The Retirement Planning Checklist

As you start to think about retirement planning, you might quickly feel overwhelmed or unsure about what to plan for. Retirement is made up of many different elements, and you’re going to have to make decisions about all of them – but where do you start?

We realized that many people approaching retirement don’t know what they should be thinking about or what questions they should be asking. So, we’ve put together a checklist of the nine most important things you need to consider before retirement.

You can watch the video on this topic above. To listen to the podcast episode, hit play below, or read on for more…

In this post, we walk you through each of these nine elements and help you better understand some key retirement planning aspects. You can make notes on these yourself, use them to talk to your financial advisor, or even see them as retirement planning conversation starters between you and your family. Let’s dive in.

List your retirement goals

You only retire once, so make sure you’re prepared for it! You might have lots of big plans and ideas about what you want to do in retirement. This might include going on a trip, spending more time with grandkids, or anything that you’re initially very excited to do. But often, people don’t plan beyond their first year of retirement. We call this the “retirement honeymoon phase.”

You need to think about what you want to be doing in retirement long-term. We’re talking for 10-20 years! After that first year or “honeymoon phase,” what would you like to be doing regularly, or what would you like to accomplish? Take a pen and paper and write some ideas down in a list or create a retirement journal. Here are a few questions to get you thinking.

  • Do you want to work part-time or volunteer? Are there any organizations that you’d like to work with?
  • Where do you want to live? Perhaps you want to downsize, move into your retirement transition home, or look into other retirement accommodation.
  • Do you want to travel? If so, will it be one long trip, annual vacations, or frequent getaways to places nearby?

Having a list of all the things you want to do in retirement is a great way to get excited about your future. It can also help you make the right choices so that you get to live your dream retirement.

Know your numbers

You may have opened many different bank accounts throughout your life. Perhaps you have multiple 401ks or have various assets. One of the first steps to preparing for retirement is gathering up all of this financial information.

When you’ve consolidated these accounts, you’ll be able to see how much you’ve got, and start building your financial retirement plan. From here, you can find out how much guaranteed income you can expect to receive when you retire.

Your incomings are one thing to know, but you should also be aware of your spending. If you’re working, you may be less worried about how much you’re spending month-to-month, but after you’ve retired, you’ll no longer have money coming in the door. It’s important to know what your fixed expenses will be so you can budget accordingly.

Ideally, your guaranteed income (e.g., your Social Security and pension) will cover all of your fixed expenses. But remember, the unexpected can happen. Sudden healthcare costs or inflation, for example, can affect your retirement plan. So, while we can make illustrations and help get your finances in a good place, we can’t predict the future.

Social security: look at the big picture

People usually want to know how they can get the most money from Social Security. While this is completely understandable, we want to urge you to look at the big picture.

If you wait and start taking Social Security at age 70, then you will receive more money in total – if you live into your 90s. However, if you’re withdrawing more on your assets because you’re not taking Social Security yet, this could have a massive impact on your finances 10-15 years down the road.

It can be easy to fall into the trap of wanting more from Social Security, but we strongly advise you to look at what waiting will do to your assets in the long-term. A comprehensive, written retirement plan can show you and help you understand how something like this will affect your overall finances.

Take an interest in your investing

You don’t need to be a stock-guru, but we recommend that you find out what strategy best suits your money goals and risk tolerance. There are many different ways to invest, but we break these down into two main categories: passive and active.

The passive, or buy-and-hold strategy, is more suited to those who want to invest their money and leave it. This is typically a long-term strategy, where you’ll invest over many years and (hopefully) your money will accumulate. However, when the stock market is volatile, you need to have a high-risk tolerance to weather the storm.

For those approaching retirement, we advocate a more active strategy. This is where you make adjustments depending on market shifts. It’s more suitable for those with a lower risk tolerance, as it attempts to protect against any downturns or crashes that may have a big impact on your retirement savings.

If you’re not sure where to start, consider what your risk tolerance is. If you lost 5% of your invested money today, for example, how would that make you feel? What percentage would you be comfortable with losing?

Understand your Medicare options

You will start receiving Medicare at age 65. However, there will be many, many options to consider. We suggest that you don’t wait until the last minute.

A year before you’re due to receive Medicare (around age 64), start finding out what options will be available to you and get an idea of what to expect. This way, you won’t be as overwhelmed when the time comes. We also recommend speaking to an expert, if you can.

On the Secure Your Retirement podcast, we spoke to Medicare specialist Lorraine Bowen about navigating its complexity. To hear Lorraine answer some of our questions, please listen to the podcast episode “Navigating Medicare in Retirement.

Get your legal documents in order

It’s imperative to update all of the legal documents you may have before you retire. There can be complications if your documents don’t match up or if there is conflicting information in them, so make it a priority to get these in order.

Check that your power of attorney, will, and account beneficiaries are all correct. If these are not aligned with each other, one may usurp the other in case of an event. For example, a beneficiary form can be more powerful than a will – so it’s necessary to make sure that these are all in line with your wishes.

If you have trust documents or think you may need a trust, you should also start having a conversation about if this is a good option for you.

Plan your long-term care options

You may already know that you need long-term care insurance, but, again, there are many options, and it can be complicated.

You could opt to self-insure, or you could purchase traditional long-term care insurance or hybrid insurance. Traditional long-term care insurance has previously presented problems with sharp rate increases making it less affordable for many. Meanwhile, hybrid insurance premiums do not increase, but the insurance model itself can be a combination of many things. It could be part annuity, part life insurance, and part long-term care.

To learn more about long-term care and the differences between hybrid and traditional insurance, read our post “Long-Term Care Insurance: Traditional vs. Hybrid.”

Understand your taxes

Taxes will always be a part of your finances, so you need to plan for them. When you’re consolidating your accounts, it’s a good idea to note how each one will be taxed.

Many account types are taxed differently. For example, if you take withdrawals from a pre-tax IRA, that will be considered taxable income, so you’ll need to plan for this. If you have a Roth IRA, this will grow tax-free and can be a big tax advantage in the future. Annuities and brokerage accounts are taxed differently again – it’s up to you to find out the implications of each on your retirement plan.

Get your retirement income plan in writing

Finally, we strongly recommend putting your retirement income plan in writing. This can give you peace of mind about your financial freedom in retirement. It can show you an estimated projection of multiple scenarios and help you decide how you’re going to approach your future.

We often have clients approach us who feel uncertain about what’s possible for them in retirement. After seeing their “what ifs” played out and how we take different parts of your finances into consideration, they leave feeling far less stressed and optimistic about their future.

So, those are the nine key things you should think about when planning your retirement. We hope that this checklist comes in useful and helps you on the road to retirement.

If you want to learn more about preparing for retirement, consider getting our complimentary online masterclass, 3 Keys to Secure Your Retirement. You’ll learn how to create your own Lifetime Retirement Income Plan and start your journey to a confident financial future.

Retirement Planning Checklist to a Worry Free Life

Retirement should be worry-free, but many in the United States don’t have any retirement savings. Your goal should be to retire with as little stress and worry as possible.

It’s possible, but you’ll need to make sure that you begin securing your retirement today.

We’re going to outline an eight-point retirement planning checklist to help you retire worry-free.

8-Point Retirement Planning Checklist

1. List All of Your Retirement Goals

You can’t know where you’re at in reaching your goals if you haven’t defined them yet. Planning starts with your goals. Make a list of answers to the following questions:

  • What is your definition of a happy retirement?
  • Want to travel? Which destinations will you go to?
  • Want to spend time with family? How often will you travel to see them?
  • Would you like to move closer to family?
  • How much money do you want to spend or give away during retirement?
  • Will you help pay for a grandchild’s college education?

While this step may seem tedious, it can really put your retirement into perspective.

2. Know Your Numbers

Retirement is all about numbers. Money is a number’s game, and throughout your lifetime, you likely have made and contributed to a lot of accounts. You need to know how to access these accounts, how much money you have in them and where your money is allotted.

You may have an IRA, 401(k), annuity, brokerage and several other accounts.

When you have all of these accounts available and know their numbers, you need to consider your spending. Spending habits will typically have three main parts:

  1. Needs, or money to live
  2. Wants, or money to use for vacation, etc.
  3. Legacy, or money you would like to give away

You’ll need to consider that your money will come from your IRAs and 401(k)s, and then consider your income from Social Security, pension or other income streams.

Inflation will also play a role in your retirement planning because you’re not earning anymore, yet prices are still going up. All of these numbers will help you better know your financial situation when retiring.

3. Social Security’s “Big Picture”

When’s the best age to retire? Most places will tell you 70 – that’s a long time to wait. You can retire at 62, 67 or 70. Sure, the earlier you retire, the less you’ll receive. There’s a lot more to consider.

The moving parts may mean taking your Social Security earlier is more beneficial.

4. Educate Yourself on How to Invest Your Savings

Retirement savings should be invested. You’ll find two main forms of investing: active and passive. The main differences are:

  • Passive. You’ve likely been doing this for a long time. A 401(k) is passive in that you buy, hold and don’t do anything else. People that bought into Amazon back when it IPO’d, for example, have likely held on to it and reaped the benefits. Rebalancing may occur where you change up your asset allocation slightly, but it’s not on the level of an active investor.
  • Active. You manage the portfolio daily based on the current market. This is a time-consuming strategy, but you can hedge your losses and control your risk tolerance best.

Educate yourself on these two methods of investing your retirement savings, and you’ll have greater control of your retirement planning.

5. Understand Medicare

An integral part of your retirement planning checklist is to understand Medicare. Your health is so important, and we recommend talking to a Medicare expert. You need to have a plan to take care of Medicare.

There are a lot of options available, and they’re very complex with gaps.

At least one year prior to retirement, sit down with an expert that can help you understand your Medicare options, what’s covered, what’s not covered and how you can cover some of these gaps.

6. Put Your Legal Documents in Order

Estate planning is an essential part of retirement planning. Sit down and look over your estate planning documents. We’re talking about your:

  • Wills
  • Trusts
  • Power of Attorney, etc.

Have an attorney overlook your will. Have things changed since you’ve had these documents drafted? Update your legal documents to have the beneficiaries up to date. Do this with all of your documents.

7. Long-term Care Planning

People are living longer. Hopefully, you never have to go into a long-term care facility, but if you do, it’s a major expense. There are different layers of expenses:

  • Assisted living
  • Nursing care

You can self-insure these expenses, or you can take out an insurance policy that rises throughout your lifetime. Hybrid plans also exist, which will have long-term care plans and possibly life insurance in one.

Deciding how to cover the costs of long-term care will help you sleep well at night knowing that you can have a basic plan if you need help in the future.

8. Write Out a Retirement Income Plan

A written retirement income plan seems daunting, but it’s an integral part of every retirement planning checklist. Your retirement relies on your plan. There are a lot of items included in your plan that you’ll outline:

  • Retirement accounts
  • Expenses
  • Future expenses
  • Renovations
  • Car purchases
  • Inflation
  • Paying for your grandkid’s childhood expenses

When you think through almost everything that you can before retiring, you’ll have a plan to refer to and update as needed. You’ll also be able to see how your current actions are impacting your retirement.

If you follow these eight points, we’re confident that you’ll be on the path to a worry-free retirement. 

Need extra help or want to follow a proven program for retiring with peace of mind. Our 4 Steps to Secure Your Retirement mini course can help.

Click here to learn more about our course and how we’ll help you secure your retirement.

5 Things You Should Do 5 Years Before Retirement

Retirement planning is more than just putting money into an investment account and hoping you have enough money to retire. You need to plan your retirement, and you need to keep revisiting this plan throughout your lifetime.

If you’re getting closer to retirement, there are five main things that you can do five years before retirement to ensure you’re able to reach your retirement goals.

1. Gather Your Important Documents

You should start gathering all of your important documents to have them ready to overview before retirement. We’re talking about documents relating to:

  • 401(k) plans
  • 403(b)
  • Annuity paperwork
  • Brokerage accounts
  • Estate planning documents
  • IRAs
  • Pension
  • Savings
  • Social Security

If you’re going to have a pension, call your company and ask them about the pension plan and what you can expect to be paid at certain ages. You might be able to take a lump sum.

You’re going to need all of these documents before retirement, so gathering them early on allows you to see where your retirement stands five years out from your actual retirement.

Note: Social Security pays out different amounts depending on your age. You can check this information on SSA.gov, but generally, you can retire at 62, full retirement age and 70. Early retirement, or age 62, will result in a 75% reduction in your benefit amounts.

2. Get Real About Your Spending

There needs to be a link between how much you save for retirement and how much you plan to spend when retiring. Retirement planning should never be left to chance by simply choosing a random monetary goal that you would like to achieve.

You might be fine living off of $2,000 a month during retirement, while others easily spend $10,000 a month when they retire.

We recommend breaking your down spending into three categories so that you really know what your spending will look like in retirement:

  • Essential income. Mortgages, food, bills, subscription services, gym memberships, etc.
  • Wants. Travel, spending time with grandkids or family members, golf club or other subscriptions. This category is really what you envision for your retirement.
  • Legacy/Giveaway. Charities, money left to family members, etc.

Try and factor in everything a good retirement means for you. You might need to cut back on some of your plans to reach your goals, but this is okay.

3. Write Down Your Goals

You know what your spending habits may look like, so now it’s time to really have some goals in place. The first year is fairly easy because you’re transitioning to a life without a 9-to-5 schedule. You’re free to do what you want, and this is an awakening feeling.

But the next few years are really where your retirement planning will be a success or failure.

Sit down today and write down:

  • Where you want to live
  • Where you want to travel
  • Goals of things you want to do in retirement

Be as specific as you can when writing down your goals. You may want to spend time with grandkids or go to Italy for a year. Whatever your goals are, write them down.

4. Learn About Investment Strategies and Risk Tolerance

You’re five years out from retirement, and you’ll need to be very cautious about your risk tolerance. Now is not the time to invest in high-risk investments because you don’t have the luxury of being in your 20s and taking these risks.

Investing has two main categories:

Passive Management

A passive investor puts their money into a stock and holds it over the long-term, or the person can be investing through other investment vehicles where no active management occurs. In all cases, even if the portfolio is diversified, there is a level of risk.

Google may be going strong today, but it could be the JC Penny of tomorrow where stock prices in 2011 were $35 to $40 a share and are $0.11 a share today.

Active Management

A strategy that shifts with the current markets. If the stocks are slumping, more precious metals may be purchased or stocks to hold your retirement fund’s money steadier, even if the possibility of returns may be lower. Managers will be working to mitigate potential losses and will be actively monitoring investments.

Risk tolerance changes, and you may not be able to afford risking 40% of your retirement before retirement begins. Educate yourself on your risks and the strategies you can take to lower them.

5. Come Up with an Income Plan

Retirement planning needs to be put down on paper. You need to think about:

  • Inflation
  • Long-term care
  • Healthcare
  • Remodeling
  • Home repairs
  • New car purchases

When your plan is well-developed, you’ll have “what if” scenarios in place that you can follow during retirement. It seems like a lot of work, but an income plan can give you peace of mind in knowing that you can confidently leave the workforce and finally retire.

Whether you plan to retire five years from now or 20, you don’t have to go at it alone.

Click here to follow our 4 Steps to Secure Your Retirement course.

How Much Money You Need to Retire?

When can you afford to retire?

Our clients often come to us wanting to know a set figure or amount to save that will mean they can retire. But it’s more complicated than just how much you have in your savings. There are lots of different factors to consider when creating a financial plan for a stress-free retirement.

In this post, we’re going to look at two example scenarios to show you what other variables impact your retirement savings and why the amount you’ve saved doesn’t necessarily mean you’ll have a better or longer retirement.

You can watch the video on this topic above or, to listen to the podcast episode, hit play below, or read on for more…

How much money do I need to retire?

The amount you need to have saved to retire is entirely dependent on your situation. No fixed amount or formula applies to everyone. Even if you had saved a million dollars, you’d still have to work through all the different variables to find out if it was enough for you to retire.

There are many variables and things to consider, including:

  • What age you want to retire
  • Your spending
  • Inflation
  • Healthcare costs
  • Your guaranteed income

When you want to retire has a huge impact on how much you need to save. You should consider both your savings and your spending habits whether you want to retire early or closer to retirement age, around 66 or 67 when you’ll receive Social Security.

Your spending is one of the biggest factors influencing your financial retirement plan. Living within your means before and after retirement is crucial to managing your money with longevity in mind.

Inflation also plays a part in how much you’ll need to retire. It’s been relatively low over the last decade, but inflation can change at any time. We set inflation at 3% for our retirement plans. This is the average inflation rate over the last 100 years. If inflation rates do rise higher than average, this typically only lasts for a short period and then readjusts. But it’s something to be aware of, as it will impact your spending and your savings.

Another factor that we cannot necessarily plan for is future healthcare costs. If you need long-term care or face health challenges in the future, it could take a chunk of your savings. While you can’t always prepare for these things in advance, you can take financial precautions, such as taking out insurance.

The one variable you can count on is how much guaranteed income you’ll have in retirement. Most people will have a pension or Social Security. Knowing how much guaranteed income you have in place helps you figure out how much extra you’ll need to save to cover your expenses.

How much you should save for retirement

We’re going to show you two scenarios to better understand how some variables affect savings and why it’s important to manage your money properly in retirement.

In the first scenario, there is Mary. Mary is 60 and has saved one million dollars ($1,000,000).

In the second scenario, there is Susan. Susan is 67 and has saved half a million dollars ($500,000).

Which do you think is going to have a longer retirement based on their age and savings?

Let’s run through these scenarios without changing any factors other than the amounts that each have saved and their ages. In both scenarios, the retirees will get $3,000 of Social Security each month, starting at age 67.

Scenario one: can I retire with a million dollars?

At age 60, Mary retires with one million dollars in IRA assets and has a spending plan of $6,500 a month. That means she needs $6,500 of guaranteed income coming into her bank account every month to pay the bills and live the life she wants to lead.

In both scenarios, the retirees are facing an inflation rate of 3%. This means that Mary’s spending is increasing by 3% a year. After ten years of retirement, inflation alone pushes Mary’s $6,500 up to $9,000 of spending each month.

Mary has invested her one million dollars, so it’s increasing at 5% on an annual average basis. This grows her savings at a decent rate of return, but she is withdrawing these funds to cover her rising costs. Mary has to rely solely on her savings immediately after retiring, as her Social Security payments won’t start until she’s 67.

There are some other factors at play, but to keep this simple, based on Mary’s spending and inflation, it will take only 13 years for her assets to run out. Mary will still have her Social Security payments, but these aren’t nearly enough to cover the lifestyle she’s built and grown accustomed to.

So, even though Mary retired with one million dollars at age 60, which seems like a powerful position to be in, she only makes it to age 73 before she has no more savings.

Scenario two: how much do I need to retire at 67?

Now let’s look at the second scenario. Susan retires at age 67 with half a million dollars saved in an IRA. Susan immediately gets $3,000 of Social Security each month, just like Mary did at 67. But Susan also has a pension of $500, taking her guaranteed income up to $3,500 a month.

Susan wants a different lifestyle from Mary. She plans to spend only $4,000 a month – $2,500 less than Mary. By the time Susan is 80, inflation will push her monthly spend up to $6,000 a month, still less than Mary’s original monthly spending.

In both scenarios, inflation does make a big impact. But for Susan, inflation isn’t as detrimental to her savings. Susan needed to take less out each month than Mary to supplement her guaranteed income and so it’s a more manageable withdrawal over the long-term.

In this scenario, Susan’s spending habits mean she can comfortably maintain her lifestyle in retirement past age 90 before she runs out of her assets.

How to manage your money in retirement

Retiring later, having a pension (even if it’s small), and reducing your spending can make a significant impact on how long your assets will last you. Even though Susan had saved half the amount Mary had, she had a far longer retirement plan because she retired seven years later, took a small pension, and reduced her spending budget.

If Mary had reduced her monthly spending by $1,500 to $5,000, it would have added almost ten more years to her retirement plan. This reduction alone would mean that she’d be 82, instead of 73, before her assets run out.

Your spending is arguably one of the easier factors to change within a retirement plan. It can be very helpful to take a good look at your spending habits now and consider what they’ll be in the future so that you can get an idea of what your retirement could look like.

How to plan your savings for retirement

If someone has saved more money than you for retirement – don’t panic. People have very different circumstances. They may need more money to cover costs or plan to spend more in retirement. Having more savings doesn’t necessarily mean a longer, more worry-free retirement.

A written retirement plan can help you understand how all of these factors will affect your situation and prepare accordingly. It gives you peace of mind that your finances are set for your future.

We’ve put together a complimentary video course to help you prepare for retirement financially. If you want to put a strategy in place for your retirement savings and spending, the free mini-video series is available to access here: Four Steps to Secure Your Retirement.

How to Retire Comfortably and Be Happy

Retirement planning should allow you to retire comfortably and be happy. You should find a comfortable medium, where you can retire and maintain the lifestyle that you want to enjoy. The lifestyle you live, and your spending habits will have a major impact on your ability to be comfortable in retirement.

Today, we’re going to outline a five-step process to follow so that you can retire the way you want.

5-Step Process to Retire Comfortably and Be Happy

1. Defining “Comfortable” for You

What is your definition of “comfortable?” Some people want to hit a monetary goal of $1 million before retiring. Once these individuals hit this milestone, they’ll retire. For other people, they want to have the income they need to pay their bills or travel.

Identifying what you want to do in retirement will help you define what comfortable is for you:

  • Do you want to be able to travel whenever you want?
  • Do you want to give money to charity or to your family members?

A lot of people are comfortable when they’re able to pay their bills and put food on the table. You might not want to travel or give money away to grandchildren – that’s perfectly fine. The goal here is to understand what you envision for retirement and what would make you comfortable exiting the workforce.

Knowing your definition of comfortable will help you prepare for retirement.

2. Know Your Risk Tolerance

Investments always have risks, but there are safer ways to allocate your assets as you age. The typical way people approach risk tolerance is:

  • Invest in riskier investments when you’re younger – you have time
  • Slowly start adjusting your portfolio for less risk as you get closer to retirement

Oftentimes, we find that people don’t adjust their investment portfolios, leaving them open to a high level of risk exposure. Could you risk your retirement losing 20% to 30% of its value because of high risks?

For some people, they have more than enough money and can afford to keep the majority of their investments in stocks. But there are ways to lower your risk tolerance and still retire comfortably without worrying about stock market fluctuations or volatility in the markets.

3. Write Down Your Plan

Make your retirement plan real by putting it in writing. A lot of people have plans in their heads, but they don’t put their plans to paper. When you create a retirement income plan on paper, it helps you:

  • Refer to the retirement plan
  • Make adjustments easily to your plan
  • Visualize your ability to retire

If you don’t know where to start when writing your plan, work with a professional that can help you devise a successful retirement plan.

4. Educate Yourself on Retirement Income Strategies

You’ve worked towards your retirement by putting money into IRAs, 401(k) and other investment vehicles. The tax consequences are different for each option. For example, some IRAs are tax-free, and some are pre-taxed.

A traditional IRA is basically ordinary income. Roth IRAs are tax-free.

There are a lot of ways to withdraw money from these accounts. You need to have a plan so that you can withdraw the money you need without suffering from major tax burdens or financial strain in the process.

And there’s also different streams of income, such as Social Security or a pension, which is guaranteed income. Dividend stocks that are income generating may be part of your portfolio, but the stock market isn’t guaranteed income. There are risks and advantages to stocks, and this is really what you need to educate yourself on.

Creating a retirement plan that is comfortable and that you can depend on is the key to a stress-free retirement.

5. Focus on Your Retirement Plan – Not Everyone Else’s Plan

Life is stressful enough, and comparing your retirement plan to someone else’s plan only makes it more stressful. Don’t start comparing your plan to your neighbor’s, brother’s, sister’s or other person’s retirement plan.

Why?

Your lifestyle may be different. Your neighbor may have $300,000 saved but no pension plan to rely on. You may be comfortable living on $40,000 a year and have already paid off your mortgage, but Joe down the street may struggle to get by on $120,000 a year because he needs the newest vehicles, takes expensive vacations and always has the “best of the best.”

When you compare your retirement to other people’s retirement, you need to look at the entire picture. You might not have the same savings or amount stashed away in a 401(k) as someone else, but your retirement may be a lot more secure.

Want to take your retirement planning to the next level? We’ve created a mini course called 4 Steps to Secure Your Retirement that you can follow to retire comfortably and happy.

If you want to discuss your retirement goals or make sure that you can comfortably retire, one of our team members will be more than happy to help you.

Click here to schedule a 15-minute complimentary call with us today.

Why should you add an income rider to your annuity?

How can an annuity income rider give you more peace of mind in retirement.

A core part of planning for retirement is ensuring that you have as few worries as possible. That’s why we make it a priority to ensure that all of our clients’ essential income needs are covered by their guaranteed income.

There are three main ways to guarantee income in retirement. The first is a pension, the second is Social Security, and the third is adding an income rider to an annuity. This third option creates, in essence, a personal pension paid directly to you every month for the rest of your life.

You can watch the video on this topic further down the post. To listen to the podcast episode, hit play below, or read on for more…

In part five of our “Annuities – Why Ever Use Them series, we discussed attaching an income rider to an annuity to produce guaranteed income. We encourage you to read part five before reading this post as we go into further detail about why we recommend adding an income rider to an annuity and explain how their rates of return work.

Our annuities series breaks down this product in short, easy-to-understand episodes to help you discover how this product works and why it’s a beneficial income source in retirement.

To get the full picture about how to make an annuity work for you, read the “Annuities – Why Ever Use Them posts on our blog, listen to the episodes on the Secure Your Retirement podcast, or watch them on our YouTube channel.

Why add an income rider to an annuity?

Many people opt for an income rider for the same reasons they’d take a pension or Social Security. It can give you more than just guaranteed income – it can provide you with peace of mind that your essential income needs will be covered in the future.

When you’re planning for retirement, you’ll work out how much income you need every year to cover your essential costs. This is where an income rider can be very useful. We often use them to plan for our clients, considering what income they’ll need 5-10 years down the road.

Understanding annuity income riders

In most cases, income riders come with a fee. This is usually around 1%. However, if the income rider is built into the annuity and doesn’t come with a fee, the rider may not have the highest possible rate of return.

Generally, built-in riders will not generate as much guaranteed income because the insurance company won’t be making enough money to pass it on to you.

If an agent states that their annuity has a 6% or 7% rate of return, it’s important to note that this is only for the income rider. This rate is not going to grow your principal at 6% or 7%. To get this maximum value from this income rider, you need to take income.

If you have a fixed index annuity, your principal will still grow, as we detailed in Part 4, How Fixed Index Annuities Grow Your Money With Low Risk. But this rate isn’t the same as the income rider.

Annuity income riders and rates of return

Let’s use a hypothetical example. If you add $100,000 into a fixed index annuity, it may earn 3%, depending on the index’s performance. Your income rider base, however, will grow separately at 7%. In 10 years, your original account value could be about $130,000, but your income rider may be worth around $200,000 in value.

A good way to think about these numbers is to consider what money you can access. If you were to pass away, the insurance company would only give your annuity’s account value (in this example, $130,000) to your beneficiaries. This is also what you would be able to walk away with if you decided to close your annuity.

But if you want to take income, this will be based on the income rider’s growth (in this example, $200,000). The insurance company will pay out a percentage of this figure to you as income.

Say this pays out at 6%, then you’ll get $1,000 a month, or $12,000 a year, guaranteed, for the rest of your life. This does not come out of or affect your account value.

If you did not have an income rider but wanted to take this same amount out of your account, you’d reduce your principal by a massive 10% in one hit. Over time, your annuity would empty, as you’d be withdrawing money faster than it could grow.

Why we recommend annuity income riders

What’s great about an income rider is, even if your account value drops down to zero, you are still guaranteed that income for the rest of your life. It’s a type of longevity insurance that can’t be beaten.

It’s best to think of an annuity and income riders as two separate entities. One is death benefit and walkaway money (your account value, the money you put into the account), and the other is like a pension that you cannot outlive. When the time comes to pay out your guaranteed income, these two sides do not affect each other.

So, if you’re concerned about covering your essential income needs, then adding an income rider to an annuity is a good option. This way, you’ll know you have a guaranteed $1,000 (or however much is possible in your situation). It won’t fluctuate and will be delivered to you every month for the rest of your life, from when you decide to take income.

To learn more about how an income rider could fit in with your personal retirement plan, get in touch with us. We offer a complimentary 15-minute phone consultation to discuss your specific needs and how you can put our advice into action. Book your free call with our expert advisors today.

How to Prepare For Retirement

Your retirement years are considered the golden years of your life, giving you the chance to relax and spend time with your loved ones. However, in order to maximize your experiences, you need to start preparing for retirement today.

 

If you are in your 60s, developing a thorough plan for your retirement is essential. That is why we have put together our top five tips to help you prepare.

 

 

  1. Identify your retirement starting point
    • The first thing that you need to do is to identify your starting point. To do this, you need to collect as much information as possible such as bank accounts, income, and outgoings. With this information, you can then break this down into three key categories:
      • Essential Needs (such as rent, food, etc.)
      • Wants (such as those dream trips with your family)
      • Legacy (the money you want to leave behind or donate)
    • By breaking this information down into these categories, you will be able to have a clear idea of the amount required for your retirement. When developing this information, you should also take into consideration your social security, the age you would be looking to retire, and when you want to start taking your pension.

 

  1. Know your destination
    • Once you have your starting point, you should then think about the destination and everything you want to achieve during your retirement. Think about the goals that you want to achieve and how you want to live. Do you want a new car every few years? Do you want to become a member of a golf club? An annual holiday with the family, perhaps?
    • Whatever it might be, make sure you know what you want to ensure you can fulfill this golden period of your life.

 

  1. Build a retirement roadmap
    • With your start point and destination created, you now need to build your retirement roadmap. This is the plan that you will follow as you save towards, and live through, your retirement.
    • When building your retirement roadmap, it is really important that you know your income and outgoings. One thing that many people forget to do when building their roadmap is to factor in taxes and the rate of inflation. Without doing this, you can quickly find your savings erode faster than you were expecting.

 

  1. Plan for retirement roadblocks
    • Even the best-laid roadmap can experience a roadblock, so it is crucial that you factor unexpected costs and issues into your plan. For example, another market crash such as that experienced in 2008 or a sudden deterioration in your health can see your savings depleted.
    • That is why it is vital that you constantly monitor your roadmap, making those small adjustments to keep you on track. When it comes to healthcare, you should also consider carefully whether you will be able to self-insure or whether you will need an insurance policy in place.

 

  1. Retirement cruise control
    • While for the most part, careful planning and preparation can mean your retirement can effectively run on cruise control. However, just like you would in real-life when driving a car, you still need to be ready to take over as the road ahead changes.
    • From a potentially volatile market and inflation to economic and political impacts, keep your eyes on the road ahead and adjust accordingly.

 

 

Are you ready to prepare for retirement?

If you are thinking about your retirement and want to start taking steps today to ensure you are in the best possible position, then we are here to help you. Our ‘4 Steps to Secure Your Retirement’ mini-series has been designed to take you through the preparation stages step-by-step, ensuring you are able to be in the best possible place.

 

Want to find out more? Get started today!

How to Rollover Your IRA and 401k

How do IRA and 401k rollovers work?

Retirement accounts are a great way of saving for the future, but they’re not preferable for everyone. If you want to move your money out of your 401k, 403b, 457, or IRA, the best way is to do a rollover.

If done correctly, rollovers are tax-free and a straightforward solution to moving money between retirement accounts. But there can be rules, limitations, and risks involved. In this post, we explain the process of doing a 401k or IRA rollover, when you’ll be eligible, and the reasons why you should consider one.

[You can watch the video on this topic above or, to listen to the podcast episode, hit play below, or read on for more…]

 

 

How to rollover your IRA and 401k

A rollover is a term meaning the action of moving money from one account into another account.

You’ve likely accumulated money in several retirement vehicles throughout your career. You might have 401ks, 403bs, 457s, IRAs. If you decide to move your money from where it is currently to a new institution, this is a rollover.

You can do a rollover between any employer plan, even if they’re the same. For example, you can move your money from one 401k into another 401k, or you can go from a 401k to an IRA account.

There are two main types of rollover. One is a direct rollover, which is a straightforward, trustee-to-trustee transfer. The other is a 60-day rollover, which can be riskier.

 

How to rollover your IRA and 401k using a trustee-to-trustee transfer

A trustee-to-trustee transfer moves your money from one institution directly to another institution. To do this, your existing account holder has to make out a check to your new account holder, with your name listed as “FBO” (for the benefit of).

Let’s use an example. If you have a 401k or an IRA held with Fidelity, but you want to move it to Charles Schwab, Fidelity has to write a check addressed to Charles Schwab followed by FBO and your name.

 

Key things to know about a trustee-to-trustee transfer:

  • The check is not made out to you, so you cannot put it into your account
  • The government have not put a limit on how many trustee-to-trustee transfers you can do so you can do this as many times as you like
  • This is a simple, straightforward, and risk-free way to do a rollover
  • If you are moving money into an IRA, you should set this up before you instruct your institution ­– you do not have to put money into an IRA to open one

 

How to do a 60-rollover for your IRA and 401k 

With a 60-day rollover, your institution writes the check directly out to your name. From this date, you have just 60 days to put it into an IRA, otherwise, it will be taxable. If you’re under the age of 59 and a half and you go over the 60-day limit, you’ll owe a 10% penalty as well as tax.

For 401ks, there is one additional caveat. 401ks are required by law to withhold 20% of your money, even if you get them to write a check out to you. This can be an issue.

If you have $100,000 in your 401k, for example, and the institution withholds $20,000 in taxes, you only have $80,000. You will get that $20,000 back, but only when you next file your taxes. To complete the rollover in the meantime, you’ll need to find an additional $20,000 to roll over the full amount.

 

Key things to know about a 60-day rollover:

  • You have to complete your rollover within 60 days, or you will be taxed
  • If you’re under the age requirement, you will also face a penalty
  • You can only do one 60-day rollover in a calendar year

We prefer using a trustee-to-trustee transfer. This way, you do not run the risk of having to pay income tax on your money, and it’s a more straightforward solution.

 

Why you shouldn’t use a 60-day rollover as a personal loan

Some people choose to use a 60-day rollover as a personal loan, but we advise against it. You may do this to loan yourself money in an interest-free way.

This is a high-risk strategy as you’re bound by the 60-day rule to get your money back into that account. This is a fixed rule and if you miss your 60-day deadline for any reason, whether you didn’t manage your time well, or you didn’t have enough money to put it back in to your account in time, then you’re faced with an irreversible problem, and bigger tax bill, and potentially a penalty too.

It’s a very risky strategy and not one that the IRS likes, so we urge you to be cautious if this is something you’ve heard or read about.

 

What makes you eligible to rollover your IRA and 401k

If you’re under age 59 and a half and you try to take money out of any retirement account, such as 401ks and IRAs, you will be penalized for it.

However, if you’re over age 59 and a half, the government now considers you eligible to use that money. Most 401k, 403b, and 457 plans allow you to do rollovers whenever you want. So, if you meet the age requirement, you can do a rollover without any penalties or tax concerns, providing you do it correctly.

One other way you become eligible for a 401k rollover is following a separation of service. This is when you leave your company for one of the following reasons:

  • Transitioning into a new company
  • If you get laid off
  • If you retire before 59 and a half

If you’re leaving your company, you may want to consider doing a rollover as you may not be eligible again for some time.

 

Why should you rollover your IRA and 401k

Your company might match your 401k contributions and offer you investment choices, so why would you choose to rollover your 401k into an IRA?

Firstly, 401ks have lots of hidden fees. You may not be aware of just how much you’re losing in fees for your 401k. Sometimes your employer will pay these, but they can also be passed along to you, the participant, without you knowing.

With an IRA, there’s a far higher level of transparency. You own every aspect of your IRA, so you can know each fee that gets charged to your account – if any. There are no admin fees with an IRA, so the only possible charges will be mutual fund or ETF fees if you use your IRA to buy those.

Secondly, it’s a myth that you get better rates if you have a 401k with a big company. It is not true that you get better rates based on what company you’re with. It’s also worth noting that your investment options are very limited in a 401k. An IRA has far more investment opportunities available.

Thirdly, 401k plans limit how much activity your account can have within a given year. Some plans may only allow you to make a change once every quarter or biannually. If you like to manage your money actively, then an IRA might be more suited to you.

It’s also challenging to manage your funds in a 401k. If you want a financial planner to help you handle your 401k, there’s very little that they can do. With an IRA, a financial planner can manage and monitor your money much more closely.

Finally, if you have multiple retirement accounts, you may want to make them easier to manage by consolidating them all into a singular, traditional IRA.

So, those are the reasons why you might want to rollover your 401k into an IRA. But why might you not want to?

There’s one time when you might not want to do a rollover, and that’s if you’re aged between 55 and 59 and a half and you’re no longer employed with the company your 401k is with. The IRS allows people above the age of 55 to take distributions of their 401k without penalties. If it’s in an IRA, you have to be 59 and a half to avoid the penalty. If you’re within this window and want access to your 401k money, we advise you to take distributions instead of doing a rollover.

 

How to execute a rollover

To do a trustee-to-trustee transfer or 60-day rollover, call your institution directly. They will have specialists available to help you do a transfer, but they are not there to give you advice, so make sure you’ve researched your options beforehand.

If you’re continuing to work at your company, this is called an in-service rollover. In this case, you stay in-service at your company, keep the 401k account, but roll out the balance into a traditional or Roth IRA account. Your 401k will stay the same, you will still make contributions and get the match, but your previous balance will now be in an IRA.

When you speak to your institution, they’ll ask you to verify your identity and address and then ask where you’re sending the money. Make sure you already have your IRA in place so that you can send the money over smoothly.

Your institution will then write the check out to the new institution if it’s a trustee-to-trustee transfer or directly to you if it’s a 60-day rollover.

You will rarely need to do any paperwork, and if you do, your institution can walk you through any documents that they need. Your institution may also ask you to review a tax notice, which explains the tax-risk of a 60-day rollover, much like we have in this post.

Ultimately, a rollover should be a simple, smooth process, resulting in putting your money in an account that you’re happy with.

If you’re considering doing a rollover or have any questions about IRAs, 401ks, 403bs, or 457s, our team can answer them. We work with these accounts every day and can offer you tailored advice and information based on your situation. Do consider booking a complimentary 15-minute call with us to find out how we can help you.

Retirement Planning Tips

Are you beginning to think about retirement planning? Finishing work and entering retirement is your chance to enjoy your golden years and unwind from the hustle and bustle of life. However, one of the most common questions we are asked is ‘how much do I need to retire?’ so, to help you, we have put together seven retirement planning tips to help secure your retirement.

 

  1. Understand your spending

When it comes to retirement planning, the first thing you need to understand is spending. This doesn’t mean your current salary, but what you bring home each month after you have taken out your savings and bills. You should exclude any bills, such as your mortgage, which might have been paid off by the time you retire.

 

By understanding exactly what you need to spend each month, you will be able to begin creating a much clearer plan for retirement.

 

  1. Break down your expenses

You should break down your expenses into three core areas, your essential needs, your wants, and then your giveaway money. Your essentials will cover things such as your and your grocery shop, everything you need to stay alive and happy. Your wants will then be those things to help you maximize your retirement fun, from holidays and golf members to spending time with your family and treating the grandkids. Finally, the giveaway money is the amount you want to donate to charity or leave behind.

 

  1. List your guaranteed income

Your guaranteed income refers to the money that you will still be receiving after retirement. This can be from things such as your pensions, annuity, or social security. This money should help you cover those essential expenses you listed earlier.

 

  1. Don’t rely on the 4% rule

The 4% rule for retirement is the idea that you live off 4% of your assets each year. While in theory, this can be an effective strategy for retirement planning; in reality, we believe it is a flawed method as it does not take into account the volatility of the market.

 

We recommend a different approach for you to secure your retirement by creating a clear plan that allows you to weather whatever the future might have in store.

 

  1. List your accounts by type

Another important retirement planning tip is to make a list of all of your accounts by type. This means things such as your 401K, a traditional IRA, brokerage account, and savings account. Each of these will be taxed differently, so this list will help you work out what you need.

 

  1. Consider your investments

When it comes to investing for retirement, many of us opt for a more aggressive strategy when we are younger. This high-risk option can yield more significant results, but you should start to reconsider the level of risk exposure you are willing to face as you get older. It is important you understand your risk tolerance and what you could potentially lose.

 

  1. Don’t worry if you have ‘enough’

Don’t worry about if you have enough for retirement. We work with clients with vastly different levels of savings, but what is most important is your retirement plan. If you end up spending more money each month than your savings can afford, then no matter how big your initial amount is, it will soon diminish.

 

You should focus on generating a spending plan that matches your lifestyle, not how much you have saved.

 

 

 

Looking to take your retirement planning to the next level?

Are you looking to cement your future? When it comes to retirement planning, there are a lot of moving parts that can make things seem complex, but our ‘4 Steps to Secure Your Retirement’ mini-series will take you through the process to a brighter retirement. Want to find out more? Get started today.

How to Get Guaranteed Income with a Fixed Indexed Annuity

If your Social Security benefit or pension won’t provide you with enough guaranteed monthly income to keep you comfortable in retirement, an annuity can help.

You can watch the video on this topic further down, to listen to the podcast episode, hit play below, or read on for more…

 

There are often limited resources for securing guaranteed income in retirement, but if you have or are considering opening an annuity, you may be able to access an “income rider”. An income rider is an additional annuity feature designed to guarantee income for the rest of your life.

 

In this post, we continue our “Annuities – Why Ever Use Them series by diving into how a fixed index annuity provides guaranteed income using the income rider.

 

Our annuities series is a comprehensive guide to this complex product. If you want to learn more about annuities, we encourage you to read the posts on our blog, listen to the episodes on the Secure Your Retirement podcast, or follow the links below to watch them on our YouTube channel:

 

Why choose a fixed index annuity? A quick summary

We believe there are three reasons why you would want to add a fixed index annuity to your portfolio. The first is good accumulation. Fixed index annuities accumulate similar to a bond, but with the added benefit of no downside risk. The second is the death benefit, and the third is guaranteed income.

 

Before we discuss how to get guaranteed income from your annuity, here is some high-level information to help you understand how annuities work, the different types, and why we recommend a fixed index annuity.

 

  • Deferred annuities are either fixed or variable.
  • Variable annuities are linked to market investment through buying mutual funds. The rates are often high for variable annuities, and they come with risk. To make a decent return on your variable annuity, you have to overcome these fees and more.
  • Fixed annuities have guaranteed principals, meaning you cannot make a loss, which is why we prefer them.
  • There are two types of fixed annuity, traditional and indexed – both guarantee your principal.
  • The traditional annuity is similar to a CD (certificate of deposit). You give your principal to an insurance company, and they provide a return based on a fixed rate for a number of years.
  • With an indexed annuity, your return is linked to an index such as the S&P 500 or the NASDAQ. Even though indexes can fall, your principal is guaranteed, so the worst a fixed index annuity can earn in a year is zero.
  • The crediting methods for fixed annuities are based on a point-to-point annual reset. For example, if you open an annuity on January 1st, 2021, you’ll earn your interest on January 1st, 2022.
  • If you have a fixed index annuity, your interest will be calculated depending on what strategy you use. This could be a cap or participation strategy. To learn more about caps and participation rates, read our blog post, Fixed Index Annuities: How They Work and Things to Consider, or watch the podcast episode.

Our “Annuities – Why Ever Use Them series covers many of these points in much greater depth, so if you have any questions about how annuities work, please visit the other articles on our blog.

 

A fixed index annuity is our recommended option, especially for retirees who need access to a higher guaranteed income.

 

Why guaranteed income is important in retirement

When planning for your retirement, you want to ensure that you have enough guaranteed income to cover all of your essential income needs. Your income needs fall into one of three categories:

  • Essential: anything you need to pay for, e.g., your water bill
  • Wants: anything that isn’t necessary but gives you a better quality of life, e.g., vacations
  • Giveaway money: for gifting to your children or a charity

We believe that at least your essential outgoings should be covered by your guaranteed income.

 

Most retirees have two guaranteed income sources, their pension and Social Security. Beyond this, there are limited options to secure guaranteed income. One option is to add an income rider to your fixed index annuity.

 

The cost of a fixed index annuity income rider

Adding an income rider to your annuity gives you a lifetime income benefit. This is a powerful tool to help you take care of your essential income needs and grant you continued access to your principal. But, if you’re aiming for your highest guaranteed income, you’re going to have a fee.

 

There can be two different types of fees with an income rider. The first is a clear-cut fee, where the insurance company will charge you a percentage of your principal. This is usually around 1%. The second is a built-in fee, where you won’t be charged directly, but you will see a reduction in return.

 

 

How a fixed index annuity income rider works

A fixed income annuity already accumulates money for a death benefit. The income rider income generation is separate from this. Bear in mind that this income value is not lump sum money. If an insurance agent tells you that their annuity can give you 6% growth, this rate is for income purposes and isn’t available as a lump sum.

 

Let’s use an example to demonstrate. If you have $100,000 in a fixed index annuity with an income benefit growing at 6%, in roughly ten years, your annuity will be worth around $200,000. You cannot take this as a lump sum – this figure is a calculation based on how much income the annuity generated. That 6% growth-rate of $200,000 equates to $12,000 a year of guaranteed income. That’s $1,000 a month guaranteed income for the rest of your life, generated by the fixed index annuity income rider alone.

 

Suppose you’ve calculated your essential income needs at $4,000 per month, but your Social Security will only give you $3,000. In that case, we can work out how much you should put in a fixed index annuity with an income rider to guarantee that extra $1,000.

 

The income rider creates, in essence, a pension that you cannot outlive. Even if your annuity account’s value decreased to zero, you would continue to receive payments through the income rider.

 

 

Why an income rider could suit your future

If you’re married, you may want the guaranteed income to last for the entirety of both yours and your partner’s lives. You can choose to have survivorship, but this will decrease your monthly income, similar to a pension.

 

You do not have to decide whether your annuity income rider is dual or single life until you start taking income. This is a plus point for annuity income riders as it offers flexibility for the future. If you set up an income rider today but won’t need your income for the next five or ten years, you won’t have to choose dual or single income until you’re ready to take it.

 

In most cases, you can start taking income from your annuity after a year. But, just like a Social Security benefit or pension, the longer you wait, the higher your income will be.

 

How could an income rider increase your guaranteed income?

We understand that annuities are a complex and often confusing product and visualizing how they suit your situation can be difficult. If you’d like to see how an annuity could benefit your specific retirement plan, we can help.

 

 

Our advisors can show you how an income rider could impact your guaranteed income when you book a complimentary 15-minute phone consultation. On the call, we can discuss how an annuity would work for you and how it could help you meet your essential income needs. If you want to speak to a team member, book your call today.