Key strategies for those planning to retire in 2014

Chess - strategic board game for two playersDeciding when to retire may be one of the most important financial decisions that you will make during your life. Walking away from a regular paycheck and beginning to sustain yourself financially from retirement savings can be difficult. With fewer and fewer employees having access to pensions and many without a company sponsored 401(k) plan, many pre-retirees lack the confidence to make the transition. In fact, according to the Employee Benefit Research Institute (EBRI), as little as 18 percent of U.S. workers say that they are very confident of having enough money to live comfortably during their retirement years. The key strategies noted below may help you feel more confident about taking the leap into full retirement.

Develop a vision for your future: What is your vision for retirement? Where will you live? How will you spend your free time — traveling, hobbies, grandchildren, volunteering? What are the things you have always wanted to accomplish? Despite its importance, many retirees will invest more time researching the next car they will buy than setting personal goals for their future. Developing a vision for retirement may help ensure that you are spending the early years of retirement (when many retirees are in better health), focused on what is most important to you. Remember, you want to try to make it through retirement without saying “I wish I had” too often.

Run the numbers: After developing your vision, the next step is to determine if you have sufficient resources to make it a reality. Do you know what the maximum amount is that you can spend on an inflation adjusted basis over your retirement? How long will your resources last? Are your directing too much of your cash flow toward paying debt? How will monkey wrenches like higher inflation or another economic collapse impact the likelihood of your success? If you do not know the answers to the questions noted above, it may be necessary to revisit your retirement budget and comprehensive financial plan.

Also be sure to review multiple scenarios. What will the financial impact be of purchasing a second home, gifting to grandchildren or paying for long-term care insurance when factored into your plan? Since many sources of retirement income including pensions or Social Security may not keep up fully with increases in the cost of living, running scenarios that take into account higher rates of inflation may help provide clarity on its impact. Keep in mind that a retirement analysis is not a one-time event. In the same way a physician may not prescribe medication based upon blood work that is five years old, it is important to make sure that you continue to “run the numbers” on a regular basis as it may help you address changes in your life and the economy.

Recalibrate investments: The transition from the accumulation phase of saving/investing to the distribution phase can be difficult for investors to make, especially with interest rates so low. While it is critical to avoid being too conservative (so that you can outpace inflation over the long-term), you also need to be sure that you are not taking unnecessary risks, too. Consider rebalancing your portfolio so that it is consistent with the financial plan you developed. Review worst-case scenarios and avoid allowing your emotions to rule your investment decision-making over time. Remember, the 2008-2009 financial crisis may not be the last financial disturbance you live through — discipline is a key component to pursuing your goals.

Optimize Social Security and other benefits:
Do not overlook the importance of having a plan for taking Social Security at the right time. Since many retirees will rely on Social Security for a large portion of their income, it is critical to start benefits at the optimal time for your circumstances.

Additionally, be sure to factor in the vesting schedule of other benefits including pensions, profit sharing plans, 401(k) matches and company provided health benefits if applicable. While fewer companies offer these benefits, be sure that you retire at a time that strategically maximizes any benefits you are entitled to. Address health care expenses: We all know that health care costs have been skyrocketing, yet many pre-retirees fail to properly account for these costs in their retirement budget. According to AARP, only 36 percent of people aged 50 to 64 have tried to estimate how much they’ll need to cover the cost of health care in retirement. Of the few pre-retirees who take the time to closely review health care costs, many overestimate how much of these expenses will be covered by Medicare. Consider taking a closer look at your anticipated out-of-pocket health care costs prior to retirement.

The transition into retirement can leave many feeling uncertain and unprepared. However, developing a vision for retirement and a financial plan for pursuing your goals may help ease the transition. Since everyone’s situation is unique, consider speaking to your financial adviser to determine the most appropriate strategies for you.


Kurt J. Rossi, MBA, is a Certified Financial Planner Practitioner and Wealth Advisor.
He can be reached for questions at (732) 280-7550, or LPL Financial Member FINRA/SIPC