What is Important? Pre-and Post-Retirement Questions
by Tom Damron
You begin your planning trying to touch all the bases before you retire.
Alternatively, you have recently retired and are trying to catch up on your planning. You take a pause and a question pops in your mind— ‘What is it that I’ve missed and what have I not been told?’
You are very wary, somewhat depressed, anxious and you think, like I think, that those who say the retirement years are the Golden years are actually colorblind and do not realize that it is rust, not Gold.
To have your retirement years become true Gold, you must first scratch away the rust and fully understand what may be coming toward you.
While your retirement years can fit the definition of Golden, that only applies to those of you who diligently plan for them. Do not allow yourself to be caught offside in retirement because you will find that the penalties can be harsh.
Here are five things you should know about before you leave the working world for good.
1) There are studies that illustrate that you are not as healthy as the generations starting with the early 1950’s. Our sedate lifestyle is the culprit. Our work years were not as demanding as those that prior retirees endured.
2. Minimum Distributions from retirement plans might extremely raise your cost of living through taxation of those previously tax-free accumulations. You will find this is especially true if your spouse is over age 70 and has their own retirement benefits.
While those distributions normally begin comparatively small, they will increase every year. Keep in mind, payments from retirement plans are deemed to be taxable income. You will owe income tax on all payments you receive. The elevation of your taxable income by your retirement income will expose your Social Security benefits to that taxation. The next punch comes when you discover that your Medicare Part B premiums will also jump along with your other income. So, be cautious because when your income elevates high enough, your Part B premiums can run as much as $428.60 monthly for each of you.
Therefore, plan for the fact that you will face incredible costs just because you finally began to access your own retirement savings. To make things even worse, those Medicare Health premiums can eat into any increase in your monthly Social Security benefit payments. In fact, in some cases it can take the entire raise you receive.
2. Plan for the Bear markets. Your retirement benefits will probably be invested in market equities. Once you have retired and have less income, even if you have a part-time job, it gets significantly more difficult to wade through a bad market after you retire.
While you are working, your annual income will cover your costs of living. That alone makes it less critical as you trudge through the nail-biting difficulties that the Bear presents. However, Bear markets become an opportunity to add to your personal savings while the equities are at a low point.
Nevertheless, the landscape changes after you have retired. You are now depleting your saving as you receive payments from your accounts. If you face a down market, the meaning is far different. Your retirement benefits Payer (s) will need to sell stocks to continue to provide your monthly income. It has no choice but to liquidate during the low points and as previously discussed, your retirement assets will decrease, and because of the mandated distribution formula, that will affect the amount of your monthly income. That is the reason why you need a reserve savings portfolio that you can tap to make up the shortfall in retirement benefits.
3. Because of market fluctuations—Bull vs. Bear. You could actually end your retirement years with a larger portfolio than you had when you started it. That is called the ideal plan!
However, what is wrong with ending your retirement years having more assets than when you started? Just think for a second—you have heard the old saying that goes—‘You cannot take it with you.’ If those assets are still in your retirement accounts at the end, that meant that you did not spend as much as you could have during your retirement years. Back when you were younger and could have enjoyed more travel and other retirement activities. But, who knew?
4. Realistically Plan for your expenses to go down in retirement. Studies have shown that most Americans' annual spending tends to decrease when the family unit is led by someone who is an age older than 55.
Most of that decrease is the result of children being adults and heading their own household, and mortgages being paid or refinanced for lower payments. The side benefits from being older oftentimes include advantageous tax benefits such as now being freed from Social Security and Medicare payroll taxes, receiving larger standard income tax deductions, higher medical-expense deductions, and in many States, much lower property taxation.
Another factor in the reduction is that as we age, we commonly slow down and do less buying and spending. In other words, we tend to remain stationary more and hence we will spend less. Remember; plan to spend more while you can relish what you spend for the maximum pleasure you want.
5. You still have the benefit of a full range of what life offers. Do not let depression get to you. Adjust your thinking and plan for the day you lose the daily workplace socialization. Additionally, you will not have your usual dose of physical and mental endeavors. There will be a thinning of friends and family members through death or relocations. Accept life as it exists.
To remain happy and active, plan the activities that you will use to fill your time. Do volunteer work at your church, care for ailing friends and family. Take up golf with a friend. You may even want to consider a part-time stress-less job, say, as a golf course Ranger just to stay active and stimulated.
You are the author of your plan, so make it a good one! Happy Retirement Days!