Has COVID changed your views toward retirement? Start retirement planning today!

Has COVID changed your views toward retirement? If the pandemic has changed your retirement goals and objectives, here are some retirement planning notes to consider.

Most of us have learned about a family member or friend contracting COVID. We have each been touched by the pandemic differently. COVID has touched and changed our perspective more than any other factor throughout our careers.

It has changed the way participants in retirement plans and investors think of retirement. These are our experiences and best practices, if you are looking to expedite your retirement as soon as possible.

1. Cash Flow

When it comes to retirement planning for a secure future, you should have positive Cash Flow (income is higher than expenses). A better way to have positive Cash Flow is to reduce/mitigate/eliminate debt service payments, including mortgages. If possible, you should put yourself in a position to have little to no reoccurring debt. This may allow you to create a better lifestyle or standard of living even with modest income sources when you have no reoccurring debt payments.

2. Social Security

Electing Social Security benefits is one of the most important financial decisions you can make. Understanding and preparing how to elect Social Security benefits is critical to successful retirement planning. The JP Morgan Guide to Retirement (https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/retirement-insights/guide-to-retirement-us.pdf) provides a great summary of elections, including…
• No other sources of income? Consider claiming benefits as soon as age 62.
1. • Still working? Consider claiming benefits after you reach your Full Retirement Age (FRA).
2. • If you claim benefits sooner, you may need to have larger retirement assets.
3. • If you claim benefits later, you may not need significant retirement assets.
4. • Consider taking your benefits as soon as possible (age 62) IF you do not expect to live to age 77.
5. • Consider taking your benefits at FRA (age 67) IF you expect to live to age 81.
6. • Consider taking your benefits as late as possible (age 70) IF you expect to live past 81.

3. Health Insurance and Medicare decisions

The Nationwide average for health insurance premiums for a “Silver” (as defined by the Affordable Care Act) health insurance policy for a male age 64 is $1,374 per month (including Premium and out-of-pocket expenses). Health and/or Medicare expenses will likely be one of the most significant expenses during retirement. It is important you work with an experienced health insurance / Medicare professional to coordinate benefits to help ensure you have the right coverage at a price that fits the budget.

4. Structuring retirement income tax efficiently

There are many different types of investment accounts you can save money into during your working years while you’re retirement planning. Each of these accounts could have vastly different tax consequences when taking retirement income. It is important to coordinate the withdraw pattern from your retirement assets to help ensure you structure your retirement income in the most tax efficient way possible.

5. Withdraw/distribution provisions in retirement accounts

The most common way to save for retirement is either through a company sponsored retirement plan or through a Traditional IRA or Roth IRA. It is important to reflect on the withdrawal provisions for each of these different accounts. As an example, a company sponsored plan (like a 401(k)) may have withdrawal or distribution provisions that limit when you can take distributions, and how many times per year you can take money out of your retirement account. Reviewing the plan provisions in a Summary Plan Description (SPD) will help determine if you should keep your money in the company sponsored retirement plan or make an election to withdraw or rollover your balances. It is important that you know how to get money out of the retirement accounts, so that you do not unknowingly limit your liquidity, or have needless penalties or taxes. Saving money for retirement is important. Knowing how to get money out of the retirement accounts is not the same for everyone and needs to be closely reviewed. Make learning what you can and can’t do with your accounts a part of your retirement planning.

6. Pre-tax and post-tax (Roth) features

Traditional IRAs and Roth IRA are two uniquely different types of retirement accounts. From our perspective, we see better retirement plans that have a combination of pre- and post-tax (Roth) balances. This variety of different money sources provides retirees more flexibility in their retirement plans. The earlier in life you can review and access the difference between these different types of retirement accounts, the more tools you will have to plan for retirement.

Retirement planning has become unique and tailored experience for each family. If the pandemic has changed your view toward retirement, you are not alone. It is one of the most common questions we are encountering.

For a comprehensive review of your personal situation, always consult your legal or tax advisor.
Inside your COVID prepared retirement plan you should have an understanding of positive cash flow, understanding of how to optimize your Social Security elections, how the potentially largest expense (health insurance) fits into your plan, understand how to get money out of your investment accounts, and structure a retirement plan from a variety of retirement accounts that have very different tax characteristics.
The advisors at Rose Street Advisors can help families like yours work towards your retirement goals. Let us know how we can help you become more prepared with our retirement planning services.

Carl DoerSchler

AIF ®, CPFA, CMFC | PRINCIPAL & FINANCIAL ADVISOR

With 17+ years of experience, Carl is responsible for managing Rose Street’s investment area, including personal financial planning assets and retirement plan assets. Carl enjoys tennis, traveling, and destination dinners. In 1994, he broke the Baldwin-Wallace University tennis record for most career wins formally held by Bud Collins. The record has since been broken.

cdoerschler@rosestreetadvisors.com