Five Things to Improve Your Retirement

One of the most common reasons for people to engage with a fiduciary financial planner is to improve their chances of a successful retirement. So what do you need to know so that your retirement can be great?

First, I suggest you consult with a fiduciary Certified Financial Planner professional. As a fiduciary, your financial planner will always be your advocate and is committed to acting in your best interests at all times. You will not need to worry about whether you are being sold a cool product that sounds great but might not be an excellent fit for your situation.

And, if you would like to talk with me about your specific situation, I would be honored. Yes, I’m a CFP professional. Yes, I’m ALWAYS a fiduciary and I’m happy to add a few great families to my financial planning practice every year. Just follow this LINK to find a time for us to talk.

In general, here are a few things to consider:

1. You’ll probably live longer than you think. The typical 65-year-old couple has a 50/50 chance that one of them will live to age 90. And they have a one-in-five chance that one of them will make it to 95 or older. And some might live a LOT longer. More than one in 10 women and one in five men who self-report non-smoking and excellent health can expect to live past 100. All these numbers come from the Social Security Administration.
   
   So, this amounts to a 30- or 40- and maybe a 50-year retirement you might need to fund. This is why I always talk with clients about working to make sure their money lasts as long as they do.

2. Social Security May Be More Important Than You Realize. Some people discount Social Security as they consider their retirement income plan. As a trained professional I believe that’s a mistake. Social Security has a few important factors in its favor:

• The program benefits older Americans, and they generally vote much more consistently than other parts of the electorate. So, elected officials don’t usually want to anger the older folks.
• The program is backed by the full faith and credit of the US Government. This is still the “gold standard” in reliability.
• Your Social Security benefits include a cost-of-living increase based on current changes in living expenses. This is extremely rare, and expensive, to find in any other financial product. (By the way, the increase in Social Security benefits for 2023 based on the cost of living is 8.7%.)
• Right now the program is in pretty good shape financially. The 2022 Trustees report says that Social Security has enough money to pay all benefits each year until 2034. Then, if nothing changes, the annual taxes taken in will equal about 77% of the benefits promised.
• The last time the Social Security trust fund got low, the government fixed it pretty easily. That was back in 1983. There are a couple options to consider:
  1. Raising the ceiling on Social Security tax. Today, earnings above $147,000 are not subject to Social Security tax.
  2. Pushing back the age at which you can claim benefits. At the time that Social Security was started, benefits began at age 62 and the average American male was expected to live to age 64. Today, most of us can expect to live to age 84 and you can still claim a reduced benefit at age 62.
• Social security benefits are calculated on your best 35 years of earnings. So, if you are making good money, your benefit is rising each year.
• The maximum benefit is paid when you reach age 70, so if your health is decent, you should consider filing later.
• The typical break-even calculation says that if you wait to age 70 and live past age 81, you will receive more benefits from Social Security than if you had started taking benefits at age 62 and lived past age 81.

3. Saving Helps a Lot. It might seem obvious, but I find that it never hurts to review the basics every so often.

• Most Americans save bout 5% of what they earn.
• Most financial planning experts suggest a savings target of 20% of gross earnings.
• Remember that most people work at a company with some kind of retirement plan. And those plans often have free money available from your employer to match your savings. Many employers match 4% of your earnings or more. It’s worth checking with your HR department to be sure you are clear on your options.
• The more you save, the better.
• The sooner you start, the better.
• The best day to increase your savings was 10 years ago, the second-best day is today.

4. Healthcare will probably cost more than you expect. We all know, sort of, that older folks will spend more on health-related things than younger people, but it sometimes gets overlooked in retirement projections. Be sure to factor this expense into your retirement budget.

5. Tax Savvy Savings Can Be Powerful. Nobody likes to pay taxes. As you are working you often look to reduce taxes as much as possible every year. But, as we think about retirement income planning, don’t forget to consider tax strategy that can help your retirement income plan.

• Most people will have A LOT of their retirement savings in tax-deferred accounts like 401(k)s or IRAs. This means each distribution from these accounts creates income that will be taxed at the prevailing rate.
• Most retired folks HATE to pay taxes on distributions. It’s often a pretty good deal for them financially, but it’s still not fun.
• Today, you have options to pre-pay some income tax and create TAX FREE money in retirement by using a ROTH IRA or a ROTH 401(k) account.
  1. You recognize the savings deposits in these accounts as income today.
  2. You pay income tax on this money today, at your current tax rate.
  3. The taxes typically can be set up as part of your standard paycheck and it’s pretty painless.
• There are a couple of reasons to think about whether a Roth savings strategy is right for you.
  1. First, do you think you will have taxable income higher or lower than your current level when you are retired? Do you think you will:
     1. Travel more or less each year?
     2. Eat out more or less?
     3. Drive cars more or less?
     4. Go to the doctor more or less?
     5. Pay for more or less non-doctor health services?
  2. Do you think income tax RATES will be higher or lower 20 years from now?
     1. History says that income tax laws change significantly about every 18 months.
     2. Today’s income tax rates are historically low.
     3. Today’s federal debt is historically high.

So, I think we have established that there are a few factors to consider. Every situation is different. That’s why I’m such a big believer that every family would benefit from a relationship with an experienced, well-trained, fiduciary CERTIFIED FINANCIAL PLANNER™ professional.

A fiduciary, fee-first, CFP® professional can help you make great retirement planning choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.

Yes, I am a CFP® professional. I’m always a fiduciary and I work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice. If you would like to get to know me better, just follow this LINK to find a time for us to talk.

If this article has you thinking about your own circumstances, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.