Retirement on the Horizon?

How to get on track as you count down the days

By Deborah Jeanne Sergeant

 

Are you just a few years away from retirement?

It may seem that since the finish line for your working life is coming into view that you can coast by the last few years.

However, you still have some planning to do.

“We focus on several areas of finance that have to work in concert to make sure retirement goes the way you want,” said Michael Jennings II, wealth consultant and financial planning associate with Brackens Financial Solutions Network, LLC in Syracuse.

The retirement part of your life is more than just ceasing to work at your career full-time. Some may want to scale back and work part-time. Others want to segue into a new career, start a business, consult at their old company or volunteer (which although unpaid can feel a lot like working). It’s important to not only count your nest egg but also realize how you want to spend your time in retirement.

“Put tangible goals in your plan so you’re working towards something and not just winging it,” Jennings said. “Retirement can be a long period of time. People are living longer. There are different eras of retirement.”

These distinctions can make a difference in financial planning.

For example, someone who still plans to earn some money once retired from his career will have different cashflow needs than someone who plans to eschew all labor and travel the globe.

Jennings said that many current factors have changed how much money someone should save for retirement. The rule used to be that 80% of the earned income per year could fund retirement. However, he advocates for 100% income replacement.

“The average age of a first-time homebuyer was 20,” he said. “Now it’s in the 30s. If you start later, you can go into retirement with a mortgage. People in the past had pension, which is almost non-existent. With a shift in the ‘80s, companies put the onus of funding retirement on the employee. It’s the responsibility of every individual to fund his retirement. There are also decades of inflation and high costs of goods and services.”

Those without a means to replace 100% of their working life income will need to downsize, sell assets and change their lifestyle.

Jennings encourages soon-to-be retirees to evaluate their income streams and talk with their financial adviser as to how they should use these once they stop working. They may need to roll over their savings or investments into other financial vehicles.

“Evaluate your asset allocation,” Jennings said. “Depending on what kind of investor you are, most are focused on equity like stocks and mutual funds in their early years of earning an income because of the potential for growth. They have exposure to more volatility than bonds.

“Principal protection is most important at this point. Switching from equity to fixed income is something you have to be aware of and evaluate if that’s your philosophy of investing. Structured investments that offer down-market buffers have become more popular.”

He also wants people to consider the 401(k), traditionally tax-deferred vehicles. Holders pay taxes only when they start withdrawing from those funds. Roth investments grow at your current tax bracket.

“When you consider change in retirement, you have to consider if you’re in a higher tax bracket today than you will be in retirement,” Jennings said. “That switch could tell you which sort of funds are more valuable to you depending on what your focus is on: Roth or 401(k).”

Another financial factor in retirement is the minimal cost of living adjustment (COLA) for Social Security recipients. The COLA doesn’t typically keep up with inflation, so relying upon Social Security as a sizeable part of your retirement income isn’t a sound strategy.

In addition to income, it’s important to look at daily living expenses and larger expenses. Many of these will remain similar to when you’re working. However, Jennings said that healthcare expenses will exponentially increase as you grow older.

“You should have a very solid idea of where your healthcare coverage is coming from and what it will cover,” he said.

It’s also helpful to reduce and ideally eliminate debt before retirement, although that’s not possible for everyone.

At this point in life, it’s important to review estate planning, wealth transfer and other end-of-life documents like healthcare proxy and power of attorney. If you developed these documents a couple decades ago, review them again to make sure that your plans still make sense.

Ask your financial adviser for help in tweaking your plans.