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.

 

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Step 4 – Meeting my retirement goals

What tactics/investment vehicles may fit my risk tolerance and time horizon to help me meet my retirement goals?

There are a whole host of investments you can put your money in these days.  Some are products issued by investment firms, insurance companies, banks and federal/state/local governments.

  • CD’s
  • Bonds (Municipal, Treasury, Corporate, International)
  • Exchange Traded Funds (ETF’s)
  • Index Funds
  • Actively Managed Mutual Funds
  • Individual Stocks
  • Real Estate Investment Trusts (REITs)
  • Private Equity
  • Hedge Funds
  • Precious Metals

This list does not contain every investment out there, but these are the most common ones used.  Each has varying fees and expenses as well as advantages and disadvantages.  The important thing to know is which investments are going to be suitable for your risk tolerance and time horizon.  Also, this list isn’t meant to say that you pick just one and go with that.  The list is merely to show you what are some of the more common choices out there and you may find that several are a good fit for your portfolio and offer the diversification and return potential you need or desire.

Neither diversification nor asset allocation guarantee against loss, they are methods used to manage risk

“Look at market fluctuations as your friend rather than your enemy.  Profit from folly rather than participate in it.”  – Warren Buffet

Closing

I sincerely hope this series of articles was enjoyable and educational for you and I would love your feedback.  If you have any suggestions for improvement, or words of encouragement, please reach out to me at larry@midwestwealthadvisors.com

My hope is that the time you spent reading this was of value to you.  The goal was to provide you something to get you started on the retirement savings path or provide a check-up to see what you current financial strategy is doing and if you are on track to your retirement goals.  Hopefully you now have a good idea of what tools and strategies are available to possibly benefit your retirement, how much you may need to save, and some information about financial vehicles and investments that may work with your situation while also taking into account tax-sensitivities.

If you feel my firm can be of help on your journey, please call 763-428-0066 x3 or email appointments@midwestwealthadvisors.com to setup a No-Cost, No-Obligation, 25 minute phone call.

An even easier way to book your call is by clicking on the Click to Schedule button under my picture at the top of the page.

To Smarter Investing,

Lawrence B. Tate, ChFC

Financial Advisor

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Should we pay off our house?

Many people ask me this question as they approach retirement or shortly after they retire.  At the risk of being coy I have to answer; it depends.

For most people, having their home paid off is a wonderful thing.  They are less stressed, feel great about paying off the largest purchase of their lifetime and it provides a freedom in their cash flow they have never had.

For some, the tax bill that would befall them makes the question a bit tougher.  Not all people have enough sitting in savings, checking or non-IRA accounts to pay off their mortgage.  Sometimes, the bulk of their retirement savings is sitting in an IRA, which if withdrawn would be taxable at ordinary income rates.  At this point I recommend they chat with their accountant to see how much in taxes they would owe on such a withdrawal and then run some math to see how much it would “cost” to pay off the mortgage in one big swoop.  Often times, the accountant will crunch the numbers and recommend a slower withdrawal strategy out of the IRA, to keep the taxes low, and have the house paid off in 5 years, for example, instead of in 1 year.  Finding the right strategy for your particular situation requires sitting down with a trusted advisor and an accountant to “do the math” and see what might make most sense for your situation.

Some have argued it’s better to keep the money invested in the market as the long term average returns have outpaced today’s mortgage rates.  Using historical returns as our guide this is often true, but in retirement there is more to a person’s retirement strategy then just numbers.  I have found most would feel a lot better with the house paid off and most often that is what I recommend doing – in the confines of the most beneficial strategy your trusted advisor and accountant come up with.  If the money is just sitting in cash, then most can skip those meetings and just pay off the debt.  But if your money is in an IRA or another vehicle that would subject you to potentially large taxes, but meet with some experts and devise the best strategy for your situation.

If I can provide any further help or guidance please don’t hesitate to email me at larry@midwestwealthadvisors.com

This should not be considered mortgage advice. Please consult a mortgage professional for advice regarding your specific situation.

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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

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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

So What Goes into a Comprehensive Financial Strategy?

So What Goes into a Comprehensive Financial Strategy?

First, identify your goals.  They might look like the following, for example:

  • Pay for 50% to 100% of each child’s college costs
  • Retire at 65 or 68
  • Be able to pay cash for a new car, approximately $30,000, every 6 years
  • Have the option of getting away for a few months every winter, when retired
  • Save up a 20% down payment for next house
  • Balance our spending with our saving and charitable goals
  • Pay off all debt in 7 years
  • Ensure that in the event of my death or disability my family can maintain the same lifestyle that it is used to

The list could be endless.  If you can dream it, put it down.  You then work on prioritizing and running a financial analysis for the various goals you have rated a top priority.

For most people I work with, retirement is the largest – in terms of dollars that will need to be saved – future financial goal they have.  Retirement is most certainly a journey.  And with today’s rising life expectancies (people are living much longer than most ever thought) the journey could be a long one…hopefully a long, FUN journey.  With that being said, I think it’s extremely important to invest a handful of hours up front and a couple every 1-3 years, making sure you are making progress towards this goal.  Your strategy should address things like longevity (how long you might live), as well as the rising costs of things like food, utilities and medical care.  How much risk can you tolerate taking with your investments?  Your strategy will require some assumptions like rate of return, taxes and future income needs.  These things should be looked at and updated and changed if need be.

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