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5 Strategies for a Winning Retirement Plan

ENVISION AND DOCUMENT YOUR IDEAL FUTURE

You’ve worked hard and saved for the future. Now that retirement is right around the corner, spend time thinking about what you want your ideal future to look like. What are your values, priorities, and goals? Perhaps you want to travel the globe or buy a second home. Maybe you would like to fund higher education for your family’s next generation or make sure to leave a legacy for multiple generations. We believe individuals who formalize and document what’s important to them have a significantly higher likelihood of reaching their goals. Research demonstrates that what gets measured gets done.

SET A SPENDING GOAL AND TARGET WITHDRAWAL RATE

It’s important to have an idea of your monthly expenses in retirement. Your living expenses may decrease because your mortgage is soon to be paid off and less money will be spent on work related expenses. Also, once you retire you are no longer paying Social Security and Medicare taxes or saving in your 401(k).

Other expenses may increase in retirement, such as travel or medical expenses. Keep track of your spending for a few months so you have an idea of what you will need to maintain your lifestyle.

Review your sources of retirement income (see Social Security on the right) and determine an appropriate withdrawal rate from your retirement portfolio. In general, withdrawing no more than 4-5% annually is considered to be sustainable if some of your portfolio is invested in equities. This withdrawal rate should also take into account monies needed for income taxes. Also, make sure to take into account your own priorities for your portfolio. For example, if you are willing to leave minimal assets to your heirs, you may be able to afford a higher withdrawal rate. If you plan to pass on significant assets, you should consider a lower target withdrawal rate.

REVIEW YOUR EMPLOYER RETIREMENT BENEFITS

Employer retirement benefits come in many shapes and sizes. From a 401(k) plan or pension to stock options or health insurance continuation, there are many factors to consider when determining how to take advantage of these benefits at retirement. A rollover of your qualified retirement plan to an IRA may help you consolidate and simplify your accounts. Review your pension options to determine if the lump sum or the monthly income stream makes sense. If you hold employer stock in your 401(k) plan, you may be able to take advantage of net unrealized appreciation. If your 401(k) plan has after-tax monies, consider rolling the contribution amount into a Roth IRA to allow the funds to grow tax-free. Your financial advisor and employee benefits office can help answer questions and model various scenarios.

MAXIMIZE YOUR SOCIAL SECURITY BENEFITS

Eligible individuals may start claiming Social Security as early as age 62 (age 60 for widows). Several factors, including life expectancy, other sources of income, retirement age, and spousal benefits impact the decision of when to claim Social Security.

The amount of your Social Security benefit will be based on your earnings history and full retirement age (age 66 in 2016). Your monthly benefit will be reduced or increased based on when you start claiming. If you claim benefits at 62 you will receive only about 75% of your monthly benefit. If you delay benefits until age 70, your benefits will increase by 8% for each year you delay from age 66 to 70.

Spouses who are eligible for benefits may receive the higher of their own benefit or one-half of their claiming spouse’s benefit. These benefits may be reduced based on when each spouse actually starts claiming. In general, if you are in good health and expect to live until your early 80s it makes sense to delay benefits until 70. If you have a shorter life expectancy, claiming benefits earlier may make sense. To properly determine when to claim Social Security, the amount of foregone portfolio withdrawals while delaying benefits should also be reviewed. Consult with your financial advisor to determine a strategy that is best for you.

ENSURE HEALTH CARE COVERAGE

Eligibility for Medicare starts at age 65. Those claiming Social Security prior to or at age 65 will automatically be enrolled in Medicare. If you are delaying Social Security until after age 65, make sure to enroll in Medicare during the seven-month initial enrollment period. The period starts three months prior to turning 65 and ends three months after you turn 65. Unless you are employed and covered by an employer plan, you could face higher premiums if you miss the initial enrollment period.

If you are retiring prior to age 65, make sure you have health care coverage until you (and your spouse) reach Medicare eligibility. Consider COBRA continuation coverage as well as plans available through the Marketplace at www.healthcare.gov.

If you are retiring after age 65, make sure to enroll in Medicare Part B (physician and medical services) as soon as possible after employment ends. You have eight months from when you stop working to apply. If you miss the eight-month window, you will need to wait until the next open enrollment period to apply for coverage. Also keep in mind that the eight-month special enrollment period starts once you stop working, NOT once any retiree health benefits end.

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