Plan to make retirement a reality
There is little doubt that 2017 will hold surprises. We have a new president. How will the markets respond? How will health care policies change? What will happen with the current tax code?
Considering everything that is up in the air, it is more important than ever to partner with a financial professional who can help make your retirement dreams a reality. Here are five planning goals which every pre-retiree should have on their radar.
First, build a bill payment plan. For many people, losing a bi-weekly paycheck and moving into the world of fixed income can be daunting. Take time in 2017 to develop a debt payment plan which will allow you to be debt-free as you enter retirement. A great way to do this is by asking yourself a two simple questions: How many months until I would like to be debt free? How much outstanding debt am I currently holding?
If you are 55 and would like to be debt free at age 60, you have 60 months to make it happen. If you are currently holding $50,000 in debt, you now know that you need to make $833 monthly payments in order to achieve your goal of being debt free at age 60.
Second, plan for Medicare and health insurance coverage. Medicare and the state of healthcare in general, remains a hot topic. Keep sight of the big picture, and don’t make any healthcare decisions based solely on rhetoric out of Washington.
Yes, the U.S. healthcare system will likely see some changes during Donald Trump’s presidency. These changes may even impact how you and your family receive health care coverage once retired. What will remain unchanged, however, are the types of coverage that best suits you and your family. Take some time to understand: Where you are getting health coverage from today? Where you expect to get health coverage from during retirement? What types of care will likely be needed, but are not covered under this plan?
Third, develop a strategy for taking Social Security. There are more than 1,300 possible ways to “take” social security. Deferring payments until your full retirement age is just one of them. When making this decision, consider when you will need the money, what kind of income you expect during retirement and even how long you expect to live. Longevity is nearly impossible to predict, but even the question of your income during retirement can be a challenge.
The good news is that there are financial platforms which take into account every variable impacting your Social Security decision. Boil them down, and provide the most optimal plan for you and your family.
Fourth, determine if you will take a partial lump sum, full lump sum, or annuitize your pension. Here’s the reality: your employer probably hopes you take the lump sum, as the lump sum option is typically offered at a lower net present value than the guaranteed monthly payment stream.
Sound complicated? That’s because it is. Consider bringing in a financial advisor who can compare each of these three strategies side-by-side and provide a recommendation on the best course of action. The difference in these three strategies can be massive. Don’t under-estimate the importance of this decision in 2017.
Last of all, strategize on the movement of any 401k accounts. Conventional wisdom says to first draw down taxable accounts, then tax-deferred accounts, followed by tax-free accounts as you begin retirement. The idea here is to allow your tax-free accounts to accumulate wealth as long as possible.
New research has shown this is not always optimal, and many retirees and planners are beginning to rethink this approach. Partner with an advisor who can help crunch the numbers and determine the best course of action.
The bottom line is that Americans are living longer, and the cost of living continues to rise. It’s likely that retirement is going to be much more expensive than many pre-retirees are expecting. Partnering with a financial professional who understands the process can be an invaluable asset as you bring your retirement dreams to life.
Humphrey G. Thomas is an accredited asset management specialist and certified divorce financial analyst at HG Thomas Wealth Management, LLC in Brownsville. Contact him at Humphrey@hgthomas.com or visit hgthomas.com Estate planning is done in conjunction with your estate planning attorney, tax attorney or CPA. This article originally appeared in the February 2017 print edition of Valley Business Report.