Steps to Help Maintain Your Income and Lifestyle through Retirement

by Lawrence S. Tundidor AIF®, AAMS®, AWMA

How much money will you need to retire and stay retired? Do you have a financial plan to help you meet your retirement needs? Do you have enough assets to last a retirement of 20 to 30 years? Do you have a “Retirement Income Spend-Down Plan?” How will you manage rising inflation, healthcare costs, and long-term care?

Those are questions that most Americans approaching retirement should ask themselves. Given the rising inflation in 2022, even those with existing financial plans should take the time to review their income needs and assumptions to make sure their needs through retirement will be met. With all of the recent events affecting the economy, IdealLIVING spoke with Financial Advisor Lawrence Tundidor, AIF®, AAMS®, AWMA® of the Tundidor Wealth & Investment Group to discuss a few points that Americans nearing retirement or in retirement could potentially be doing to prepare.

Creating a Proper Retirement Income Spend-Down Plan

Where do you draw your money from when you need it? From an IRA? Sell stocks? 401ks? Real estate? Brokerage accounts?

Plan where your money will come from to maximize your spend-down plan’s efficiency. In retirement, you should consider having long-term, mid-term, and short-term investments to help protect you from market fluctuations while potentially increasing your income. More conservative investments go in the short term, moderate investments for the mid-term, and more aggressive in the long term. Picking and choosing investments to liquidate on a monthly basis can be stressful, and most advisors show you how and where to save but not how to create an income stream from your investment assets. When drawing income directly from a 401k, the plan provider will typically sell shares or “units” to send you a monthly amount you requested. The issue with this strategy is that you are indiscriminately selling shares in an up or down market regardless of price. In a down market, you sell shares at a lower price and therefore cannot allow time for those shares to recover, “essentially burning the candle on both ends.” Consider investments that provide a dividend or yield that allow you to draw income without selling shares. Having an income spend-down plan can help minimize taxes. For example, if you're taking all of your income from your IRA, this could potentially put you in a higher tax bracket and incurring Medicare penalties. The goal is to find how much money to draw from each investment asset to maximize your returns and minimize your tax consequences.

Having an Antiquated Investment Portfolio

A recent Morningstar study projected investors’ portfolio returns over the next 10 years to be between 3-6% annually versus 9-11% they have enjoyed over the last decade. Many pre-retirees/retirees have invested with a 60/40 stock/bond ratio and think their portfolio is diversified and able to generate enough income. In the past, bonds have yielded 5-7%, but now most estimates put 10-year bond total returns at an average of 2-4%. It's important to examine having some portion of your investments in alternative assets or alternative strate - gies to work to minimize volatility and potentially increase return. Very few U.S. households have a truly diversified portfolio with alternatives that may include private equity, real estate, currency, or hedged strategies. Diversification may allow you to hedge against inflation and higher interest rates.

Underestimating Risks

There are three major types of risk that people fail to analyze: investment risk, longevity risk, and inflation risk.

Investment risk (tied to sequence of returns) is the possibility that your investments could lose value because of movements in financial markets. A recession historically comes once or twice every decade. If you had retired during that time and were forced to sell investments to fund your retirement expenses, you would have lost a great deal of the upside when the market recovered. For example, Disney stock had dipped into the $20s during the recession of 2008; you may not have been able to wait for it to recover and then sell when the price was much higher. Now that it has been almost 15 years since that recession and many have enjoyed great returns, it would be wise to re-evaluate their investments to ensure they are in line with their time horizon. People live longer today, forcing us to evaluate “longevity risks.” According to the Wall Street Journal, there's a 50% chance that a Baby Boomer today will live past the age of 90. If you don’t plan accordingly, your income could run out before you do. Most people think they'll have enough income to last if they draw 4%out per year, and some have recently argued that the number should be about 2.5-3% per year. In the first three years of retirement, the average retiree tends to spend approximately 20% more. This overdraw can also contribute to insufficient sums for the later years if not planned correctly.

Don’t forget inflation. As of October 2022, the Labor Department puts the current inflation rate at 7.7% over the previous year. To put that in perspective, at a 3% inflation rate, the value of a dollar in 20 years is about half of what it is worth today. Given the stock market downturn of 2022, many Americans are still risk averse and have left a large amount of money sitting in cash. If the bank gives you a yield at a rate under inflation, you are actually earning a negative return during that time. Be aware of how inflation affects your bottom line and focus on an inflation-adjusted retirement income.

Lacking Protection for You, Your Family, and Your Estate

According to a 2022 Fidelity study, a 65-yearold couple retiring this year will need an average of $315,000 to cover out-of-pocket medical expenses. And that doesn’t include the costs associated with long-term nursing home care. Often, retirees might have a last will and testament but not a comprehensive estate plan. Adequate protections should be evaluated for health as well as leaving a legacy. The U.S. Census indicates that one in five Americans may become disabled for a period of time. Do you have a plan in the event a disability occurs years before retirement due to an accident or poor health? Do you have a plan to deal with the rising cost of long-term care insurance?

According to the U.S. Department of Health and Human Services, around 70% of adults over the age of 65 will need long-term care insurance at some point in their lives, and it's usually at the tail end of a financial plan when assets tend to be at their lowest point after 20 to 30 years of withdrawals.

Consider ways to mitigate those long-term care costs: Traditional long-term care can be a good option for some as they can lock in a specific benefit and have the ability to grow it to offset inflation. The downside is that if you don’t use the benefit, you typically lose it, and as you get older, the premiums are not fixed and can go up over time.

A Hybrid Life Insurance policy with a long-term care (LTC) rider allows one to have a life insurance benefit while still working or in retirement, with the ability to use some or all of their death benefit for long-term care in their later years. This option can give clients the ability to pay for a benefit they know will be used in one way or another, potentially eliminating the feeling of “use it or lose it” that some may have with traditional policies. Also, hybrid policies can be structured with “fixed” premiums or a lump-sum, reducing the risk of

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The third option is asset-based, using either retirement accounts or cash to generate an annuity stream during retirement that can continue to pay for long-term care costs later in life. This option can also be useful to individuals who are not able to pass the medical examination requirements of traditional or hybrid policies as well as those in risk classes such as smokers and those with Diabetes where the price may be prohibitive.

As far as a strategy for estate planning is concerned, all pre-tax retirement plans and traditional IRAs require a minimum annual distribution after reaching the age of seventy-and-a-half. Most take that distribution and simply put it into a savings account. Other options can be to take the cash and invest post-tax, contribute to long-term care protection, or to leave a legacy. What type of legacy would you like to leave? You could gift money to your children/ grandchildren, set up an endowment for charity, or protect the assets in a trust. There are countless options and strategies to create the legacy you choose.

Working with a Financial Advisor who Puts Your Best Interests First

Post-retirement living is very different, so take the time to explore your options well in advance of your retirement age. We encourage you to sit down with an unbiased independent financial advisor who puts your best interests first and helps you compose a written, personalized, and holistic financial strategy to protect your retirement investments and secure the next chapter of your financial future.

To learn more about the topics above, please attend Lawrence’s in-person seminars this January and February at the Ideal-Living expos in Bridgewater, NJ, Tysons Corner, VA, and Stamford, CT. In the meantime, if you have any questions, feel free to contact Lawrence at LawrenceT@ceterawealth.com or 215-375-5984.

ANY OTHER NAMED ENTITY. (1800 JFK BLVD SUITE 300 PHILADELPHIA PA, 19103 REGISTERED BRANCH PHONE NUMBER 215-399-9389) TUNDIDOR WEALTH & INVESTMENT GROUP IS NOT A SUBSIDIARY OF NOR CONTROLLED BY CETERA ADVISOR NETWORKS LLC. THE VIEWS STATED ARE NOT NECESSARILY THE OPINION OF CETERA AND SHOULD NOT BE CONSTRUED DIRECTLY OR INDIRECTLY AS AN OFFER TO BUY OR SELL ANY SECURITIES MENTIONED HEREIN. DUE TO VOLATILITY WITHIN THE MARKETS MENTIONED, OPINIONS ARE SUBJECT TO CHANGE WITHOUT NOTICE. INFORMATION IS BASED ON SOURCES BELIEVED TO BE RELIABLE; HOWEVER, THEIR ACCURACY OR COMPLETENESS CANNOT BE GUARANTEED. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.