Planning for retirement

There isn’t a universal set of pre-retirement tasks, but planning for retirement is extremely important. Jonathan Kahler and Kahlilah Dowe discuss the importance of defining goals, identifying expenses, evaluating resources, and when to start collecting Social Security benefits.


Gary Gamma: Yeah. So we talked about a few things people should do, and I think this next question starts to dig into that a little bit more. Rosemary from Louisiana says, “Please give us a checklist of the major financial tasks to be completed before retirement.” Do we have sort of a template there or a checklist somebody could use?

Jonathan Kahler: Yeah, I don’t know if there’s a universal list, but it’s definitely important to start that planning as early as you can and while you’re still working ideally. I think it’s, as we talked about earlier, it’s really have well-defined goals for retirement. Those may change over the course of your retirement, but really have a sense of what are the kind of predictable, known expenses that I’m going to have to cover on a monthly basis? What are the maybe more aspirational expenses? If you want to travel, spoil the grandkids, however you envision that phase of your life to be. And then kind of understand or have a realistic framework of what those unexpected expenses might cost, to be able to plan for that.

From there, it’s really a matter of taking a look at what your resources are that you’re bringing into retirement. So kind of understanding how the savings you’ve accumulated, how appropriate that is to meet that liability and if you need to maybe work longer or do some catchup contributions later in your working career. And then understanding what other benefits you have that will be bringing into retirement – so Social Security and Medicare, understanding what those assets will provide and how that fits into the broader plan.

Gary Gamma: So you mentioned Social Security. That was the next question, so good segue here. Maria in Massachusetts asks when is the best time to collect Social Security? So, obviously, a lot of things to talk about there. Where would you start?

Jonathan Kahler: Yeah, and that really is going to be one of the most important decisions for a lot of investors. It can have quite an impact.

So the way Social Security is structured, it’s going to be based on your earnings history. But then the biggest variable in terms of how much you’re going to be receiving beyond that is the timing of when you start to claim that Social Security benefit. So the full retirement age is going to be between 66 and 67, depending on your birth year; and then you can take Social Security as early as 62 or as late as age 70. So depending on whether you’re taking it before or after that full retirement age, you’re either going to have a reduced benefit or you can earn what’s called Delayed Retirement Credits. And those can be pretty valuable. If you’re delaying between full retirement age and age 70, those credits are worth an increased benefit of 8% a year. So that can really boost the amount of guaranteed income that you’re receiving in retirement.

When we think about some of the risks that we talked about earlier, a lot of those unknowns are around longevity risk, inflation risk, and market risk. And Social Security and the way it’s structured, because it is an inflation-adjusted benefit and it is something that you can’t outlive, maximizing that can really help to hedge some of those more uncertain risks that you have to deal with.

So to the extent that you can delay, either by working longer or if you have assets that you are able to spend down early in retirement, so that you can hold off until a little bit later or age 70, that can really make a big difference in someone’s retirement planning.

Kahlilah Dowe: Yeah, and that, of course, is one of the things that we help our clients with planning because it really depends on your personal financial picture. There are some clients where I’ll say, you know, definitely consider taking it early, especially in instances where there are longevity concerns. And if you’re married, that’s the other thing. So there’s been some recent changes in Social Security laws. But there are still some great strategies that investors can use to maximize Social Security benefits if you’re married.

So for clients who are older, let’s say you have one spouse that’s a lot older than another, there are times where I’ll recommend delaying the Social Security benefit so that the younger spouse could ultimately get a higher benefit.

So it really does depend on your specific financial picture. I almost always recommend consulting an advisor when you have to make this decision and just going back to the question about the checklist as well. I think when you’re coming up on retirement, I mean you have all of these decisions to make, starting with do I have enough? Where do I need to spend from? Which accounts? Do I do Roth conversions? Do I take Social Security? That is a great time to consult a financial advisor, just in general, to get your good plan started.

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