An Active, Full Retirement Depends On Proactive Long-Term Planning

The plans you make now need to take into account the effects they'll have 10 or 15 years down the road.

People are living longer, but how many are living well in retirement?

When it comes to a retirement that’s both enjoyable and financially secure, so much depends on how well people planned financially, and whether their income strategy was designed for the long road and the bumps that may occur as they travel along it.

Too often, it’s not.

That’s why, when preparing for retirement, it’s important to be proactive and get as far ahead of the curve as possible so variables like a fickle market and life events don’t disrupt and undermine your financial security. Rather than wait for something negative to happen and reacting to it, there are ways to build a plan that can help weather storms and sustain you for a long and enjoyable retirement.

We believe it’s important to look at three key areas when proactively planning financially for your retirement:

No. 1: Basic income planning

There could be many factors to consider in this category. Three to start with are your Social Security strategy, any pension you might have and inflation. Each of these could affect your income in retirement; the question is to what degree. People may look at the income they expect to have coming in and assume it will be enough to meet their retirement needs, but you don’t want to be in a position where someday you find out otherwise and have to react.

Be proactive in your planning by getting with an adviser and projecting out 20 to 25 years. Here’s where inflation comes into play. In 20 years, $100 isn’t going to buy as many groceries as $100 today. So, you need a financial plan that takes into account an inflation rate that we estimate to likely be 3% a year.

If you have a pension, what happens when you die? Does the monthly pension payment transfer to your spouse, and if so, how much do they get? The same amount you were getting or just a percentage? Those questions should play a part in your planning. Finally, Social Security is important for everyone to understand. Many people opt to start drawing Social Security early at age 62, but that may not be the best decision for you. Ideally, you want to wait as long as you can so you potentially maximize your benefit. Your monthly Social Security check could be bigger if you wait until full retirement age (66 or 67 for most people), and it may be even larger if you can hold off claiming Social Security until you are 70.

No. 2: Asset allocation

Because Social Security and a pension, if you have one, don’t always generate enough money to match your pre-retirement lifestyle, many people supplement their income by drawing from assets such as a 401(k) or other investments. But if you’re dependent on that money to help cover monthly expenses, and the market takes a sudden downturn, you could be in trouble.

And, unfortunately, it’s easy to get fooled by the market. You may feel you have the right asset structure, and the right balance in terms of risk and relatively low-risk investments, but then the market nosedives and you’re blindsided by how much you’ve lost. What happened? Sometimes the problem is how people view themselves in terms of risk tolerance — conservative, moderate or aggressive — and whether their definitions of those terms match how their money is invested.

After all, moderate to me could mean something completely different to you. That’s why my firm prefers to use a risk number instead of a word description when trying to determine a person’s risk-tolerance level. Let’s say someone has assets of $1 million. I’ll ask them questions that involve dollar figures, such as: “In a six-month period, what kind of volatility are you OK with? Are you OK with being down $100,000?” Using specific dollar amounts helps them better understand what they could lose, as opposed to saying, in this case, 10%. And it gives them and me a much better gauge for just how comfortable they are with risk.

No. 3: Wealth management

You may not want all of your money in the market. A portion will be invested in bonds, mutual funds or other generally less volatile areas. But even here, you need to be alert to how any income generated from these investments affects your taxation.

Also, one other way it pays to be proactive is by looking at possible Roth conversions. Withdrawals from a Roth IRA aren’t taxable when you begin to take them in your retirement, but money taken from a traditional IRA is. So, this could be a good time to consider moving your money from your traditional IRA into a Roth, especially since the 2017 tax law lowered the tax brackets until the end of 2025. Yes, you’ll pay taxes on the money that you convert, but there’s a good chance the amount will be less than what you would pay when withdrawing from a traditional IRA after 2025. With any changes you make, it’s always important to determine not only how they affect you this year or next, but over the next 10 to 15 years.

Ultimately, with each of these areas, it’s important to think long term. You want to keep in mind how any little changes or moves can have an impact on the big picture and affect you over the length of what could be a long — and hopefully enjoyable — retirement.

Dan Dunkin contributed to this article.


About the Author

Zachary W. Herzog, Investment Adviser Representative

CEO, Wolfgang Capital

Zachary W. Herzog is an Investment Adviser Representative and the CEO of Wolfgang Capital, an Investment Adviser registered in California. Zach is dedicated to helping retirees and pre-retirees protect their finances as a licensed life and health insurance agent (CA LIC# 0H085434) with Wolfgang Financial and Insurance Agency, an insurance planning firm in the greater Southern California area.

Fee-based financial planning and investment advisory services are offered by Wolfgang Capital LLC, a Registered Investment Adviser in the state of California. Insurance products and services are offered through Wolfgang Financial Group LLC dba Wolfgang Financial and Insurance Agency (CA LIC # 0K07551). Wolfgang Capital LLC and Wolfgang Financial Group LLC are affiliated companies. Neither Wolfgang Financial Group LLC or Wolfgang Capital LLC provide legal or tax adviceYou should always consult an attorney or tax professional regarding your specific legal or tax situation. Wolfgang Capital LLC, Wolfgang Financial Group LLC and Zachary Herzog are not affiliated with or endorsed by the Social Security Administration. This content is for informational purposes only and should not be used to make any financial decisions.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger was not compensated in any way.

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