September 5, 2023 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for September 5, 2023

This Week’s Podcast – Integrated Wealth Management Experience in Retirement

Learn more about the elements of an integrated wealth management experience: a retirement financial plan, specific-to-the-client investment process, and tax planning. You will also learn how we’re involved in every step of the wealth management process, in-house or with a partner.

 

This Week’s Blog – Integrated Wealth Management

Integrated wealth management experiences are our way to help clients have the type of retirement planning assistance that is provided in a “family office.” If you don’t know what this term means or who it applies to, we’re going to cover that in great detail before explaining the concept of integrated wealth management to you.

Integrated Wealth Management Experience

Integrated wealth management experiences are our way to help clients have the type of retirement planning assistance that is provided in a “family office.” If you don’t know what this term means or who it applies to, we’re going to cover that in great detail before explaining the concept of integrated wealth management to you.

Note: Click here to listen to the podcast that this article was based on using Spotify, Apple Podcasts, Google Podcasts and Amazon Music. 

What is a “Family Office?”

A “family office” caters to what can be considered ultra-high net worth. You have enough assets that you require an entire team to help manage your assets. These offices will help you with:

  • Family businesses
  • Taking care of budgets
  • Paying bills
  • Managing cash flow, credit cards, real estate

Individuals in a family office have assets of $50+ million. Anyone who falls into this category can be their “own client,” meaning that the entire team works for you to manage your wealth. Extensive assistance is offered, including tax and estate planning, to the degree that 99% of people will never require. You’ll also work with attorneys and CPAs.

All these employees work for you, they’re registered with the SEC, and they assist with managing your “family.” If a person has this high of a net worth, they may need to have a chief financial officer (CFO) who will handle hiring or working with certain experts to meet their family’s needs.

Often, with a family office, they have a CPA working with them full-time.

The family office works solely for the family and will handle all their financial and wealth management needs. If a lawyer needs to be hired to work on estate plans, that’s all handled for you behind the scenes.

Integrated Wealth Management Experience

In our office, our average client doesn’t have $100 – $200 million or a billion dollars. We can’t create a family office for these individuals, but we wanted to create a system that offered the same experience as a family office for all our clients.

What we devised is known as our integrated wealth management experience.

What Does an Integrated Wealth Management Experience Look Like?

Instead of working with one individual, we work with many and take on the role similar to a “CFO.” We look at the person’s entire financial picture and beyond to help you secure your retirement. We partner with multiple professionals on a range of services, in addition to in-house wealth management.

For simplicity, we’ll break this down into a few of our in-house and partnered services.

In-House Wealth Management

In-house, we specialize in wealth management. We are financial advisors, and fiduciaries- which means we’re required to put your best interests first. The majority of our clients are people close to or retirement, and we’re big on the retirement-focused financial plan.

In a few words, the retirement-focused financial plan:

  • Analyzes where you are today
  • Outlines retirement goals
  • Identifies changes that need to be made to reach your goals

Reaching your financial goals will often mean investing in some sort of return. We may invest in the market, bonds, annuities, or a wide range of other financial vehicles. We invest for a return that is comfortable for the client and is based on individual risk tolerance.

Next, we offer tax planning. Some of the tax planning is in-house and some of it is done by working with outside experts. We have checks and balances in place to understand:

  • What your taxes look like today
  • What strategies we can implement before the end of the year to lower the tax burden
  • What to do to save you money next year

We can also handle the tax return for you, and we have partnered with CPAs to lead this process. CPAs will also provide a stamp of approval for all the tax planning strategies that we prepare to ensure that everything moves along smoothly.

Our team helps clients understand where their income is coming from and ensures that their retirement-focused financial plan is operating to reach their goals.

Estate Planning

Estate planning is a crucial part of retirement planning that folks really struggle to talk and think about. However, we incorporate this planning into the experience because it provides you with peace of mind that your estate matters are all handled in a legal manner.

Without an up-to-date estate plan, it can be difficult for you to leave assets in your desired way for heirs and beneficiaries. If you’ve had a major life change since you’ve created or looked at your estate plan, it is a good idea to have your estate plan professionally reviewed and updated. 

For our clients, we have a system in place for the state they live in to create a:

  1. Trust
  2. Will
  3. Power of Attorney
  4. Healthcare Power of Attorney
  5. HIPAA form

We believe this aspect of your retirement-focused financial plan is urgent, and strongly encourage our clients to review and update these documents on a regular basis.

Social Security

We work with a Social Security consultant, so our clients have an expert look at avoiding mistakes when filing for Social Security. Some clients have an easy process for Social Security, and we can help them apply for their benefits. However, other clients do not have as easy of a time.

Our consultant is on retainer and will help consider:

  • Complex decisions
  • Divorce
  • Optimizing for certain forms of income
  • Survivorship

She assists us when running the numbers for Social Security to help you make the best decision on when to take your benefits and how to reach your financial goals.

Insurances

Insurance includes many different options, but one of the major ones is health insurance. When you retire, you’re responsible for your own health insurance, which will be Medicare.

Medicare can be overwhelming when it comes to options, plans, and thresholds. We work with our clients and partners to help them find the best Medicare options for their health scenario and budget. We may be able to structure things to avoid IRMAA surcharges on Medicare, too.

Additionally, we help clients during open enrollment to find plans that may be more affordable or a better overall option for them. 

Long-term Care Planning

Speaking of healthcare planning, we also dive into long-term care planning. Hopefully, you’ll never need this level of care, but you just never know what the future will hold for you. We recently had a podcast on long-term care planning.

We’ll analyze your long-term care options and even help you secure the insurance you need to pay for a nursing home or assisted living facility.

Life Insurance

We’ll work through the question of life insurance and how to structure it for you and your family. 

These are just some of the insurance options that we can use to help build our clients retirement-focused financial plan. As we’ve outlined, we do our best to mimic the “family office” so that it works in your best interests.

What Getting Started with Our Integrated Wealth Management Experience Looks Like

If you call us to discuss your options, we already have:

  • Ongoing, up-to-date research to aid in building plan for your goals
  • Multiple estate planning methods in place
  • Many in-house Insurance and Wealth Management strategy options

We’re involved the entire time, working to have all your questions answered. We will do the research with the estate planner or Social Security expert to have your questions answered.

Since we work with the outside experts, you bypass the extra step to make sure your financial, tax, and estate planning professionals are all on the same page when it comes to your retirement-focused financial plan. We’re very much involved with every aspect of your plan to help you make sound financial decisions.

Want to learn more about our Integrated Wealth Management Experience? Schedule a free call with us today.

August 21, 2023 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for August 21, 2023

This Week’s Podcast – Long-Term Care Planning Options

Listen in to learn how long-term insurance has evolved from standalone to asset-based long-term care insurance policies and the benefits of these changes. You will also learn about the right age to start planning for long-term care and the average cost of different long-term options.

 

This Week’s Blog – Long-Term Care Planning Options

No one likes to talk about long term care planning. Your plan will be expensive, and who really wants to think about needing long term care? Unfortunately, as we age, our health will likely decline, and there’s a possibility that we won’t be able to remain as independent as we are right now.

Long Term Care Planning Options

No one likes to talk about long term care planning. Your plan will be expensive, and who really wants to think about needing long term care? Unfortunately, as we age, our health will likely decline, and there’s a possibility that we won’t be able to remain as independent as we are right now.

In our most recent podcast, we brought on Jessica Iverson, a partner with us specializing in long term care planning and the options available to us.

Current World View of Long Term Care Planning and Insurance

Long term care evolves and changes over time. In the past, a lot of people didn’t consider this type of care during their retirement planning. However, people are living longer, and things are changing.

Long term care insurance has evolved. Past policies were standalone and didn’t have life insurance or annuities built into it. Policies today are not standalone products but asset-based and focus on long term care with life insurance or annuities built in.

If you never need long term care, your beneficiaries still receive something from the money that you put into your plan. Previously, if a person didn’t use their standalone plan, their families never received any of the funds back.

The plans of today are certainly more beneficial than in the past.

Appropriate Age and Time to Begin Thinking About Long Term Care Planning

When you work towards trying to secure your retirement, you’re often younger and not thinking about future health issues. However, there isn’t an opportune time to plan for future healthcare needs.

Jessica states:

  • It’s never too early to start planning, whether you purchase an index universal life policy with a long term care rider or chronic illness rider
  • As you get older, you can reposition an asset and look at an asset-based annuity

Jessica prefers an asset-based life insurance policy that has life insurance on the policy with a death benefit to beneficiaries. You can also pay these policies over a longer period of time to make them more affordable and can add an inflation rider on them, too.

An inflation rider guarantees that your long term care benefit will grow annually as inflation rises and costs for care rise along with it.

Understanding the Costs of Care and Why Insurance is Crucial for Most Retirees

Many people underestimate the cost of care as they age. Even looking back 10 years, costs have risen greatly. You have quite a few options and in 2023, these are the general costs that you’ll be faced with:

  • $4,000 – $6,000 per month for an assisted living facility
  • $9,000 – $12,000 per month for private room nursing care
  • $3,000 – $5,000 per month for a home healthcare policy

These figures are ever-increasing.

Home healthcare allows you to stay in your home for as long as possible, and it’s the preferred choice for many if their health allows them.

Do you need insurance?

We help people through this question by asking:

  1. Do you have enough assets to cover these costs, or are you comfortable with self-insuring?
  2. Do you need to transfer some of this risk?

Our retirement-focused financial plan does focus on long term care needs and helps us look through the scenario of today’s care costs to the costs at age 80. We provide a clear picture of what you may be spending for 3 – 5 years of care, how much assets are left and if there will be funds left for your spouse.

How Long Term Care Works and Your Options

Standalone policies are becoming increasingly difficult to secure, but they are available. These policies are hard to be approved for because they’re the most likely to be used by the individual.

Asset-based long term care has quite a few options and is really where the market has turned to in recent years. This works by:

  • Purchasing insurance on top of an asset (let’s say, life insurance)
  • When a claim begins, you would spend down your life insurance first and then receive a pool of long term care benefits, too
  • If you deplete the life insurance, you still have benefits through long term care that will cover your costs

There are also asset-based annuities, which work similarly to the policy built on a life insurance asset. An asset-based annuity option is more flexible and accepts a variety of premiums, such as qualified funds or transferring an asset from one annuity to another.

With this type of policy, the annuity is spent before receiving the additional long term care benefits in your plan.

You also have the option to secure a plan that offers:

  • Life insurance with a long term care or chronic illness rider
  • Income annuity with a doubler

If you have failing health already, it will make it far more challenging to secure a plan.

Difference Between an Asset-based Life Insurance Policy vs Life Insurance Policy with a Rider

The asset-based policy’s main purpose is long term care and allows you to:

  • Adjust the benefit period with up to 6 or 8 years of coverage
  • Add an inflation rider

You will receive a smaller death benefit with the asset-based policy. 

Life insurance policies focus primarily on life insurance and include:

  • Higher death benefit
  • Fewer long term care customizations

If you’re in your 20s and 30s, a life insurance policy will likely make more sense. However, the standalone asset-based policy maximizes your long term care benefits and has a lower life insurance payout.

Qualifying for a Policy

Every policy must go through underwriting, which is a complex process with a lot of moving parts. An insurer can deny your application for a policy, but we do know what these companies are focusing on.

  • Long term care focused products focus on the morbidity of the client. How likely is it that the client will get sick?
  • Life insurance focused policies are looking at your risk of mortality. How likely is it that the client will die from sickness?

Long term care policies look at the client’s Activities of Daily Living and if they can maintain:

  • Mobility
  • Feeding
  • Transferring
  • Dressing
  • Bathing
  • Toileting
  • Continence

With these policies, the carrier will not want to take the risk if you have a cane or walker or if you’re in any type of physical therapy. If you’re still able to maintain the points above and are in relatively good health, you will likely qualify for a long term care plan.

If you do have a few issues, there are some options available to you, such as:

  • Annuity options, which are more favorable and should include an income doubler. These plans only care about you not needing care right now and are easier to be approved for if you’re declined on a long term care plan.
  • Self-funding long term care is also possible.

Some annuities do accept qualified funds and you won’t need to worry about taxes upfront. An asset-based annuity will produce withdrawals over 5 or 10 years, which you will be taxed on for the duration of the annuity.

However, when the long term care benefits kick in, they are tax-free.

Navigating long term care is very complex when you go at it alone. Working with someone like Jessica Iverson or our team can help you understand all your options and find the best plan for you.

Do you have any questions about long term care planning? Feel free to reach out to us and schedule a free 15-minute call with us to discuss them.

June 12, 2023 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for June 12, 2023

This Week’s Podcast – What If You Need Long-Term Care in Retirement?

If you want to know and understand what long-term care may cost you in the future, you must first understand the actual cost of long-term care.

Listen in to learn about assisted living services for long-term care that involve more than a nursing home. You will also learn about long-term care insurance methods/plans, how they work, plus the pros and cons of each.

 

This Week’s Blog – What If You Need Long-Term Care?

One of the biggest topics today is the policies people took out in their 40s and 50s are having their prices increase. When signing up for policies, insurers do mention that the rates for premiums can rise, and it’s something that we’re seeing happen right now. Many of our clients receive a notice in the mail that their premiums are rising 50% or more, but there’s usually a list of ways to offset these costs by cutting benefits.

What If You Need Long Term Care?

Long term care (LTC) is a part of retirement planning, but it’s surely not as fun and exciting as planning vacations or taking up hobbies. Twenty years or so ago, Radon worked exclusively with long term care policies.

Back then, people often asked:

  • What if I need long term care?
  • How do I pay for it?
  • What are my options?

One of the biggest topics today is the policies people took out in their 40s and 50s are having their prices increase. When signing up for policies, insurers do mention that the rates for premiums can rise, and it’s something that we’re seeing happen right now.

Many of our clients receive a notice in the mail that their premiums are rising 50% or more, but there’s usually a list of ways to offset these costs by cutting benefits.

Unfortunately, people who receive these notices are already in retirement and it’s just too costly to switch plans. The older you get, the more you’ll pay for this type of insurance, and it leads to a person feeling almost forced to pay the higher rates.

We also have people come into our office who mention long term care and do not want to go the typical insurance route because premiums are always rising.

The goal of this article (you can listen to the podcast here) is to:

  • Outline your options
  • Explain how long-term care works
  • Things to think about when considering LTC

If you’re trying to secure your retirement, you need to have something in place for your future long term care needs.

What are the Risks and Numbers Surrounding LTC?

LTC is costly, and it’s something you need to consider in the same way that you do a mortgage or car loan. You need to learn the numbers and care options that you have available so that you can feel more comfortable with the idea of long-term care.

As of June 2023, we know that:

  • 69.6 million baby boomers are alive right now
  • Around 70% of Americans 65+ will need some LTC

Considering these figures, there’s a good chance that you or your spouse will be in an LTC situation during your lifetime.

We know that the cost of insurance is high, and this is because LTC is expensive.

How expensive?

  • In 2021, the private-room nursing home costs were $108,405 annually
  • In 20 years, the costs are expected to be $195,791 annually

If you’re fit and healthy now, it’s difficult to imagine that one day you may need to cover these costs either through insurance or out of pocket.

The average LTC stay is 3.5 years, so just think about having to pay $379,000 – $685,000 to cover your care. Some people are in long term care for memory care, and they don’t have any other medical issues, so they can be in a care situation for even longer.

What is Long Term Care?

Go back 20 years and there was nursing home insurance. Then, home health care started to pop up. Long term care itself is more than staying in a nursing home. My mom right now is in assisted living because she’s able to do much of her everyday routine on her own.

However, she needs assistance in some of her Activities of Daily Living, which is something that falls into one or more of six main categories:

  1. Bathing
  2. Dressing
  3. Continence
  4. Eating
  5. Toileting
  6. Transferring (getting in and out of bed, etc.)

Insurance policies start to kick in when you need assistance with at least two of the activities of daily living. A doctor will determine that these activities are difficult for you, and you can go into long term care.

However, if you have a little issue with bathing and dressing, you may want to go into what’s known as assisted living.

Assisted living allows you to have someone close to you to help you with your activities of daily living and then progress to greater care in the future if you need it. Assisted living also allows you to maintain your independence for as long as you can.

Even assisted living is quite expensive.

Costs for homemaker services (someone who helps with food and bathing), and a home health aide both have different costs. Annual costs for these are:

  • Homemaker Services Home: $59,488/annually at 44 hours a week
  • Home Health Aide: $61,776/annually for 5 days a week
  • Adult Day Health Care: $20,280 per year
  • Assisted Living Facility: $54,000 per year (private room with one bed)
  • Nursing Home Semi-Private Room: $94,900/annually
  • Nursing Home Private Room: $108,405/annually

These are hefty numbers, but the super high expenses come from the nursing home part of long term care.

If you’re freaking out, let’s discuss your options for LTC.

Long Term Care Options

LTC is expensive and a major concern when you’re trying to secure your retirement. You can opt to:

Self-insure

If you have the assets, you can self-insure, where you pay for these costs out of your own pocket. This may bring about some anxiety for you and there are pros and cons to consider:

  • Pros: You’re not transferring assets to an insurer and can avoid premium rate hikes.
  • Cons: You’re taking on the risk of not knowing what LTC will look like for you or how long you’ll need it. Can you afford to self-insure?

Self-insuring changes drastically, as you’ve seen from the 20-year projection. We help our clients visualize by using questions and scenarios where we determine how much the LTC will cost and how much will be left for your survivors.

Many people do not want to deplete their assets to the point that their survivors will struggle.

Medicare

Medicare does not provide what is known as “long term care insurance.” However, the first 20 days of a stay in a rehab facility are covered. For example, if you fall and need rehab, the first 20 days will fall into this category.

Day 21 – 100, the coverage will require an expensive copay.

After the 100-day mark, there is no coverage available.

Medicaid

Medicaid is a government program for low-income folks or people without assets. If you fall into this category, the pros are that you can get the care you need. Any money that you do make will go to the facility, but anything above what you make in “income” will be paid by Medicaid.

For example, if you receive Social Security, your check will go to the facility to cover as much of the bill as possible.

The total assets that you can have on Medicaid are very low.

Qualifications for Medicaid vary from state to state, and there’s not an easy way to get into the program. You can get assets out of your name to qualify, but you can’t just give everything to your kids or play the system in this way.

Traditional Long Term Care Insurance

Traditional LTC insurance is the one that most people are familiar with. You pay for insurance and if you don’t use it, you lose it. You pay an annual premium that is put towards a policy that will kick in if you need help with two or more activities of daily living.

Insurance will reimburse you daily based on the amount that you built your plan around.

Perhaps you receive $300 or $400 a day to cover costs. The plan may:

  • Increase based on inflation
  • Limit the length of coverage

If you transfer more risk to the insurer, you can be confident that you’ll pay more for your long-term care premiums.

LTC does take the risk out of the hands of the 70% of adults who will end up in this long-term care plan. You’ll pay for this insurance, and you may never need it, which is a concern. We’re also seeing annual increases in LTC, meaning that premiums will jump substantially.

Underwriting and qualifications are required to be approved for your insurance.

Much like your homeowner’s insurance, if you never use your long term care insurance, the money you put into it is never returned. This brings us to the next couple of categories and things to consider.

Asset-based LTC Insurance or a Life Insurance Policy Combined With LTC

One of our favorite options is the combination of life insurance and long term care insurance. 

Why?

It allows you to:

  • Take money from the policy if you need care
  • Leave the remaining balance as life insurance to the beneficiaries

Your premiums go into an account of sorts. You can use the money for your LTC, and your premiums do not disappear. Premiums are fixed and will not go up. You can pay in cash and fund the premium in one lump sum.

Some plans also allow a 10- or 15-year pay period to fund the account.

Underwriting is necessary to qualify for these plans, but with just a few questions, we can help you understand if you qualify for this type of insurance or not.

Riders

There are long term care riders you can attach to your life insurance.

When you add a rider, it adds an option to have LTC insurance and your premiums for the rider are fixed. The drawback of a rider is that premiums are not tax-deductible, and you’ll need to pay more on top of your life insurance premium for the rider.

Chronic Illness Rider

A chronic illness rider is very similar to a normal rider, but it’s for chronic illnesses. You can use your benefit payments for things limited to chronic illness, or a non-recoverable illness that you have.

Asset-based Long-term Care Through an Annuity

With this LTC option, you’ll attach the long term care benefit to an annuity that you have. This is a special annuity that can double or triple. For example, you put $100,000 into an annuity and it will add $200,000 or $300,000 for your care needs.

You have leverage and do not need to pay premiums because you fund it upfront.

If you want, you can even take money out of the annuity, although it will reduce the amount of money that you have for LTC if you ever need it.

We find that it is convenient for our clients who are above 68 years of age because there is baseline underwriting, but it’s not as strict. You also don’t need to worry about premiums rising, which is perfect for anyone who is in retirement and on a fixed income.

Income-based Annuities Asset Doubler

The final option for long term care on our list involves income-based annuities. A doubler kicks in when you can’t perform two of the six activities of daily living and will double your income for a certain number of years.

You don’t need to qualify for a doubler and it will provide you with additional cash flow for a certain period of time.

We do have a great resource available that breaks down everything we’ve just talked about and goes a bit further into the pros and cons of each option that we mentioned.

Please reach out to us if you would like us to send you this document.

Click here to request our document covering all of this information in greater detail or schedule a call with us if you want help going through your own long term care options.

May 8, 2023 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for May 8, 2023

This Week’s Podcast -What Issues Should You Consider Before You Retire?

Listen in to learn the importance of understanding your cash flow needs and budget and building some type of plan for your retirement. You will also learn the importance of budgeting for health insurance if you retire earlier than age 65 and the options to consider for long-term care planning.

 

This Week’s Blog – What Issues Should You Consider Before You Retire?

Are you considering retiring? After working your entire life, you’ve come to this beautiful ending where you’ve hit all your milestones to secure your retirement and can pursue the things that you truly love to do. Many companies offer early retirement options to their employees, it’s an important time to consider a few things before retirement.

What Issues Should You Consider Before You Retire?

Are you considering retiring? After working your entire life, you’ve come to this beautiful ending where you’ve hit all your milestones to secure your retirement and can pursue the things that you truly love to do.

Many companies offer early retirement options to their employees, it’s an important time to consider a few things before retirement.

In our most recent podcast, we go through all the things we think you should consider before retirement. Even if you’ve spent decades on retirement planning, these are things that you need to sit down and think about before transitioning into retirement.

Want a sneak peek at what we’ll be talking about?

  • Cash flow
  • Healthcare
  • Assets and debts
  • Tax planning issues
  • Long-term care

If you’re not considering all these points already, you need to go through them for yourself to better understand each one.

5 Issues to Consider Before Retirement

1. Cash Flow

Cash flow from your own financial perspective will change a lot when you retire. You’ve spent a lifetime working, receiving a check, and enjoying steady cash flow as a result. When you close out your life chapter of working, your cash flow will change.

Instead of cash being given to you for the hours you put in every week, you’ll take money out of the retirement accounts you’ve built up.

You’ll need to consider:

  • Your cash flow needs.
  • Where will the money come from- Social Security, pensions (we’re seeing far fewer of these), retirement accounts, etc.

Often, many of our clients have income from their careers, but do not have a strict budget in place. You need to spend time learning what your true cash flow needs are every month so that you can determine whether retirement is even a possibility.

If you’re lucky enough to have a pension, be sure to know your options:

  • Single life is often the highest payout
  • Spouse benefits

Are you retiring early? Social Security defines retirement as around 67, but there are benefit implications to retiring “early”. If you retire before 59.5, you are penalized on your IRA withdrawals. There are a lot of things to work through to understand what retiring early truly means.

For example, if you retire early, there is an income limit for Social Security that you need to consider. The limit is $21,240 (currently). If you hit full retirement age, the income limit is bumped up to $56,520.

Keep in mind:

  • Retiring before 55 comes with an IRA penalty
  • Retiring at 55 with a 401(k) doesn’t have a penalty

If you’re married, you also need to consider what that means for you and your spouse. You want to consider that one spouse likely has a higher income than the other. If you have a higher Social Security amount, your spouse will get credit if you’re married for 10 years or longer. The spouse, if they never worked, can receive up to 50% of the Social Security benefits that you have. However, if the person did work and their own benefits were higher, then they will receive the benefits they earned.

We recently had a client who didn’t know this and was shocked when they found out that their spouse would also get benefits. Even if you are now divorced but had been married to your ex-spouse for at least 10 years, there may be some benefit there for you in Social Security.

Healthcare is the next big point to consider.

2. Healthcare 

At 65, you qualify automatically for Medicare. Retiring before this age means that you must put a lot of thought into your healthcare because healthcare is very expensive. Medicare will save you a ton of money, but you need to bridge the few years between retirement and Medicare.

We’re seeing costs from $1,000 to $1,500 for people at 62 or so to get private health coverage. That figure is for a single individual and not a couple.

Employers cover your healthcare while you’re working, but when you retire, you’ll need to consider:

  • Dental
  • Vision
  • Healthcare

If you are contributing to an HSA, you will want to think about using this account, too. At age 65, you still need to take IRMAA into account, which is a Medicare surcharge for someone making over a certain threshold. We have a whole episode on this very topic, which you can listen to here or read here

3. Asset and debts 

Many of our clients have the majority of their money in an IRA or 401(k). One of the first things we are asked is, “Should I pay off my house?” If you need to take the funds from a 401(k), the answer is likely going to be: no. You need to pay taxes on your 401(k) withdrawals, and paying off your home can have a significant impact on the money you’ve saved. Instead, small distributions to make an extra payment often work better.

Low mortgage rates, such as 2.8 percent, can often be left because you may make more money with the cash in a brokerage account.

Let’s say that you have $100,000 left on your mortgage and your principal and interest payment is $1,200. If you had this $100,000 in a savings account, it might only net you $600 a month. In this scenario, paying off the house is a wise choice.

Bump your mortgage balance to $300,000, and it may not be beneficial to pay off your mortgage.

Beyond mortgage, you also need to consider risk exposure.

Transitioning to retirement means that you need income for 30-something years from the asset accounts that you have. When you retire, you want to have as little risk exposure as you can with your assets because you don’t want to experience a situation like we did in 2020 when some indexes fell 20% – 30%.

Reevaluating your investments and how you’re invested in the market will help you to limit your risk exposure.

4. Tax planning issues 

If you retire prior to 72 or 73, tax planning can save you a lot of money. 

Imagine retiring at 62 and you have $1 million in assets in your IRA growing at a little over 7% per year. By the time you’re 72, you’ll have $2 million and need to take a required minimum distribution of $80,000 or so per year. If you have Social Security and a pension, these distributions can push you into a higher tax bracket.

We can take a strategic approach to retirement by looking at a Roth conversion. We had a client who retired, had cash in the bank and lived on these funds to allow for significant Roth conversions at a low tax bracket.

5. Long-term care

The least fun part of retirement planning is long-term care planning. You never want to think about yourself in a long-term care situation, but it’s a reality that all of us are at risk of being in at some point.

And long-term care is not cheap.

You need to have a scenario in place where you are prepared to pay for this care. We’re seeing a lot of people pay $8,000 a month for long-term care, with durations being 4 or 5 years. This form of care can cost you $400,000 to $500,000 in total.

Can you afford to take on this financial burden?

You can pay insurance premiums out of pocket, or you can go with an asset-based plan. We’re seeing premiums soaring 50% to 70%, causing many people to be unable to pay for their long-term care.

Instead, you can put $100,000 in a long-term care annuity that grows to $300,000 and can be used for your long-term care. You still have access to this money if you need it and can also name beneficiaries on the account. A beneficiary will receive the total of the account if you pass and never use it, or they may receive any unused funds in the account.

If you pay insurance premiums on long-term care insurance, you will not receive any of these funds back. An annuity can be a great option because if you don’t need to use the funds in the account, they aren’t just going to an insurance company.

We also recommend that you have a will in place or review your will and beneficiaries on all accounts before you retire. If you don’t have all of your estate planning documents in place, you are putting a major burden on your family. You want to go as far as confirming all your beneficiaries and loved ones know the types of documents you have and where these documents are just in case you are ever unable to show them.

P.S. We are working off our own internal checklist titled “2023: What issues should I consider before I retire?” Call the office or email us if you would like a copy of this checklist. We also have a checklist for anyone who is updating their estate plan so that you don’t miss any key points along the way.

Click here to schedule a 15-minute call with us to discuss the things to consider before retirement.