Did You Plan Your Retirement as Well as Your Vacation?

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By Mark Pruitt, Investment Adviser Representative

published 5 September 2017

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.”

He’s right.

Mark Pruitt, president and CEO of Strategic Estate Planning Services Inc., shares ways to help make your hard-earned dollars stretch as long as possible.

Based out of Dallas, Pruitt 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.

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. AW08173908

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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.

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

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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.

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.

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3. Consider if consolidating accounts can make things easier.

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.

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4. Know all of your Social Security options.

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.

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.

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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, Social Security, annuities, 401(k)s, IRAs, Roth 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.

Be open-minded to different portfolio allocations and strategies that line up with your risk tolerance as you craft an income plan. I use a software called Riskalyze. 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.

Investing involves risk including the potential loss of principal.

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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 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. 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? 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. Explore all of your options.

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.