Financial Planning Actions to Take Before the New Year

Planning for retirement amid changing market dynamics can be stressful, especially as retirement age approaches. Fortunately, there are a myriad of ways to prepare for it, even if you plan to retire early.

OPTIMIZE YOUR RETIREMENT INCOME

One of our top tips is to optimize your retirement income by setting yourself up with a diversified portfolio that offers a solid return. If you are in your twenties, there is a big opportunity to let compound interest work its magic. If you are in your thirties or forties, compound interest may not be as lucrative for you, but there are still plenty of ways to maximize your returns.

Here are some of the different options available to help plan for retirement:

• SEP IRA – a self-employed retirement plan known as the Simplified Employee Pension (SEP) IRA requires employers to contribute 100% of the accounts' funds and provide equal benefits to all eligible employees.
• 401(k) – An individual retirement plan for which contributions are not tax-deductible, but withdrawals in retirement are tax-free.
• Roth IRA – An individual retirement plan for which contributions are not tax-deductible, but withdrawals in retirement are tax-free.

Each option has its differences, so it is important to work with an advisor to identify which is best suited to your situation and your goals. There’s a lot that can go into your Life Plan and we are here to help.

DEVELOP A BUDGET AND SAVINGS PLAN

Budgeting can make a world of difference. If you haven’t already, establish an emergency fund. This will give you peace of mind and will help pay for any unexpected expenses that may arise. Once you’ve set that money aside, you can plan your monthly expenses, retirement contributions and more with the rest of the income you have.

As you develop this budget and savings plan to get you to your retirement goals, ask yourself the following questions:

• What quality of life do I want to experience in retirement?
• What medical expenses do I anticipate?
• Do I plan on working during retirement?
• Will I have a flow of income during retirement?

These are all important considerations and will help you develop an actionable plan to achieve the retirement lifestyle you dream of.

DETERMINE YOUR TAX BRACKET AND MINIMIZE YOUR TAXES

In retirement, taxes can eat into your available income, leaving you with less to live on. It's important to remember that taxes don't stop once you're retired. Our financial advisors are here to help guide you take steps throughout your working life to minimize your IRS obligations now and later.

The same basic tax brackets that apply to working taxpayers also apply to retirees. Determining your tax bracket in retirement is just like determining your tax bracket while you’re working – which  is determined by your filing status and taxable income (income minus deductions).

Common sources of retirement income that are taxable include:

• Distributions from traditional 401(k)s and IRAs
• Investment income
• A portion of your Social Security benefits (in some situations)
• Some pension income
• Income from work (full or part time)

INVEST TO ADD ADDITIONAL CASH FLOW IN RETIREMENT

If building wealth is your goal, the stock market or other investment strategies are common options. Investments such as annuities, real estate investment trusts (REITs) and income-producing equities can offer additional retirement income beyond Social Security, a pension, savings and other investments.

DETERMINE THE AMOUNT OF RISK THAT IS APPROPRIATE FOR YOU

It is important to keep in mind that all investments come with risk. If you are young, you can probably tolerate more risk. If you are in your thirties or forties, however, you might benefit from taking a lower risk approach. This is because people in their twenties have more time to correct and mitigate losses. A financial advisor can help you decide if you would like to take a low-risk, slow-and-steady approach, or guide you through a high-risk approach with the potential of yielding higher returns.

PAY OFF YOUR DEBTS

It’s important to pay off credit card debt and student loans as soon as possible. Systematically chipping away at debt now, can have a significant impact on your future debts and purchasing power.

A mortgage can be looked at as both a good debt and a bad debt, depending on your goals. Many people choose to rent a home to avoid being tied to a mortgage, and others use that property as a cash-positive asset. Depending on your goals, it’s important to discuss each of these approaches with a financial advisor so they can help guide you through something that will ultimately benefit you and your family.

MAXIMIZE YOUR SOCIAL SECURITY BENEFITS

Navigating Social Security income can be complicated, but there are several ways to maximize your social security benefits, including:

• Work for 35 years or more
• Earn as much as you can right up until full retirement age (or past it)
• If you can, wait until you are 70 years old to claim – this can increase your benefit by 8% a year beyond your full retirement age

The goal is to maximize the income you will receive from Social Security, but the answer for you will depend on your age, current income, marital status, spouse’s income, and the age disparity between you and your spouse. With all the complexities to Social Security planning, there is no substitute for meeting with a trusted financial advisor so you can best navigate your life in retirement.

CONSIDER ESTABLISHING STREAMS OF PASSIVE INCOME

It's important to remember that there are multiple ways to set yourself up for prosperity during your golden years.

These include:

• Investing in real estate
• Investing in the stock market
• Starting an ecommerce business
• Writing books
• Earning royalties of any kind
• Investing in collectibles
• Investing in gold and silver

In short, it's best to invest in as many financial assets as you possibly can in order to establish streams of passive income so that you are not solely reliant on one source for your earnings and returns.

ESTABLISH MULTIPLE STREAMS OF INCOME

You may want to consider continuing to work during retirement. This provides many people with a sense of satisfaction and purpose, AND you will be able to keep your benefits.

The earlier you establish multiple sources of income the better. Ideally, at least a few of these would be passive.

You deserve to be comfortable during retirement, and planning for this phase of life right now will likely help you achieve your goals, perhaps even surpass them. You have worked hard for most of your years around the sun, and you deserve to relax and enjoy every moment on your own terms during your golden years.

Why Choose Trilogy Financial

Planning your retirement strategy is important but not something to stress over. If you’ve already started saving, one of our certified financial planners can help you optimize your savings, investing and risk approach so you can live the retirement life you dream. However, if you haven’t started planning for retirement yet, there’s no better day than today!

Our Advisors will work with you to develop a deeper understanding of your alternatives, pinpoint practical needs and make plans for the care you and your family deserve. Please contact us to start your retirement planning today.

Retirement is one of life’s most significant milestones. Not surprisingly, it’s both an exciting and worrisome prospect for many Americans nearing those Golden Years. According to a 2016 Gallup poll, 64% of Americans are worried about not having enough for retirement, 51% worry they won’t be able to maintain the standard of living they enjoy, and 60% are concerned they won’t be able to pay the medical costs of a severe illness or accident. One of the best ways to alleviate uncertainty is planning ahead.

What Will I Do with My Time and With Whom Will I Spend it?

Just as you would plan for the financial elements of your retirement, it’s equally important to plan how you will live out your retirement years. One of the biggest decisions you will make when you retire is where you will live. For example, maybe you want to live near your children part of the year and vacation a portion of the year somewhere else. Or perhaps you can’t imagine leaving the home you’ve spent years building and improving. Your housing will affect your finances, spending, and daily activities.

Next, address how you will spend your time. No one entirely escapes a daily schedule. Your daily retirement schedule doesn’t have to confine you, but it will help you fill your day and plan ahead. Start by establishing a balance of short, medium, and long-term goals. Short-term goals could include cleaning up the house, going to the gym, planting a vegetable garden, taking a vacation, or visiting family. Medium-term goals may be redesigning your yard, remodeling your home, taking a class, or planning for an extended vacation abroad. Long-term goals could be learning a foreign language, mastering a musical instrument, obtaining a new degree or certificate, writing a book, or building a vacation home. Whichever goals you define, the idea is to identify an extensive list of options so you can stay busy, maintain some control of your daily schedule, and have different activities to which you can look forward. Additionally, consider with whom you will be spending your time and enjoying these activities. If you and your spouse are not used to spending a lot of time together, know that there may be an adjustment period as this newly found together time can create tension in your relationship that hasn’t existed in the past.

How Much Will I Need in Retirement?

While it will differ for everyone, research from Fidelity shows that most people need to replace between 55% and 80% of their pre-retirement, pre-tax income after they stop working, to maintain their current lifestyle. After working hard throughout your career to save for retirement, now comes the critical decision of determining how much you can safely withdraw to replace your income while still having enough to last through your retirement. When taking withdrawals from your portfolio during retirement to pay for expenses, there is a risk that the rate of withdrawals will deplete the portfolio before you reach the end of retirement. Since you may know that stocks have historically earned an average of 8% a year, you may erroneously assume that you can afford to withdraw 8% of the initial portfolio value each year, plus a little more for inflation. However, 8% is an average, and while in some years, the numbers may be higher, in others, they will also be lower – and in some years, much lower. To protect yourself from the uncertainty of the market, you may want to consider limiting your withdrawals to 3 or 4% initially.

Ultimately, choosing a withdrawal rate means weighing your desire for increased spending in relation to your willingness to reduce spending. This relies partly on your attitude towards spending, and partly on your risk capacity. If you have Social Security and a substantial pension that is payable for life, then you have more capacity for risk in taking withdrawals from your portfolio. If not, you may need to reexamine your goals and expense categories to make sure they line up with the funds you have available.

Which Retirement Fears Could Prevent Me From Retiring?

A Retirement can be both exciting and terrifying for some people, as it’s such a significant transition in one’s life. As you plan for your retirement, it’s important to consider any fears you have that may prevent you from retiring. Through working with my clients, I’ve found there are a few common fears. First, some who have spent so many years dedicated to their career may fear they’ll lose their identity. Often, lawyers, doctors, teachers and other professionals may wonder what their purpose is if they’re no longer serving others. This is where it’s essential to return to the first question here and identify how you can find meaning in your new schedule. Second, many worry they could run out of money. While it’s impossible to predict the exact amount of money you will need, a financial plan can provide a roadmap that gives you probabilities of how long your money can last. Working with an advisor to review different scenarios may offer you more confidence. Lastly, another common fear is high taxes. While there’s no avoiding Uncle Sam, there are legal ways to mitigate your tax burden and make the most of your earnings. Consult with a tax advisor to give you an idea of how much of your withdrawals you’ll take home versus paying in taxes.

How Will I Address the Issue of Long-Term Care?

While some expenses go down once you retire, others can increase, such as healthcare costs. On average, a couple both age 65 can expect to spend between $157,000 and $392,000 on healthcare costs alone throughout their retirement years — a 29% increase over the past 10 years. This estimate assumes enrollment in Medicare health coverage but doesn’t include the potential added expenses of a nursing home or long-term care that a retiree may require. Long-term care insurance covers the cost of services that include a variety of tasks you may need help with as you age. For the past 20 years that long-term care insurance has been available, cost was the most significant hurdle for most people. Today’s long-term care policies offer more flexibility and benefits than in the past, and there are now more options and affordable choices that are designed to fit almost any budget. The most well-known option is a standard long-term care insurance policy, where you pay a premium in exchange for the ability to receive benefits if you need them. This is a “use it or lose it” policy, so won’t receive any benefits or money back if you don’t end up needing longterm care. If you don’t like the idea of a “use it or lose it” policy, you may consider a hybrid product, such as buying a life insurance policy with a long-term care rider. With this type of policy, you invest in a standard cash value life insurance policy and select your long-term care coverage terms in the rider. If you end up requiring long-term care, there are available funds. If you don’t need long-term care or if you don’t spend the total benefits available, your beneficiaries receive a death benefit payout upon your death.

Next Steps

Taking the first steps for retirement planning can be overwhelming, but you don’t have to face it alone. An advisor can help you create a personalized retirement roadmap, work, through various retirement scenarios, and help you identify what you will do during retirement to make the transition less stressful. As an advisor who works closely with many couples and families, I want to help you address your retirement questions and feel confident about your future. Take the first step by reaching out to me for a complimentary consultation by calling (949) 221-8105 x 2128 or emailing michael.loo@trilogyfs.com.