Financial Management
6
Considering Retirement I believe in America because we have great dreams, and because we have the opportunity to make those dreams come true. – Wendell L. Willkie According to Pew Research, there was a big increase in baby boomer retirements in 2020 - 1.2 million over the historical average to be precise! Although there are no reasons cited for the increase, it’s likely that many of those who had been holding off decided to go ahead with retirement when the work dynamics they enjoyed and were staying on for suddenly shifted as a result of the pandemic. Moving from dreaming about to considering retirement is a big step and it’s not just about being financially ready either. Retirees have a lot more free time on their hands; accordingly, even though retirements were increasing last year, the traditional activity of retirement traveling had been restricted so filling up that time became even harder for new retirees. Given that it was such a big year for retirement, one might expect to see a large decline in the historical average. Those that took early retirement can’t take it again, after all. However, a recent Bloomberg article —Affluent Americans Rush Into Retirement in New Life is Short Mindset—suggests otherwise. New work dynamics may have driven some out of the market last year, but for some that stayed, the new work dynamics were preferred. Reopening and shifting back to the previous work patterns may end up driving still more toward retirement. Today’s housing market presents another conundrum for those on the cusp of retirement. Many people will choose to sell a principal residence at retirement, taking the tax-free capital gain and downsizing to more appropriate quarters. The good news is that housing prices have been booming around the country, so many will have even more equity than expected. The bad news is that prices for retirement living arrangements are going higher as well.
If you’re one of the millions facing the decision of whether or not to retire this year, you need to understand whether you’re financially secure enough to support the retirement you are aiming for. These five steps may seem overly basic, but they create a baseline and framework that helps one switch from an accumulation mindset into a distribution mindset: Identify all the predictable income streams that you expect to have: Social Security, traditional pension, lifetime annuities, rent from real estate, and portfolio income. Compile an inventory of all financial and real assets such as: stocks, bonds, mutual funds, certificates of deposit, IRAs, 401(k) accounts and real property. Estimate your monthly and annual expenses in retirement: Divide the expenses into the essentials—food, clothing, housing, transportation, insurance and taxes—and the discretionary—travel, entertainment, gifts and so on. Compare income to essential expenses: This will reveal whether there will be an income gap that will have to be filled by touching principal. If you need to take out principal, it may affect the income stream that comes along with it, so caution is needed. Monitor the plan annually: Each year you should review your plan with your financial professional, making adjustments as needed, as your retirement circumstances change. Once you know if you’re ready to retire, then it will be time to evaluate further retirement investment decisions making sure you are keeping up with inflation to retain your purchasing power, but staying within your risk profile by making sure that your asset allocation will be aligned with your time horizon, your income needs and your liquidity needs. Decisions about required minimum distribution of retirement accounts and rolling over one account into another will become relevant. Even if you find out you’re financially secure enough to retire, that doesn’t mean it’s the right choice. It will mean that you can rest easy about doing so if it turns out you need to. Good Luck, Ira J. Brower Founder
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The County Woman Magazine www.TheCountyWoman.com
732.255.5000 | gstrustco.com July/August 2021
