Several key decisions should precede retirement, advisers say

Jessica Millan hears many of the same concerns from her clients when it comes to retirement income planning. "The biggest fear we hear, no matter how much money people have, is that they will run out of money in their lifetime," says Millan, a financial adviser with Edward Jones. It is an adjustment to go from working for a living to living off of the money you have saved over your years on the job, whether it be through collecting Social Security, a pension, 401(k), IRA or other forms of accumulated income. Most likely, it will be a combination of several sources. Local financial advisers agree a retire plan is individualized, and there is no one-fits-all approach. There are, however, some general guidelines most people can follow when navigating their retirement income planning, they say. Social Security, and when to start drawing on it, is a huge decision in retirement, Millan says, noting some 33 percent of a person's retirement income comes from this source. "It's the foundation for a majority of people," she says. Reduced Social Security benefits are available beginning at age 62. The longer you wait to begin collecting, the higher your payment will be up to age 70. At Edward Jones, clients are directed to look at four factors when thinking about when to draw from Social Security: anticipated life expectancy, post retirement employment, financial need and a spouse's Social Security options. Jeff Feldman, owner of Rochester Financial Services, believes having a tax strategy in place is beneficial when determining how to navigate retirement planning. Ideally, it does make sense to hold off a bit before collecting Social Security since the longer you wait, the greater percentage you receive, but that is not necessarily the best case for everyone, Feldman says. "Sometimes it pays to take Social Security earlier so your savings can continue to grow," Feldman says. Feldman also notes that if people live the average life expectancy for people their age, they will receive about the same amount in lifetime benefits regardless of when they start collecting it. That is because checks collected at age 62 are a lot smaller than checks collected at 70, although a person would get more of them, he says. If you are a couple, it can also be beneficial to start collecting the Social Security benefits from the spouse with the lower lifetime earnings first, while delaying the collection of benefits of the higher earning spouse, Feldman explains. That way, the couple does get some income earlier, and when the higher earner hits 70, they can collect extra-large checks based on his or her earnings. Also, should that higher-earning spouse die first, the surviving spouse can collect the higher earner's benefit, he says. Nannette Nocon, a private wealth advisor with Ameriprise Financial Services Inc., also recommends delaying collecting Social Security in order to get the greater return. She says it is a transition to go from saving for retirement to spending the money once you do stop working. "It's a big change," Nocon says. When reviewing 401(k)s, one needs to determine how much is needed for expenses, how much will go toward any family inheritance and how much will be left over. Nocon says many of her clients are excellent savers and when they near retirement age they are in such good shape financially they have additional options, from charitable donations to retiring early. It is important to identify what your fixed living expenses are and how much one spends on non-essentials, she adds. This gives people a realistic view on what they are spending and options on where they can cut back if needed. Edward Jones' Millan says it is not unusual for people to not have a good handle on how much they actually spend. And the idea that people's expenses will go down once they retire is not always the case, particularly when it comes to health­care costs, Millan says. People also do not necessarily understand how long they may need to draw from their retirement income sources. Millan points to research which shows if a couple lives until 65, it means at least one will likely live to be 90. That means the amount of time one is retired could be as long as that person worked. Millan has frank discussions with clients, finding out what is important to each. They include topics such as when they plan on retiring, their lifestyle expectations and spending habits and any worries they may have about the transition from employment to retirement. "Ultimately, retirement is a journey and it starts with you," Millan says, adding it is essential to have the conversations, as well as documented plans in place. "It's important to have a roadmap and not get sideswiped." Rebecca Galliford, wealth management consultant at Manning & Napier, also reviews what sources of money someone has and then determines where to pull from first when it comes to retirement income. Ideally, it is best to use money one has already paid taxes on, such as cash in a savings account or a brokerage account. Doing so allows the money one may have in tax-deferred IRAs to continue to grow, Galliford says. She also recommends people review their stock and bond allocations, and gauge what their tolerance is for risk and volatility related to the stock market. When it comes to drawing on Social Security, Galliford agrees with the other financial advisers that waiting until a later age will result in more of a return. Although there are times when collecting early may be beneficial, she adds. Such is the case when a person retires early and he or she does not want to touch any tax-deferred money, but is still looking for some income. Also beneficial is consolidating assets, particularly if one has accumulated a number of retirement savings plans from various employers over the years.It makes more sense to roll a 401(k) from a previous employer into an IRA, for example, giving a person more control over one's assets, Galliford explains. And having more than one IRA is not bad, but it may be simpler to consolidate into one, especially when the person hits 70 ½ and is required by law to take distributions, she adds. Galliford notes it can be hard to forecast the future, but she does advise people to begin saving for the long-term early on. "At age 20 it takes a much smaller amount (of savings) to get to $1 million versus someone who starts at age 50," she says. Published: Thu, Oct 03, 2019