My Comments: I’ve now reduced retirement years to three types of years. They are “go-go”, “slow-go” and “no-go”. Planning for them before you reach retirement is a matter of attempting to get as many $ in the pot as possbile.
After that, it’s a timing issue that is driven by health, the expected life style, and the nature of your bucket list. Plan to spend more in the “go-go” years than you will in the “slow-go” years and they dry up in the “no-go” years.
by: Rachel F. Elson / Financial Planning / Monday, June 9, 2014
HOLLYWOOD, Fla. — Longevity increases and cultural shifts have changed the way Americans plan for retirement — and advisors need to make sure they’re keeping pace.
That was the message from Lena Rizkallah, a retirement strategist at J.P. Morgan Asset Management, at the Pershing Insite conference here on Thursday.
A generation ago, said Rizkallah, the mantra was “be conservative” — whether in lifestyle or in investment decisions. “Now, though, boomers have a bucket list,” she said. “They want to retire in good condition financially but also have goals for themselves.”
That changes some of the calculus for advisors said Rizkallah, who joined Elaine Floyd, a director of retirement and life planning at Horsesmouth, for an energetic discussion of retirement planning.
Among the recommendations they made:
1. Make sure clients have a retirement plan.
“I call this the heart attack slide,” Rizkallah said, posting a chart that mapped a client’s age and current salary against retirement savings benchmarks. “It helps clients gauge where they are.”
She encouraged advisors to talk frankly about both saving rates, for those still in the workforce, and spending plans. In general, she said, spending tends to peak at age 45, then decline in all categories except health care.
But she added a big caveat: “Note that housing continues to be 40% of spending. … More people are entering retirement with a mortgage.”
2. Know the threats to a secure retirement.
Rizkallah outlined three big risks for retirees.
• Outliving life expectancy. Remember, she cautioned, that as we age our life expectancy gets longer. There is now a 47% chance that one spouse in a 65-year-old couple will live to 90,” she said, pointing out that the likelihood had increased even during the last year.
• Not being able to keep working. People may think they’re going to bolster their retirement plan by working longer, but not everyone can control the timing, Rizkallah said, citing such issues as poor health, family care needs, and layoffs and other workplace changes. “There is a disparity between people’s expectations and the reality,” she said, encouraging advisors to tell clients: “You want to keep working? Great. But don’t make that part of the plan.”
• Facing higher costs of health care. Costs continue to rise, she pointed out, adding that there’s a lot of uncertainty around future costs. “It’s really crucial to have this conversation,” she said. “Say, ‘Because we’re seeing this, let’s talk about saving, let’s talk about diversifying.'”
3. Do the math on Social Security.
It’s critical that advisors understand — and are able to communicate to clients — the real impact of delaying Social Security benefits, Floyd told listeners.
She cited as an example a maximum earner who turns 62 this year, noting that if the client takes Social Security at 62, he or she will have collected $798,387 by age 85. But by deferring until age 70, that same client will have $1,035,653 by 85. If the client lives to 95, Floyd added, the deferral would have a more than $600,000 payoff.
Other Social Security nuances are important as well, said Floyd, who received the lion’s share of questions during the Q&A period at the end of the panel. “We are getting lots of questions about the earnings test … which suggests that people are continuing to work and filing for Social Security” — something she said clients “just shouldn’t do.”
Advisors should understand whether their clients are eligible for spousal benefits, whether and when clients can change their minds and undo a Social Security election, and how to maximize benefits for a surviving spouse. That last part gets particularly tricky given boomers’ penchant for divorce, Floyd added: “Social Security rules can get really complicated when there are multiple divorces.”