RETIREE FAQS

1) What is your vision for retirement? Planning for retirement is not that much different from planning for a vacation. Before taking your trip you must first determine your destination. What do you dream about doing in this new exciting phase of your life? Take the time to find a quiet place and let yourself go with this question. Do not hold back. Make a written list. Next, you want to categorize your goals into needs, wants, and wishes. Needs are the things that you absolutely cannot do without in retirement such as monthly living expenses. Wants are the things that are next in line after all of your needs are met. Last, but certainly not least are your wishes; these are the things you would like to do, see, or have if you had unlimited time, resources, talents, and abilities. You know you are on the right track if your wants and wishes inspire and excite you! Finally, in order to make your goals achievable, you will want to quantify them by determining their cost and putting a deadline on them.

2) When would you like to retire? The answer to this question is important for a couple of reasons. Your retirement age has a huge impact on the amount of savings needed for retirement. The age you choose can determine how much you can expect from a company pension plan as well as social security benefits. The more income you receive from these sources the less you will need from your personal savings. In addition, your retirement age also dictates how long you will spend in retirement and therefore how long your savings will have to last. By establishing a date you or your financial planner is then able to calculate how much you will have to have saved by the time you retire taking into account such factors as your goals, retirement resources, inflation, and life expectancy.

3) Where will you live? If you are like many of my clients you want to move closer to your grandkids when you retire. Every state and locality has a different cost of living and tax structure. Some places are more budget friendly to retirees. You may also plan on downsizing. Many retirees find that they don't want all the upkeep and expenditures of their current homes as they get older. Downsizing can lead to huge savings over the lives of retirees. Where you chose to live can have a significant impact on how much you will need to have saved as well as your quality of life in retirement.

4) What are your income sources in retirement? Any income you receive from pensions, social security, part-time work, or a business can significantly reduce the amount of income needed from savings. As a result it is important to account for this in order to determine your retirement savings need. The Formula is: Total Income Needed - Income from all Sources = Income Needed from Savings and Investments. Some income sources may be limited to a certain number of years during retirement. For example, you may retire at age 59 but won't start receiving income from Social Security until 62. Therefore, you will have to plan for three years worth of income that will not come from Social Security during this initial phase of retirement.

5) What will be your basic annual expenses in retirement? As a rule of thumb, most people need somewhere between 75% and 85% of their pre-retirement income in order to maintain their current standard of living in retirement. By taking your annual household income and multiplying it by these percentages you can get an estimate for your basic living expenses. Once you are within five years of retirement you should move from the rule of thumb method to the budget line item method. This method takes a normal annual budget statement and creates an additional "In Retirement" column. You then take your current expense items on each line and estimate what they will be in retirement. For example, your current $1,600 mortgage payment may be reduced to a $250 monthly property tax and insurance provision when the mortgage is paid off.

6) Is your spending under control? If you are having trouble saving for retirement or are finding yourself with a monthly balance on your credit cards you may have bigger fish to fry before considering retirement. Nobody should go into retirement if they are living paycheck to paycheck or are weighed down with huge amounts of debt. It is like trying to swim upstream with weights strapped to your ankles. As you get older this becomes harder to do! If you find yourself in this boat I would recommend seeking the services of a financial professional to get your spending under control and your debt eliminated. Once you are out of these treacherous waters, then you can begin sailing into the sunset of a secure retirement.

7) Have you taken health care into consideration? Health care is likely to be your biggest expenditure in retirement. Will you have an employer-sponsored health care plan available and if so what will it cost? If not, what will it cost to get your own plan? What does your current health look like? It is important to note that all we are talking about at this point is health insurance premiums. You will also need to budget for out of pocket expenses such as deductibles, co-pays, and items not covered by insurance. Don't forget long-term care as well. The average annual cost for a nursing home is over $60,000 and with an average stay of over two years this can put a big dent in any retirement nest egg. It is important to assess the impact long-term care will have on your nest egg to determine whether long-term care insurance is needed. If it is, you will need to budget the premiums into your retirement plan. Health care and long-term care analysis and planning are critical to a healthy and secure retirement.

8) Can you expect to be financially secure if you and/or your spouse live to age 90 or 100? The good news is with medical advances people are living longer, the bad news is that people are finding that their retirement savings needs to last for much longer than they originally intended. One of the big enemies of longer life expectancies is a little thing called inflation and it does not stop when you retire. Like the Energizer bunny it just keeps going and going. With longer life expectancies, retirees find that it may take twice as much to meet their normal everyday expenses twenty years into retirement than it did when they first retired. Health care inflation has run twice the rate of normal inflation at around six percent per year. With health care being a huge part of retiree expenditures and a significant percentage of these costs occurring towards the later years of retirement, inflation truly cannot be ignored.

9) Are you saving and investing smarter for retirement? If your employer is offering a match are you taking full advantage of the free money? Are you maximizing the use of tax efficient investing through your employer sponsored retirement plans and personal retirement accounts such as Roth IRAs? Better yet is your money actively managed in a manner that is personally suited to your personal goals while minimizing risk? Are you saving enough to accomplish your goals in retirement? Have you had a probability analysis done to ensure you are doing all of the above correctly? The biggest mistake I see people make is that they assume an average rate of return on their investments to determine the amount of money they need to save for retirement. This is a huge mistake for reasons too in-depth to cover here. Let's just say that the lessons of the past year prove that the market does not go up in a straight line and that bad timing scenarios as well as some more critical stress test calculations need to be performed on an individual's retirement portfolio to reduce the probability of running out of funds before running out of time. It also helps find the optimal portfolio mix with the highest probability of success.

10) Have you had a comprehensive retirement plan done by a professional? Some people find all of the above a little overwhelming and need unbiased expert advice in creating their retirement plan. Where do you turn? Independent fee-only certified financial planner practitioners specializing in retirement are your best option. They can create a personalized road map specific to your needs and guide you towards fulfilling your vision of retirement without the conflicts of interest that have plagued Wall Street.