Retirement planning can be complex. Sure, it may be fun to imagine all the things you want to finally do when you’re no longer commuting, working and sitting in meetings, but how you plan to afford your lifestyle in retirement can be a little more complicated.
In fact, many people wonder, where do I even start? Retirement planning looks different for different situations and in different areas. Retirement planning in Annapolis, MD, for example, is different than in other areas. And there are a number of unique situations that offer different benefits and restrictions, such as marriage or divorce.
Because of this, step 1 should be discussing your retirement plans, goals and concerns with a financial advisor you trust. Step 2 should be considering the questions we broke down into 6 categories below.
Cash Flow Issues
Cash flow is obviously an important consideration when it comes to retirement – where will the money come from that you need to live the lifestyle you want to in retirement? Here are some specific questions to consider:
Will your cash-flow needs change? If so, discuss developing a new income and expense plan with your financial advisor.
Will you receive a pension? If so, consider your payout options. Sometimes there are multiple options, single or joint. There may also be coordination strategies that are more optimal for our situation between pension, Social Security or life insurance. Make sure to reflect on all of your previous employers – could there be a pension or retirement benefits from a previous employer you may have forgotten about?
Are you retiring early? If so, understand how this decision effects your Social Security benefits. Remember, Social Security benefits will be reduced if you collect prior to your full retirement age, and increased if you wait to receive them until age 70. You may also be able to access your 401(k) penalty-free if you leave your employer after turning 55.
Will you or your spouse receive a government pension for which you did not pay FICA taxes? This may impact the Social Security Windfall Elimination Provision or the Government Pension Offset.
Are you currently married? If so, you may have additional Social Security claiming strategies to consider. Discuss your specific options with a financial advisor to help ensure you make the best decision for your situation.
Are you divorced? If the marriage lasted at least 10 years before ending in divorce, you may be eligible for benefits under your ex-spouse’s record. Check the requirements here.
Health Insurance Issues
The cost of healthcare is also an important consideration when planning for retirement, especially as the cost of insurance continues to increase.
Here are some questions to ask:
Are you eligible for Medicare yet? Medicare eligibility begins at age 65.
Will you have to change your employer-sponsored health insurance upon turning 65 or upon retiring from your employer? Sometimes this is necessary and can catch retirees off-guard.
Will you need additional insurance such as vision or dental coverage?
Are you contributing to an HSA? If so, talk with your financial advisor about HSA and Medicare coordination issues.
Are you disabled? If so, you may be eligible for certain benefits or have the ability to access benefits early.
Have your needs for life insurance changed? This includes things like long-term care and assisted living communities.
Asset and Debt Issues
When it comes to your assets and debt, there are specific things you’ll want to discuss with your financial advisor, including:
- Do you have stock options, grants or Restricted Stock Units (RSUs)? These may impact your tax liability and cash-flow planning.
- Will your investment objectives or risk tolerance change?
- If you are a business owner, do you need an exit strategy or a succession plan?
- If you have annuities or illiquid assets, do they need to be reviewed to understand options?
- Do you have any loans on employer retirement plans that may need to be paid back or rolled into another plan?
- Will you be changing your residence? Depending on where you go, a new location may impact your tax liability, cash-flow planning and Medicare plans (assuming you move out of the network).
Tax Planning Issues
Taxes are a consideration that many retirees overlook. However, they can have a big effect on retirement income.
For example, if you expect to have large Required Minimum Distributions (RMDs), there may be strategies to reduce the RMD amount, such as Roth conversions.
Also, upon retirement, do you expect your income to be lower? Once again, a Roth IRA conversion in low income tax years may be something you’d want to consider.
Long-Term Planning Issues
Estate planning is another aspect of retirement that is often overlooked. For a lot of people, discussing their death and plans for their assets is uncomfortable, but if avoided, your plans for your loved ones after you’re gone may not go as you had hoped.
Do you expect your estate to exceed $22.8 million? If so, there may be federal estate tax liabilities.
Are you charitably inclined? If so, there are charitable giving strategies that can reduce your tax burden.
Is your estate plan old or possibly outdated? It’s actually very common to forget to review your estate plan, and when this happens, account beneficiaries can be outdated. This includes retirement plans, life insurance and TOD accounts.
Other Issues
Before deciding to retire, check to see if you have any unused vacation days that you could use prior to retiring or if there are cash-out options you can take advantage of.
You should also check into any state-specific issues that will affect your retirement. For example, retirement planning in Annapolis, MD is different than in other areas when it comes to things like estate tax liability and other unique taxation rules.
If you’re not currently working with a financial advisor, contact Scarborough Capital Management to see how we can help.
Download your complimentary copy of the 2020-What Issues Should I Consider Before I Retire? Checklist
Securities through Independent Financial Group, LLC (IFG), a registered broker-dealer. Member FINRA/SIPC. Advisory services offered through Scarborough Capital Management, a registered investment advisor. IFG and Scarborough Capital Management are unaffiliated entities.
