Retirement Distribution Strategies
Chuck Maher--Monument Colorado's Retirement Distributions Strategist
To Make Your Money Last in Retirement – You Need a Strategy for Distribution
You put your retirement income plan into place years ago, you invested your money, and now you are ready to retire. You have money in various investment funds, IRAs, 401(k), pension plans, etc. You've accumulated a nice little nest egg, and social security. But how do you make sure that money lasts as long as you do? Having worked extensively in retirement strategies, I help you put all the pieces of the puzzle together. To strive to ensure you don't outlive, you need a withdrawal strategy as well as a strategy to continue to grow your money.
Retirement Withdrawal Strategies
When it comes to retirement withdrawal strategies there are a number of things to be considered. First, of course, is how much you need to live each year. While you might think this is an easy answer, you'll need to account for inflation, expenses like the rising cost of healthcare, long-term care and insurance.
Next, you'll need to consider tax consequences. Different types of investments have different distribution rules and tax implications. For instance, let's say you have a traditional IRA with a required minimum distribution (a dollar amount that you must withdraw each year) at age 72. If you don't take the full required minimum distribution, you'll be assessed taxes and penalties.
In addition, long-term capital gains need to be added into the equation. When taking distributions from taxable accounts you'll typically pay capital gains tax on any appreciation.
Then there are taxes in general. Depending upon your income, social security benefits can be taxed. Some of your retirement money will be taxable. This all needs to be accounted for as you develop your retirement withdrawal strategy. A well-planned strategy will help you to both maximize your income and limit the taxes you pay.
Social Security Planning
If you are eligible for social security, you might be like many clients, and want to start collecting at age 62. Depending upon your circumstances that may or may not be a good idea. If you're healthy and plan to live a good long life, waiting to age 70 could put more money in your pocket. On the other hand, if you are not healthy or you are living on a limited income, taking social security at age 62 could benefit you. Social security is a complex subject. When we work together on your retirement distribution plan, I'll explain your options as well as help you determine the best time to take your social security benefit.
Health Care in Retirement
Many retirees don't think about the cost of health care when planning their retirement, but the dollar amount is significant and needs to be considered. It has been estimated, that for a couple, age 65, retiring today, the health care costs could be as much as $350,000 for the remainder of their life. For those who qualify, Medicare Part A is free, however, you pay premiums for Medicare Part B, Medicare Part D and any other supplemental insurance. Add in to that out-of-pocket-costs and Medicare only covers about 50-60% of your health care costs.
Long-term Care
According to the US Department of Health and Human Services, 52% of Americans turning 65 today will require long-term care for at least 2 years of their life, and one in seven will require long-term care for 5 or more years*. Regardless of whether you receive care at home, a nursing home, or assisted living facility, you will likely be faced with long-term care costs. Planning for long-term care today, will help ease the burden on you and your family later.
Traditionally, your only choice was to buy long-term care insurance. But long-term care insurance, depending upon at what age you buy it, can be very expensive. And many people don't want to buy into an insurance policy they are not sure they will ever need. Today you can get long-term care insurance through life insurance policies that are either combination Life/Long-Term Care benefits; or, life insurance policies that offer Accelerated Death Benefits. There are many different life insurance products with different types of Accelerated Death Benefits but ultimately, the idea is that the life insurance policy will allow you to receive a cash advance for long-term care.
Investing During Retirement
In addition to determining all your possible expenses and creating a plan for your withdrawals, you'll also want a strategy for growing your investments during retirement to offset the loss of purchasing power through inflation. When you were young you could afford to take risks with your investments. Depending upon when you started saving you didn't, necessarily, worry about bear (down) markets. Now that you are in retirement your money must continue to grow. As part of your overall retirement plan, we'll look at where your money is now and determine the best strategy for its' continued growth.
Schedule a Retirement Distribution Strategy Session
It is never too early to schedule a retirement distribution strategy session. Email, or call me today (719) 235-5028 or in Denver (303) 748-6352.