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Is Your Retirement Plan as Well Thought Out as Your Vacation?

To make your hard-earned dollars stretch as long as possible, here are nine financial planning bases you need to cover.

After working hard all of our lives, the goal for most of us is to have the freedom to go explore and complete the “bucket list” that we have always dreamed of. The problem is most people plan their vacations better than they plan their retirements.

As one of my clients stated, “What I have come to learn is it’s a lot easier to accumulate money than it is to figure out how to distribute it.”

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He’s right. Most people can accumulate money if they have the discipline to contribute into investments or simply have their employer deduct money from their paychecks and put it in a 401(k). Distributing those funds in a way that can last you and your loved ones is easier said than done. I have actually heard some financial professionals specifically say, “The plan is to simply start taking money out.” If only life were that simple.

Below are ways to help make your hard-earned dollars stretch as long as possible.

1. Understand how much your expenses are before you retire.

Go online and look back one year at the total you spent each month. Add all the amounts together, and divide by 12. That average is likely your reality. One year will include areas like taxes, ATMs, vacations, Christmas gifts, birthdays and going out to eat, along with all your basic expenses. If you paid cash for a car or just had an out-of-the-ordinary expense like an air conditioner breaking, don’t count that, because those expenses are not normal on a yearly basis. Do count expenses for normal wear and tear on a home. I also encourage you to include extra travel per year for each year that you plan to travel more than you did while you were working.

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We have seen clients shocked at what they spend. The bottom line is to know your budget.

2. Understand your health care options.

You need a firm grasp on your resources, including your Medicare costs and how the distribution of income could affect your Medicare Part B and D premiums. People may not be aware that in determining the Income Related Monthly Adjustment Amount (IRMAA), the IRS looks back at your income from two years ago. If your current income is less than it was two years ago, you can appeal that with the Social Security Administration, which could result in reducing your IRMAA. You still need to cover health care costs no matter what age you are, so make sure you understand your options. Tax planning and using tax-efficient strategies to help minimize income tax exposure can make a significant impact in many areas during retirement, including health care.

3. Consider if consolidating accounts can make things easier for you and your spouse (and your heirs).

Required minimum distributions (RMDs) at 70½ may be easier to manage and calculate with fewer accounts. If you no longer have a purpose for a particular account, consider closing it and consolidating those funds with another account. Some families I’ve worked with have had as many as 150 accounts. In some cases, they accumulated them because they got toasters and other “free” gifts for opening accounts. They were also chasing a half-point more on an interest rate that is no longer paying that premium. Every account should have a purpose. If it does not, then closing it may be a good idea.

4. Know all of your Social Security options.

Don’t just listen to your neighbors and friends or do the math and say, “Hey, I would have to live another 13 years to break even. If I die early, I have left all of that money on the table.”

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You should always plan for living longer vs. shorter. Why? Because, on average, people are living longer. The exception is if you have a terminal illness, you may take Social Security earlier than planned. Some of my clients in their 90s tell me they wish they would have not taken Social Security at 62 because the prescription costs alone are multiplying as time goes by. Also, you are planning for the remaining spouse to receive as much as possible from Social Security when the first spouse dies.

The decision of when to take Social Security is not the same for every family, so know your options. Also understand that the Social Security Administration is not in the business of advising you on your options. Their role is to implement what you have chosen to do and answer basic questions. Work with someone who can plug in your specific information to a Social Security Analyzer and see what information the software provides based on your specifics. It’s always healthy to gather as much information as you can to make an informed decision.

5. Round up all of your income resources.

Is there a pension? If so, how will that be taken: In a single payout or a joint payout? Will income come from investments, rental income, oil and gas royalties? Social Security, annuities, 401(k)s, IRAs, Roth accounts, non-qualified accounts, tax-free accounts, REITS, bond funds? These are all just examples of where income can come from. As a financial adviser, I see people struggle the most with how to efficiently create income from various resources in a tax-efficient way. And your plan needs to be flexible enough to serve you now, as well as when you’re 70, 80 or 90. Life brings changes, and you have to ladder income now and prepare for long-term care needs.

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Be open-minded to advice and different portfolio allocations and strategies that line up with your risk tolerance as you craft an income plan. I use a software called Riskalyze with my clients. It’s a great tool that measures a person’s risk tolerance. We can analyze how much of your annual retirement income will be sourced from accounts exposed to market volatility. We can create specific portfolios to align with your risk tolerance. I like to measure the probability of running out of money in retirement based on how assets are positioned.

6. Devise a long-term care plan.

Six members of my wife’s family have had Alzheimer’s disease. My mother-in-law had it for 16 years. My sister-in-law has it currently and started her journey with Alzheimer’s at age 55. I have seen it on a very personal level. I have long-term care strategies for my wife and me in multiple forms. My parents have multiple forms of long-term care as well. Know your options. Traditional long-term care costs a premium. Can you afford it? The length of traditional long-term care policies is typically three to five years. What if you keep on living, as my mother-in-law did? The long-term care for my family started in the home and graduated to a nursing home. Layered options could include the use of non-traditional means like annuities with enhanced benefits riders that could be used for in-home, assisted living or nursing home care. Some life insurance policies have additional living benefits to help pay for care. Lack of planning for long-term care could devastate families. At the very least, explore all of your options.

7. Make a survivor assessment.

Analyze the impact to one spouse’s financial situation that would result from death or disability of the other.

8. Get your legal documents in order.

Believe it or not, more than half of Americans die without a will. If you’ve been putting it off, I encourage you to read another piece I did for Kiplinger.com: How Wills and Trusts Work, and Where to Start.

9. Consider using a financial adviser who is registered on the Investment Adviser Public Disclosure website.

The advisers you find at www.adviserinfo.sec.gov are legally required to act and advise with a fiduciary standard, which means they must act with your best interest in mind. To learn more about this standard, check out another column of mine, Why You Need a Fiduciary to Help Plan Your Retirement.

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It’s also a good idea to get a plan from at least two different financial professionals from two different firms. If you have been with a financial professional for a long time, start there, but they may not have the best plan. Get a second opinion. This is your money, and it’s a business decision that will affect you in your retirement years. In addition, you should meet with a financial professional who has both securities and insurance licenses. Why? Because they can use multiple tools.

The financial professional you choose needs to understand and practice the other eight areas mentioned above. If all they focus on is securities, their experience will be limited. The same would apply to someone who only dealt with insurance. You need to blend as many of these areas as possible to obtain the best overall plan for you and your spouse.

I wish you the best in your retirement years. You have earned it; now go and enjoy it!

Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Strategic Estate Planning Services, Inc. are not affiliated companies.

Investing involves risk including the potential loss of principal. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions.

Living benefits are available in the form of accelerated death benefits. These benefits are NOT a replacement for long term care (LTC) insurance. Living benefits and LTC riders are not available on all products and may not be available in all states. Addition of an accelerated death benefit or rider may require an additional fee. Accelerated death benefits and LTC riders are subject to eligibility requirements.

About the Author

Mark Pruitt, Investment Adviser Representative

President and CEO, Strategic Estate Planning Services, Inc.

Mark Pruitt is the president and CEO of Strategic Estate Planning Services, Inc. Based out of Dallas, Texas, he serves on the National Summit Advisory Board and is a speaker for the National Association of Insurance and Financial Advisors (NAIFA). Mark was selected as National Advisor of the Year by Senior Market Advisor in 2012. He is an Investment Adviser Representative and insurance professional.

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