The Financial Basics of Preparing for Retirement

By Michael Clark

How we spend our retirement is an extremely personal and emotional matter.

We’ve seen the television commercials of the gray-haired couple retiring to their vineyard or sailing in their yacht on the beautiful Mediterranean Sea. While appealing, those are really not the goals of most hard-working Americans. However, regardless of your unique goals, there are very specific steps that almost everyone should take in the years leading up to the transition to retirement. We are going to lay out these steps in bullet format below but want to provide you with a warning first. Many people will feel inadequately prepared or overwhelmed by how much there is to consider when reviewing these bullets. Instead, maybe you can be encouraged by the steps you have already taken and be glad to learn about other important steps that will help you further prepare for retirement now rather than once you’ve already hung up your spurs. So, here goes…

Save enough money – this seems abundantly obvious but the process for determining the appropriate amount can often be ambiguous. There are certain analytical tools available that incorporate historical market performance, inflation, varying income streams such as pensions and inheritances, different account types such as IRAs and Trusts, to help determine the mathematical probability of achieving your goals. Adjustments can then be made in how much you save or how you are investing to increase your probability of success.

Adjust your portfolio to the right risk level – finding the comfortable balance between risk and reward can be challenging. We all want lots of upside without the risk of big losses. Some investors think they shouldn’t own stocks once they retire but they forget their time horizon doesn’t end on the day of retirement but goes for the rest of their life. There are now many strategies and investments designed to provide access to meaningful returns while protecting your irreplaceable capital from catastrophic losses.

Consider tax diversification – generally, we all agree that diversification of investments in a portfolio is wise but not many people consider tax diversification. If future tax rates are unknown, then it may make sense to have some taxable investments (taxable now), some taxdeferred investments (taxable later) and some tax-free investments (taxable never).

Understand your insurance – a thorough audit of your insurance coverage may help you eliminate unneeded policies, reduce your costs

and customize the coverage to your changing needs. Two of the most common questions we hear are: 1. When is the right time to buy long term care insurance? and 2. How much life insurance should I have in retirement? A complimentary, in-depth audit of your existing coverage can help answer these questions.

Optimize your Social Security and your Pension – amazingly, there can be up to 95 different ways to claim social security benefits for a husband and wife. There are tools available to help define the best way for you, based on life expectancy, cash flow needs and age differences between spouses. For those fortunate enough to still have a pension, we can help identify the factors that allow you to decide if a lump sum rollover or a monthly paycheck is the better choice for you and your family.

Check your Beneficiaries – one of the most common mistakes we’ve seen when working with new clients is that their beneficiary forms (for IRAs, 401ks, life insurance, and annuities) are out of date. Major life events such as marriages, divorces, births and deaths are the perfect time to ask your financial advisor to review your beneficiary designations. Additionally, most people don’t realize that their beneficiary designations override the wording in their wills so it’s vitally important to get these right. There is great peace of mind in knowing that your assets will be distributed exactly as you desire upon your passing.

Minimize taxes on your Required Minimum Distributions from

your retirement account – the rules have changed recently and the current tax code provides some creative ways to reduce taxes on your required distributions.

Get your estate in order – clients often think that putting a will in place is all that’s needed to check this off of their “To Do List”. However, there are several other important documents to consider adding such as a Durable Power of Attorney, a Healthcare Power of Attorney, HIPAA authorization, and an Advanced Directive. Several important moments in time to consider a review of your documents are Major Life Events (marriage, divorce, birth, death) and moving to a different state which may have different rules and requirements.

Other items to ponder… • Is your spouse engaged in the process? If your spouse prefers not to participate in the planning process, he/she should at least be familiar with the names and contact information of your advisors (financial planner, attorney, accountant, insurance agent). • What about those special items? Many families find it helpful to dis-

cuss with their loved ones, who will want/inherit special items such as jewelry, antiques, pictures and family heirlooms. Putting these wishes down on paper can save a lot of squabbling in the future. • Where are the important papers? Do your spouse and eventual executor know where you have your safety deposit box/safe, life insurance policies, car and home titles and other important items?

Consider your Life Purpose during retirement – it is one thing to “retire from” a job or profession that you may or may not truly enjoy. In our experience, it is often important for high achieving professionals to have something to “retire to” when they leave behind the responsibilities of a high stakes and rewarding professional role. Maybe that purpose would involve charitable or community board service, mentoring of promising younger colleagues and friends, or some other form of “giving back.” The personal gratification that accompanies being a valuable contributor to the success of other individuals or organizations can be a meaningful consideration, as life often slows down significantly in retirement. Of course, for many it can be just as rewarding to enjoy the fruits of your labor… an active country club lifestyle, gourmet food and wine experiences, international travel or spoiling the grandkids. In any case, you’ve earned it.

Preparing wisely for retirement goes far beyond the accumulation of a big investment portfolio. By incorporating these other vitally important steps into your planning process, you can remove much of the uncertainty and anxiety that families face as they enter this new stage of life. As long time Circle of Friends members, the professionals at Aspect Wealth Management would consider it a privilege to discuss your personal situation to see if there is a way we can help you have a successful retirement. We can be reached at 210-268-1500.

About Michael Clark: In addition to graduating from the U.S. Air Force Academy and earning a Masters of Science from George Washington University, Mr. Clark holds the professional designations of Certified Investment Management Analyst and Certified Retirement Counselor. He specializes in working with physicians and business owners to simplify their financial lives by addressing the complicated planning issues faced by these professionals. Aspect Wealth Management is a long-time sponsor of the Circle of Friends Program.

Securities and advisory services offered through Cetera Advisor Networks LLC, member FINRA/SIPC, a Broker/Dealer and a Registered Investment Adviser. Cetera Advisor Networks LLC is under separate ownership from any other named entity. CA insurance license #0C82856. Advisors with Aspect Wealth Management are not tax or legal professionals. Please consult an attorney or CPA for legal and tax advice or opinions.