While some Social Security strategies have been discontinued, there are still a few under-utilized strategies…
I see the Light of Retirement
You are scheduled to retire on July 1st 2015, and the excitement is building, but before you get too excited make sure you have your bases fully covered. Before retiring consider 4 key issues, to include: medical, income, debt, identity.
Medical planning is probably the most important issue to consider when heading into retirement. How will your medical insurance be structured in retirement? For people under 65 years of age the answer has been resolved with the enactment of the Affordable Care Act. As a matter of fact, if you have the ability to control your taxable income in retirement and get an insurance policy from The Exchange, you may even be able to get a large portion of your premium subsidized. This is an incredible planning opportunity that we have addressed in a past article. If you are over 65 then you are most likely going to be on Medicare with a Medicare supplemental policy that either your employer will provide or you will buy privately. An employer supplemental policy will normally provide for prescriptions, but a private policy does not and requires Medicare part D. Let’s consider the different parts of Medicare. Part A is for Hospitals, Part B is for Doctors and Part D is for prescriptions (Part C is a hybrid of all three parts). Unfortunately, Medicare only covers about 60% of costs and requires a supplemental policy to protect the remaining 40% (note: the percentages cited are generalized). Another major consideration is if both husband and wife have a medical retirement supplemental plan offered through their employer. Do you go with his plan, her plan or do you each keep your own plan? This is a trickier question than it seems, especially in a time when employers are eliminating group retiree health insurance.
Income in retirement is obviously a major concern. How do you know that you are going to have the income you desire to continue your lifestyle– for life? First, it requires a retirement budget which is best developed by monitoring your existing cash flow and then projecting a budget into retirement. Most people do not keep track of their daily, monthly and yearly income/expenses, yet it is critical for retirement planning. Once you know your income goal, you can then develop a strategy to reach the goal with income sources such as Social Security, a Company Pension and/or withdraw of accumulated assets. Most Americans no longer have yesteryear’s three-legged income stool since private company pensions have become less common therefore most people will likely count on just Social Security and Accumulated Assets. It is critical that you test your expected withdraw plan against the assets that you have, to determine the probability of your income stream lasting for life.
Debt is one of those issues that my parent’s generation never worried about. They were highly unlikely to have much debt except a mortgage, and they almost always had a plan to be debt free the day they retired. Typically if they had a mortgage they would sell their home, downsize and pay cash for the new home. However, the attitude of the Baby Boomer Generation is far different from that of their thrifty parents. Baby Boomers are more likely to carry one, if not three, of the following: credit card debt, car debt, home equity credit line debt, and/or a primary mortgage. Even debt free Baby Boomers have been known to splurge and sell their debt free home to buy a bigger, more expensive home resulting in debt going into retirement. Here is a general guideline for the use of debt. If you want to make more money in retirement, then debt used wisely (to buy appreciating assets) is your best friend. If, on the other hand, you want peace and contentment in retirement, then debt is public enemy number 1. There is something about the human psyche that wants to be free, even free of debt.
Identity is a funny thing to talk about in a retirement article, but many of us have our identity wrapped up in what we do. In explaining who they are, people often quantify their career as part, if not all, of their identity. So, how does that thought process link to retirement planning? Retirement seems to be a glorious thing to achieve and in many ways it can be, but heading into retirement will be a stressful experience unless you plan fully, both objectively and subjectively. Human beings are creatures of habit and after working for 30, 40 even 50 years, to then stop and say,” I am not going to do that anymore,” can produce immense stress. Planning the finances is one integral part of relieving the stress of no longer receiving a paycheck, and knowing that who you are is not tied to your career is another major step in achieving a less stressful retirement. The T. Rowe Price Fund group actually came up with an interesting slogan “Practice Retirement”. The concept was to ease into retirement by reducing our work life to part time first, eventually becoming fully retired. Their research showed that as we are living longer, this gradual approach helps to ensure the assets will last a lifetime, while allowing us to slowly disassociate our working life from our retired life.
Let me leave you with this philosophical statement as you head into the light: your goal in retirement should be finding fulfillment, not enjoyment alone. Fulfillment is knowing that when you leave this earth you have made a difference to mankind, and fulfillment is found in relationships. Therefore, realizing that money is the primary cause of failed relationships, if your real retirement goal is fulfillment, then focus on preserving your existing relationships, not on money. And, spend the years of financial independence building new life-giving relationships, as well.