If you are getting to an age where retiring in the next several years is a real possibility, there are a lot of things to think about. These five points are just a few, and in my experience, they are things most folks wouldn’t otherwise consider. (For related reading, see: How Much Should You Contribute to Your 401(k)?)
1. What Are You Going to Do?
That seems simple right? You’re going to do everything you never had time for when you were working. You’re going to kick your feet up and relax. You’re finally going to be in charge of you.
All of this is pretty typical stuff, but what happens when you accomplish everything in the first two years and start to get bored? That’s when you get either confused or reckless. I mean confused in the sense that you don’t really have a direction without having to get up and go to work every day, then comes the reckless part; spending those retirement savings on things that you didn’t plan for.
No one can predict exactly what they are going to do and when they are going to want to do it, but it is important to have a blueprint so neither of those situations happen to you. If all you want to do is golf and fish all day, great – that sounds awesome. If you live in Northwest Ohio (Go Buckeyes!) though, you can only do those things half of the year. So what are you going to do when it gets cold? Snowbird to Florida? If that is in the initial plan, it’s not that hard to accomplish. But if three years into retirement you decide out of the blue to purchase a house in the Keys, that’s when the train can come off the tracks.
2. Where Will the Money Come From?
This, again, is a relatively simple concept on the surface, but there are variables associated with that. A common situation for a couple retiring at approximately the same time would be to live off “the pension, the savings and social security.” OK… whose pension, and what happens when that spouse dies? Will the surviving spouse get all or part of it? What kind of savings? If they are qualified dollars, are they in an annuity that the survivor can take as income or a death benefit? Which would be the most beneficial for the surviving spouse? If both are taking social security, whose is greater and how much will continue when one of you passes?
Let’s stop and catch our breath for a minute. I brought you in with five things to think about and just gave you 25 more! These are not difficult situations to decipher, and your financial advisor/tax advisor should have a pretty solid grip on your particular situation. Very important however, is to help make sure your advisors are aware of all the pieces involved so they can do their jobs and plan with you (and your surviving spouse should you pass first) for those variables. (For related reading, see: 3 Financial Planning Lessons I Learned From Golf.)
3. Will Your Tolerance for Volatility Change Once the Paychecks Stop?
If you are ten or so years from retirement and your investments take a 7% hit, that’s not a big deal. That’s actually what a lot of financial advisors (myself included) would call a buying opportunity. Chances are that you and your advisor have talked about the possibility of volatility in account values and that isn’t too bad of a pull back… you can make that back and then some.
Fast forward twelve years and you are living off of those accounts, are you going to be more concerned if you see that kind of decline? You can’t say for certain but the answer is probably. If you are risk averse now, you will almost certainly be more so in retirement. If you are willing to take more risk now, and you don’t get nervous until you see a 10% correction, you could find yourself a little more anxious when you can’t put in a few more hours at work. It is very fair to say that you don’t know how you would react to either situation, and that’s why it’s critical to be honest and up front with your advisor about your risk tolerance while making the plan, rather than changing the rules at halftime.
4. Is Your Advisor Also Retiring?
How old is your financial advisor? Statistics say there’s a good chance that he or she is at least 50.9 years old, and almost just as good of a chance that he or she is over age 55. So what does that mean? It means that he or she may also be thinking about retirement. Think about it like this; if you retire at age 62 and your life expectancy is another 25 years, you are going to need someone helping you with your retirement plans and spending until you are age 87 (then according to the actuaries, your time is up … rules are rules!).
If you met your advisor when you were 45 years old, and he or she were in the 43% of those over 55, he or she would be 72 years old on your last day of work. That’s not to say there aren’t a lot of really good advisors in their later years, but do you expect them to continue to work with you until they are 97?
Financial advisors are just like everyone else; they work hard for what they have and they intend to retire some day. This isn’t to suggest you run out and find a new, young advisor, but you should talk to them about their retirement and business succession plans. If you are both about the same age and have the same retirement timeline, make sure you know who the next person will be.
As a side note, if your advisor has someone lined up, you probably don’t have anything to worry about. Advisors take great pride in the business they’ve built and won’t let someone whom they wouldn’t work with take over. But again, just make sure you know the plan ahead of time. (For related reading, see: 6 Life Events That Call for Professional Financial Advice.)
5. What If It All Ends Way Too Soon?
No one likes to talk about this, but as invincible as you feel right now, you’re going to pass away. Don’t get discouraged, it happens to the best of us. In your mind, you probably agree with the actuaries and it won’t be until your mid- to late- 80s. But what if it happened tomorrow? You spent the best years of your life working, saving and planning to make the last 25 to 30 just as good, then you get hit by the proverbial bus. You want to hope for the best, but it’s also important to consider the worst.
There are very few situations that the right amount of life insurance can’t take care of. How much and what kinds of life insurance do you need? Talk to your advisor about your concerns and the two of you can put the right tools in place. And if you do it right early enough, you never (literally, never) have to think about it again because when it becomes time to execute the plan, you’ll be dead.
In line with the importance of life insurance are estate plans. Again, you worked hard for all of this money; you want to make sure it goes to the right people and places. Making sure the proper beneficiaries are listed on your investment accounts is a good place to start and an easy thing to do. Beyond that, an attorney can help you with wills and trusts to help ensure your money gets spent how you want it to when you are gone. This is particularly important if you are married; if you and your spouse get hit by the same bus, how does all of your money get split up; where does it go and who gets to spend it? Just as important, where doesn’t it go and who doesn’t get to spend it?
Sounds like a ton of work, right? Well, it is and that’s why you have financial advisors, CPAs and attorneys that you know and trust. Wait, what? You don’t? Well, good news is they aren’t that hard to find. Talk to your friends and family about who they go to for advice. You can search for a financial advisor in your area, but Google is really no match for a personal reference by someone you respect. Once you get into those relationships, what you will find is that as much work as retirement planning is, those people love to do it, they are very good at it, and you will feel very comfortable knowing that you will be able live out your retirement the way you want to. (For related reading, see: How to Grow Your Retirement Plan to $1 Million.)
Securities and investments advisory services are offered solely through Ameritas Investment Corp. (AIC). Member FINRA/SIPC. AIC and Decker Financial Group/Creative Financial Partners are not affiliated. Additional products and services may be available through Joe Decker or Decker Financial Group/Creative Financial Partners that are not offered through AIC. Representatives of AIC do not provide tax or legal advice. Please consult your tax advisor or attorney regarding your situation.