Retirement is often an elusive topic for many people because it requires the integration of so many unfamiliar choices. As financial planners we’ve helped clients negotiate everything from aspirational goals to the mundane options of daily living and these are four elements everyone needs to get right:
- When to take Social Security. Social security represents roughly one quarter of the average retiree’s income and is often the only source of guaranteed annual income. When to claim social security benefits is an individual decision and depends on retirement goals as well as cash flow needs. We recommend deferring social security beyond the earliest claiming age of 62 to at least your full retirement age (FRA) and if possible, beyond that. Why? Quite simply because of the increase in benefits you will receive. For example, a retiree with an FRA of 66 will receive a permanent increase of 7% in their payment each year they defer until age 70. In addition, there are also considerations for working credits, spousal benefits and taxation that need to be considered.
- Navigating Medicare. There are four current segments of Medicare. Part A provides inpatient/hospital coverage, Part B provides outpatient/medical coverage, Part C is known as Medicare Advantage and provides enhanced benefits and finally Part D covers drugs. Given its complexity it is better to not wait until the last minute. Enrollment begins as early as three months before your 65th birthday and last until three months past your birthday. Enrolling during your IEP (initial enrollment period) allows you to avoid late enrollment penalties which can be costly. Parts A and B renew on their own annually. Part C or Medicare Advantage Plans are offered by private companies approved by Medicare and should be reviewed annually to make sure the benefits suite your needs or changing conditions.
- My stocks. We get it, this often the prized element of your retirement savings. Everybody wants to know what the market did and there are entire cable networks dedicated to parsing the daily fluctuations of the market. But should you only be concerned with the stocks? What if the market collapses just as you’re looking to take money for expenses? Modern Portfolio Theory states that diversification beyond just stocks can potentially improve returns overall without taking a higher degree of risk. That is, combining stocks, bonds and even alternate investments that have a low to negative correlation to one another can create a more efficient portfolio. Having a basic understanding of the different components of your portfolio and what purpose they serve can help you overcome those panic moments when the economy is sliding and those talking heads from cable news are pushing the fear button.
- Having a FinancialAs J.R.R. Tolkien once inscribed “It does not do to leave a live dragon out of your calculations, if you live near one.” A plan, while not a crystal ball, is still a starting point and a guide for what is sure to be a dramatic change in life. Planning combined with regular reviews can help eliminate stress as well as uncover aspirations of what retirement life might look like. It may help with tax strategies, gifting to children/grandchildren and uncover concerns around estate planning. Unfortunately, it seems that every financial type of firm is touting planning nowadays so unless reviewed regularly and updated it is just another sales prop.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. All investing involves risk including the possible loss of principal. No strategy assures success or protects against loss. John Nielsen is not affiliated with G&G Wealth.
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