retirement could last 20, 30 or even 40 years? The range of answers is all across the board. The low end suggests you’ll need to have saved 8 times your pre-retirement pay in order to maintain your current lifestyle during retirement, with the high end more like 20 times your annual salary. Estimating what your retirement expenses will be can give you a ballpark figure for the amount of savings you’ll need. It will be imperfect because it requires making assumptions about factors such as how long you will live, what the inflation rate will be and how your investments will perform. Nevertheless, making an estimate is a valuable exercise.

Question 5:  Do you know the appropriate spending rate from your nest egg to insure your savings last your lifetime?

If you thought it was hard to grow a nest egg, try living off one in retirement. A lot is written about how to build a nest egg, but not as much about taking money out. Most have no idea how dangerous it is to withdraw too much from their nest egg each year. As baby boomers make the transition from career to retirement, more and more people are grappling with the question, How much can I safely withdraw from my nest egg each year? In today’s low interest rate environment, that poses even bigger challenges. The presumed safe withdrawal rate of 4% has come under fire in recent years. What’s an investor to do?

The Wall Street Journal said a 2% withdrawal rate is bullet proof, 3% is considered safe, 4% is push­ing it, and with 5% or more, you risk running out of money, especially if you live into your 90s.

Source: The Wall Street Journal: How To Survive Retirement – Even If You’re Short On Savings

Question 6:  Do you know how the rising cost of health care could affect and even decimate your retirement income strategy?

It’s a fact that healthcare costs have increased at a record pace, and many believe they will continue to rise. Everyone knows the old saying about death and taxes. But there’s one more certainty everyone who retires will need to face: the staggering cost of healthcare. Most people don’t appreciate the significant impact healthcare costs can have on their retirement savings. Yet these expenses can overwhelm even the best-laid retirement strategy. Nearly 9 out of 10 are flying blind when it comes to understanding, what could be for many, one of your largest costs in retirement. If you’re like most, you’re underestimating these expenses. Many retirees are not prepared for the high-cost of medical care in retirement when they are no longer part of a company plan. And, too many people believe that Medicare covers most or all expenses. The reality is that Medicare only covers a percentage of your medical bills.

Source: Putnam Investments Lifetime Income Score in collaboration with Brightwork Partners LLC

We have 6 more questions that you should know and answer.  To get the next 6 Key Questions Every Retiree Should Answer, Click Here and get the Guide.  As a bonus, we also included in that guide 6 Steps you can take to get your retirement strategy on track or back on track!  The guide is a PDF file and you can save it or print it and start using it right away!!

Here is one more link to that guide:  Link to Guide


Which pension option should I choose when I retire?

This question is a big deal!  Why?  Because the vast, vast majority of the time, your decision is irreversible.  You can’t change your mind later.

Always, always, get as much detail as you can from your Human Resource department or whoever handles your pension benefit options.  There, often times, many options to pick from and the whole situation can get confusing real fast.  Also, HR folks are not supposed to give advice. They can tell you your options but not which option is appropriate for you.  This is for good reason, given that they don’t know your whole situation and therefore cannot provide sound advice.

Please, please, please sit down with a trusted advisor, one you have known for years or one you can pay hourly to help you make an informed decision.  It will require some time together and you should disclose your financial situation and most importantly your future life goals.  That will enable your advisor to give you a recommendation that takes into account your entire situation.

I believe that the most critical variable for most when choosing which pension option to go with is the amount of survivor benefit you wish to leave behind for a spouse.  I have seen plans that allow you to leave up to 100% of your pension benefit behind, to as low as 1%.  What this means in practical terms is – say as a hypothetical example for illustrative purposes-  your employer says you are eligible for $4,000 a month of pension benefit for as long as you are alive.  If you pass away, the survivor benefit you leave your spouse could be as much as $4,000 or you could choose to leave $0 behind, the choice is yours and in a lot of states, your spouse as well.  Nothing is free in this world, regardless of what politicians tell us J, so you will also be presented with the costs to leave money behind.

In my above example, say you are eligible for $4000 a month of retirement benefit.  You might then be told that to leave $4000 behind to your spouse should you die first, then you will actually get $3600 a month of benefit, so the cost to leave behind $4000 is $400 a month.  Or you may say your spouse only needs $2000 a month should you die.  The cost then might be $200 a month, therefore your retirement benefit would be $3800.  These are just two examples, of the myriad of options that may be presented to you through your plan.

The reason I say you would meet with an advisor and disclose your whole financial situation is you may have existing financial products or accounts that can be used in concert with whatever pension payout you choose, for your retirement income needs. I have seen this many times, old financial strategies that may just need a second look with an eye to your current needs and situation.

In conclusion, if you are eligible for a pension from your current or past employer, first and foremost consider yourself lucky (these are disappearing rapidly in the modern economy), secondly you may benefit from a Pension Analysis to see if you can possibly help maximize them. Pensions are a great retirement tool, however; very few who receive this income stream really know how it works and give much thought to the irrevocable decision they are about to make. If you have a pension plan as a piece of your retirement, consider seeking assistance from a retirement income specialist who understands the structure and what options are available to maximize your income and leave the most behind for your spouse, beneficiary’s or estate.

As always, please email me at larry@midwestwealthadvisors.com anytime if you think I can be of help.

2011369/DOFU 1-2018

How do I know if my money will last when I retire?

This is one of the most important questions, if not THE most important, that retirees need to ask themselves before taking the plunge.  If one leaves the workforce completely the paychecks stop and they are left to rely on their savings, social security and possibly a pension.  Those without a pension need to be even more careful, especially if they want or intend to spend more each month than social security provides.  This spending can only come from one place, their savings.

Figuring out how long your money will last in retirement has stumped many.  There are a lot of assumptions and variables that could go in that calculation.  The first being, how long will you live?  Nobody knows that answer…so that’s our first assumption.  You could work off of statistics, off of family health history, neither or both.  For most married couples, I recommend assuming at least one person will make it to 95.  Modern medicine is amazing.  Some people live longer than they thought, and are more active at later ages than they ever thought they would be.  So choose this number wisely, and to be safe, maybe add 5 years to your guess.

The next big question is what will stuff cost 5, 10, 20, 30 years from now.  30 years ago the cost of a new car averaged $6,294 and today they average $26,700.  A gallon of milk was $1.94 and now the average is $3.52*.  Many people forget to account for the rising cost of goods and services.

Many economists say you should consider having to take out an additional 3% to 4% per year.  So, for example, if you pull out $1,000 a month from your savings this year, plan to take out $1,030 or $1,040 a month next year.  Then 3% or 4% of that amount the next year…and on and on you go.

Lastly, you need to determine a “safe” withdrawal rate.  This is how much you can spend each year from your savings and not run out of money.  This can vary a lot from family to family so please be careful on this step.

Please don’t take this process lightly and by all means, consult with a professional if you feel you can’t do an unbiased assessment yourself.

*Source: http://www.inthe80s.com/prices.shtml

2011359 /DOFU 1-2018

How Important Is a Financial Plan?

This question has come my way many, many times over the last 15+ years.  And I am glad it has.  It’s a great question and it opens the door to fabulous conversations.

In my humble opinion, a fee-based financial plan is extremely important.  It acts as a blueprint to get you moving towards your financial goals.  Would you try and build a house without a blueprint?  You could try, and possibly succeed, but I highly doubt the end result would be as you initially dreamed up and I would imagine it would take a heck of a lot longer to finish that house and at a much higher cost.  And let’s not forget about the added stress…doesn’t seem worth it to me.  Would you ever head out on a two week road trip across the country to Florida or California without some sort of map, directions or way to guide you on your journey?  Of course not!  So why approach your financial life any different?

Whether you are dreaming about paying for your children’s college or putting together your goals, hopes and dreams for retirement, a financial plan will serve as the blueprint for working towards achieving those things.

A financial plan is not a static document that gets put together, and then sits on a shelf somewhere or in a computer file.  No, this plan should be reviewed annually.  Things change, life happens and you need your plan to change with you.

Already retired?  A plan is just as important for you as it is for those saving for retirement.  You need a plan to help ensure your income lasts as long as you do.

Separate from the financial plan and our role as financial planner, we may recommend the purchase of specific investment or insurance products or accounts.  These product recommendations are not part of the financial plan and you are under no obligation to follow them. 2011277/DOFU 1-2018

Spend and Replace Retirement Income Strategy

This strategy can be very simple or very complicated, depending on the unique needs of the investor.  A simple hypothetical example would be a person who has $200,000 and wants to spend $5,000 a year for 10 years and after those 10 years, be back to having $200,000.  So they might set $50,000 in a bank savings account and take $5,000 a year from that account.  But what should they do with the other $150,000?

With the other $150,000 they would need to find something with a a goal of generating 2.88% a year for 10 years.  If they found an investment that could potentially do that they would be back to $200,000 after the 10 years has passed.  As the name implied, they spent some money and completely replaced it.

The strategy can get more complex if need be to accommodate various income needs at different points in time.  For example, you may need $5,000 for 3 years then $10,000 for the next 3 years then need $0 for 2 years.  Using various Time Value of Money calculators you could craft a strategy to help meet those spending needs and replace that money by a later point in time.

Some people may prefer to use lower investment risk vehicles like CDs, Government Bonds or Fixed Annuities.  While others may use investments that carry additional market risk knowing they might not replace what they have spent but they are taking that risk in hopes of maybe having more.  There are many types of hypothetical scenarios I could come up with but hopefully you have general sense of the ‘spend and replace’ strategy.


This is a hypothetical example for illustrative purposes only.  It is not indicative of any particular investment or guarantee of future performance. Does not account for product fees or expenses. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.   2011298/DOFU 1-2018