7 Questions You Must Answer Before Retirement
Almost 10,000 Americans turn 65 years of age each day. Most are poorly prepared for what lies ahead. We have isolated seven questions that everyone must answer BEFORE they retire. These questions are:
- When Will You Retire?
- Where Will You Retire?
- When Will You Take Social Security?
- What Will Your Health Insurance Coverage Be?
- How Much Risk Do You Need?
- What Will You Do?
- How Will You Handle “The Unknowables”?
When you retire holds the place of priority among the list for obvious reasons. Once you stop working, you start withdrawing and depleting your accumulated pool of financial resources. One fun fact: the average retirement age in the U.S. has changed very little over the past half century. Age 63 has remained the average retirement age largely because the early date for Social Security kicks in at age 62. What has changed is life expectancy. We have written extensively on this topic recently. For many individuals, planning to live past age 90 is realistic.
It is not uncommon for retired couples to relocate after a few years in retirement in order to be closer to family. Living costs in South Carolina are quite different than they might be in other parts of the country. Perhaps you plan to downsize but stay in the area. If so, don’t expect to reap a real estate windfall in that process. Our experience tells us that this generally amounts to an exchange of value from an older, larger property into a smaller, equally as expensive home.
As we mentioned earlier, many individuals start collecting Social Security at or around age 62. For most, this will end up being a financial mistake. Delaying your start date for Social Security increases your monthly benefit by over 8% each year that you wait from age 62 to 70! There are of course many factors that weigh on the decision, but if you can delay, in most cases you should.
Healthcare expenses of all kinds can be a heavy burden in retirement. Yes, many of these expenses will be covered by Medicare or Supplemental Insurance, including continuing coverage from your employer. All said, however, a significant portion of healthcare costs will not be covered by any type of insurance. Research points to more than $200,000 in uncovered medical expenses between age 65 and death for the average retired couple.
How Much Risk?
Investing means taking a risk; Not investing also means taking a risk. Cost of living increases, (inflation), are the silent enemy in retirement. An individual turning age 65 this year has experienced an average inflation rate of 3.5% per year during their life. Almost everything that you buy costs more each and every year. If your resources don’t keep pace, your lifestyle has to decline.
What Will You Do?
Retirement can be a time for reinvention and regeneration. Many of our retired clients find great meaning by doing volunteer work, mission work or just engaging more directly with their children and grandchildren. Some even opt to continue working part time. Whatever the case, having sufficient activities to fill your time is crucial to a satisfying retirement.
Retirement is full of surprises, and many of these can’t be anticipated or known in advance. There will be financial surprises, of course, but also psychological and physical surprises. These surprises, or unknowns, will likely take both positive and negative forms.
Planning for retirement is indeed multi-faceted and complicated but can reap handsome and long-lasting returns. The best time to start is five or more years prior to retirement. The second best time is...today.
Is the DoL really DoA?
The “Wait and See” approach might work, provided it’s for the right reasons.
“Now that the ‘DoL Rule is DoA’ we’re waiting to see if our firm will walk back the restrictions and rules they enacted as a result of the ruling.”
The truth is that the DoL Rule isn’t dead yet, as a higher court could still appeal the 5th Circuit Court of Appeals’ decision to stay the ruling. Although the Rule as we know it is likely to cease to exist at some point in the future, we fully expect that a new standard will emerge, possibly from the SEC, to hold all to a common Fiduciary doctrine.
So what will become of the restrictions and added bureaucracy that firms enacted as a result of the promulgated Rule? Will firms – especially those like Merrill Lynch that took a particularly aggressive stance in their interpretation – wave a magic wand to reverse their decisions and make the added restrictions disappear? Likely not. Until a final decision is made on the Rule’s status, no firm is going to dismantle what’s been put in place. From a PR perspective, it’s hard to retreat from the pro-client posturing they established in the process—not to mention the time, money and effort involved. Could they pull back in the future? Of course it’s certainly possible, but not in the near-term.
Regardless, if you believe that your firm will relax or do away with any or all of the DoL-related restrictions – and that doing so would result in you being truly satisfied with the new status quo – then you should, of course, wait and see.
If, however, there are other things about your firm that are preventing you from acting in what you believe to be the best interests of your clients – especially at a time when there are so many other opportunities that can allow you to do so – then sitting tight may not be the best plan.