The Big Eight: Don’t Risk Your Retirement with These Mistakes

During our working lives, we have a cash flow called a “paycheck” that we rely on. A similar cash flow occurs when we retire and start the process of “deaccumulation” or creating income streams from sources that include our retirement funds. However, generating enough income to enjoy a comfortable retirement requires managing that cash flow successfully, says CNBC.com in the article “Here are 8 costly retirement mistakes to avoid.”

Preparing for the risk of a bear market. If markets take a nosedive the year you retire and you stick with your plan to withdraw four percent from your portfolio, your plan is no longer sustainable. Better: have an emergency fund in place, so you don’t have to tap investment accounts until the market recovers.

Investing with inflation in mind. We have been in such a low inflation environment for so long, that many have forgotten how devastating this can be to retirement portfolios. You may want to have some of your money in the market, so you can continue to get rates above any inflation. If inflation runs about 3.5% annually, a moderate portfolio returning 6% or 7% keeps up with inflation, even after withdrawals.

Be ready for longevity. Worries about outliving retirement savings are due to a longer overall life expectancy. There’s a good chance that many people alive today, will make it to 95. One strong tactic is to delay taking Social Security benefits until age 70, to maximize the monthly benefit.

What about interest rates and inadequate returns on safer investments? This is a tricky one, requiring a balance between each person’s comfort zone and the need to grow investments. Current fixed-income returns lag behind historical performance. Some experts recommend that their clients look into high-dividend stocks, as an alternative to bond yields.

Prepare NOT to dump stocks in a temporary downturn. Without strong stomachs and wise counsel, individual investors have a long history of dumping stocks when markets turn down, amplifying losses. We are emotional about our money, which is the worst way to invest. Try working with a financial advisor to remove the emotion from your investments.

Don’t withdraw too much too soon. It looks like a lot of money, doesn’t it? However, even 4% may be too much to take out from your investments and retirement accounts. It all depends upon what other sources of income you have and how markets perform. Be careful, unless going back to work in your seventies is on your bucket list.

Prepare for cognitive decline. This is way harder to conceive of than inflationary risks, but it becomes a real risk as we age. Even a modest level of age-related cognitive impairment, can make managing investments a challenge. Have a discussion with family members, your estate planning attorney and a financial advisor about deciding who will manage your investments, when you are no longer able.

Are you ready for health care costs? If at all possible, wait until 65 to retire, so you will be eligible for Medicare. Even when you have this coverage in place, there may still be considerable expenses that are not covered by Medicare. If you don’t have long-term care insurance, get it as soon as possible.

Contact an Evergreen Park Estate Planning Lawyer for Help

Being prepared for retirement is crucial for your future. At the Law Office of Michael T. Huguelet, P.C. we have an experienced group of attorneys who can assist you with your retirement to avoid making such mistakes. If you are nearing your retirement or trying to make arrangement for your future, contact our Lemont, IL estate planning attorneys at 708-852-0733 for a free consultation.

Reference: CNBC.com (March 5, 2019) “Here are 8 costly retirement mistakes to avoid.”

Are You Retiring in 2019? Here’s What You Need to Know

Estate Planning for Peak Earning YearsThere are more than a few steps you’ll need to complete, before packing up your desk, cubicle or locker and saying goodbye to your work family. Even if your 401(k) and IRA is in order, there are things you need to do during the last few months before retirement, says Next Avenue in the article “Tips to Prepare for Retiring This Spring or Summer.”

There’s detailed planning, organization of documents, and additional financial details that need attending. You may also want to start creating your “bucket list” — a list of things you’ve always wanted to do, but never had the time to do while you were working. Getting all of this in order, will speed your waiting time and prepare you better when the last day of your working life does finally arrive.

Whether you are three months or six months from retirement, here are some tips for your to-do list:

Social Security. Figure out when the best time for you to take Social Security benefits will be. Can you delay it until age 70? That’s when you’ll get the biggest payout. The earlier you start collecting benefits, the smaller your monthly check will be. Take it early, and you are locked into this lower rate.

Health Care. Figuring out how to manage health care costs, is the single biggest worry of retirement for most Americans. An injury that puts you in a nursing care facility can make a huge dent in your retirement funds, even if it’s just for a short while. This is the time of your life, when focusing on your health is most important, even if you’ve been careless in earlier decades. Evaluate your health status and get check-ups with your regular physician and your dentist.

Investments. Check with your HR department about when you’ll need to roll over your 401(k) plan. If you transfer the funds into a low-cost IRA, you may save in fees. Work with your financial advisor to determine what your withdrawal rate will be. You may need to reevaluate some of your retirement goals or consider working part-time during retirement for a few years.

Medicare. If you’re almost 65, you can start enrolling in Medicare now. The government lets you start the process within three months of your 65th birthday. Start this process, so you are covered, once you are not on the company’s health care plan.

Expectations. The first six months to a year of retirement can be both wonderful and terrible. While enjoying freedom, many people find it hard to withdraw money from the same accounts they spent so many years building. What if they don’t have enough for a long life? Take a realistic look at your lifestyle, budget, and spending habits, before you retire to make sure you are financially ready to do so. If you think you might work part-time, look into the positions that are available in your area and what they pay.

Lifestyle. Often, we are so busy planning for the financial side of retirement, we forget to plan for the “soft” side: what will you do in retirement? Will you volunteer with an organization that has meaning for you? Write the novel you’ve started on a dozen times? Spend more time with your grandchildren? Travel? What will make you feel like your time is being well-spent, and what will make you fulfilled?

Don’t forget the legal plan. Retired or not, you need to have a will, power of attorney, and health care power of attorney to protect your family, whether you are preparing for retirement or in the middle of your career. Speak with a New Lenox estate planning attorney to ensure that these important documents are in place.  The Attorneys at Michael T. Huguelet, P.C. are available to help.  May we help you?

Reference: Next Avenue (March 6, 2019) “Tips to Prepare for Retiring This Spring or Summer”

Four Retirement Issues for 2019

A host of new retirement savings options will be on the horizon for millions of Americans whose workplace does not offer 401(k) plans, says The New York Times in “For American Workers, 4 Key Retirement Issues to Watch in 2019.” The article takes a broad view of retirement policy topics, covering everything from Congress working on a plan to stop sharp cuts in traditional pensions, to the SEC’s battle over fiduciary responsibilities to protect investors and the possible expansion of Social Security.

Here are some of the highlights:

Workplace Savings Plans. Features like automatic enrollment and matching employer contributions make these plans a great way to help save for retirement. However, a third of workers in the private sector don’t have access to these plans. In 2019, some states are starting programs to automatically sign up workers who don’t have access to these plans at work. Employers in some states will be required to set up automatic payroll deductions, although they won’t have to make matching contributions.

Congress is expected to work on legislation that would make it easier for employers to create and join a single 401(k) plan that they could offer. This “open multiple-employer plan” would be offered by private plan custodians. It may take a while for this to get up and running.

Pension Insolvency Crisis. A special congressional committee is working on heading off an insolvency crisis that could lead to big cuts in pension benefits for millions of workers. More than 10 million workers and retirees are covered by multi-employer plans, which are severely underfunded. The Pension Benefit Guaranty Corporation, a federal insurance program for pensions, will run out of money by 2025, if nothing changes. This is a complex problem, with no easy solution.

Protecting Investors. This battle over requiring fiduciary standards by brokers has been going on for a while. It centers on requiring brokers and others to put customer’s financial interests first. A rule from the Department of Labor from the Obama era never made it past opposition from the financial services and insurance industries. A proposed new rule from the Securities and Exchange Commission would require brokers to put their customer’s financial interests ahead of their own. However, it does not require them to act as fiduciaries. Consumers advocates are against this rule, believing that it does not go far enough.

Expanding Social Security. Expansion legislation in the Larson Bill from has more than 170 co-sponsors in the House. The bill includes a 2% increase in benefits, a generous annual COLA (Cost of Living Adjustment) and higher minimum benefits for low-income workers. How are we paying for these increases? The cap on wages subject to taxation and a gradually phased-in higher payroll tax are the sources.

Regardless what happens (or does not happen) in Washington, if retirement is in your future, 5 or 50 years from now, this is the year to have your estate plan created and ramp up your savings.

Resource: The New York Times (Dec. 23, 2018) “For American Workers, 4 Key Retirement Issues to Watch in 2019”