2021 Guide to Retirement Planning

For many people headed towards retirement, the biggest question seems simple. Can you afford it? The problem is that finding an answer is complicated, and it’s very specific to each individual situation. It is important to build a plan that allows you to live the life you want with the money you have.

There are many pieces to fit together including:

How can you tell if your 401(k), IRA, investment balances will be enough?
What happens if there is another financial crisis like in 2008?
When should you take Social Security?
How much more should I save to be able to retire comfortably?
When is the right retirement age for me?
What if I have a pension or stock options/grants?
What kind of portfolio is right for me in retirement?

We’ve put together a short read on the most significant pieces of retirement planning and how we go about helping people live the life they’ve earned and saved for – with gaining peace of mind.

Seek Professional Expertise and World Class Technology

Your retirement is far too important to not seek professional guidance. It is important to seek out a CFP® who has the training, education and experience who can act as a fiduciary for you as you consider your most important financial planning matters and related decisions. It is also important to seek out a firm that has invested in world-class financial planning technology, which can aid you tremendously in reaching your goals. At Chancellor Wealth, we utilize MoneyGuidePro as our main financial planning software, which offers robust planning capabilities and integrations. This technology serves as a real-time dashboard, bringing all your financial goals, accounts and timelines into focus. We collaborate with our clients, whether in person or virtual, to determine their goals and expectations and then illustrate the plan to help them achieve and monitor those goals.

Setting a Retirement Budget and Timeline

One of the first steps in creating a successful retirement plan is to set a future retirement budget and timeline. A good starting place might be to use 75-80% of your current income, since you typically don’t have to save any longer in retirement and you likely will have a lower tax burden. Also, some expenses may be lowered in retirement, such as having a house paid off or fewer obligations. MoneyGuidePro integrates with over 18,000 financial institutions and can provide aggregated account balances and income/expense analysis to aid in determining a reasonable retirement budget. We also have a discussion of lifespan, based on actuarial tables, family history and health expectations. Once we have taken inventory of all your financial resources, we determine a target date of retirement based on the probability of success of having income to sustain you throughout your lifetime. There may be other financial goals to consider, like travel spending, buying a future home, special purchase or helping to pay for family educational expense.

Projecting Income in Retirement

Once you know your income needs and timeline for retirement, we take inventory of your future income sources along with your projected investment balances. The software illustrates retirement with 1,000 different scenarios, each based upon historical returns based on your portfolio structure. You can see the results of the “trials” and determine what the overall probability of success you have based on your current plans and assumptions. This is so helpful, because we can then illustrate the impact of various changes and recommendations to improve your outcome. For example, we can easily evaluate different alternatives such as retiring at a different age or saving more, and how that might impact your overall success.

Maximizing Social Security

A common question we get is “when should I take my social security?” As part of the planning illustrations, we provide an easy-to-understand analysis of all your options for when to take social security for you and/or your spouse. Each option is assigned its own probability of success so that you can evaluate which strategy is right for you. Research indicates that the most common strategy in the U.S. for taking social security is to start taking it as early as possible at age 62. However, the software indicates that usually provides the lowest probability of success, especially with a longer lifespan. By being fully informed of your options, you can make better decisions to improve your quality of life.

Addressing Risk & Reward

Another common question we get is “what type of portfolio is right for me in retirement?”. We help address this concern by looking at your expectations, needs and sources for retirement income. We can run projections on various portfolio strategies, ranging from most conservative to most aggressive to show you the range of possibilities. We also consider what other income sources you have access to, including social security, any pensions, annuities, or deferred compensation. Once we mutually determine what portfolio strategy is right for you, we can assist you in making sure that that strategy is properly implemented. As a Registered Investment Advisor, we help our clients manage their investments on an ongoing basis as well as structuring regular withdrawals to support their income needs. Aside from evaluating investment risk, we also help you identify other important risks that you may have and help you plan to address them as needed.

Managing the Impact of Taxes

One important and often overlooked aspect of retirement planning is to manage the impact of taxes. Thankfully, there are various strategies that we utilize to mitigate taxes before and during retirement. In pre-retirement, we often recommend the use of tax-deferred account vehicles such as IRA’s and 401(k) accounts to aid in the accumulation and growth of retirement assets as well as evaluating tax efficient investment options for taxable accounts. We also consider the timing and sourcing for accessing retirement income from your various accounts including paying attention to potential capital gains. Ideally, you want to remain in the lowest tax bracket possible year by year to preserve your resources as much as possible. Social Security also its own tax considerations, and we help you to evaluate this as well.

Don’t Forget about Healthcare Expenses

One important aspect of retirement is to consider future healthcare expenses. Under current law, Medicare becomes available at the age of 65. We walk you through the various parts of Medicare and help identify what selections you may want to consider along with the related costs. If you plan to retire from your employer prior to 65, we will need to discuss your healthcare options for those years. Healthcare can be very complicated, and we also help you to project how rising costs may impact your overall financial plan.

The Bottom Line

The retirement you want can be affordable, but it is important to start planning as soon as possible. We are happy to assist you in your financial planning needs, whether in person or virtually. We invite you to reach out to us to start the discussion and we look forward to speaking with you soon.