Don’t Let Retirement Planning Get You Salty

We celebrated National Margarita Day by hosting a retirement planning event complete with a tutorial on making the perfect Margarita.  We asked attendees to share with us one thing about retirement planning that makes them salty. Here are a few examples of what we heard: 

• “Concerned with having enough to retire with rising costs of everything.” 
• “Retiring without changing our lifestyle.” 
• “Health insurance.” 
• “Taxes.” 
• “Not knowing how long we will live.” 
• “Market uncertainty.” 

If you are starting to ponder retirement, it is likely you can relate to these concerns.  Don’t fret. It is normal to feel anxious about such a major life change.  The best way to stop worrying and take control of your future is to establish a solid plan addressing your fears.   

Fortunately, with careful planning, there are ways to be proactive about these valid concerns impacting your ability to live comfortably in retirement.  Here are just a few examples of how we help guide clients through these fears: 

• “Concerned with having enough to retire with rising costs of everything.”  Skyrocketing inflation have you down? As prices rise, retirement dollars cannot buy as much.  Both low and high inflation can impact a retirement plan. Thus, it is important that clients consider the impact of inflation on their plan.  Reducing spending, creating a realistic retirement spending plan, and leveraging investments all help to soften the blow inflation may have on long-term success.   
• “Retiring without changing our lifestyle.”  A survey from the Employee Benefits Research Institute found that 45.9% of retirees spent more in the first two years after they retired than they did in the years before retiring.¹ This makes sense as often travel and entertainment are high on the list when people first retire and may slow down over time.  With a solid income distribution plan in place, we can help clients maintain the lifestyle they envision. 
• “Health Insurance.”  In 2019, the average health care cost in retirement was $135,000 for men and $150,000 for women, according to an annual estimate by Fidelity. Couples retiring at age 65 needed $285,000 to cover health care costs, assuming they were enrolled in Original Medicare (Parts A and B) and had Part D prescription drug coverage. The estimates also include medical expenses that Medicare doesn’t cover, such as vision care and hearing aids. Not factored into these estimates is long-term care such as nursing home or assisted living expenses.² The Kaiser Family Foundation projected that annual out-of-pocket expenses for Medicare beneficiaries ages 65 and over would increase between $2,000 and $4,400 by 2030 compared with 2013 (not adjusted for inflation), which means that you'll need to have even more set aside when consider rising healthcare costs and inflation.³ So, it is absolutely valid to be concerned about health insurance costs in retirement.  By understanding your various options and planning for rising health costs, you can rest easy.  Oh, and a side note, going to the doctor regularly and taking care of yourself in retirement also helps. 
• “Taxes.”  Diversification isn’t just about your portfolio.  When it comes to retirement planning, it is also important to consider diversifying the types of retirement savings vehicles used and the timing of their use.  While your tax rate in retirement is uncertain, we can review the various income sources (401k, Traditional/Roth IRA, HSA, pension, investment accounts and social security to name a few) and project your taxable income during retirement.  By doing this early you may be able to take advantage of strategies to maximize your tax-advantaged savings and ultimately minimize the amount you pay Uncle Sam. 
• “Not knowing how long we will live.”  This is a tough one.  Recently, the CDC released a study saying life expectancy decreased during the pandemic by as much at 1.8 years.⁴ Whether the study is accurate or not it does help highlight the point that living longer or shorter has a real financial impact on the success of your plan. It is key to establish a plan that takes a realistic approach to life expectancy.  You may find it hard to envision living into your 90’s but it still is important to consider that scenario in your plan.  At the same time, we need to balance that with enjoying your life, especially during the early years of retirement.    
• “Market uncertainty.”  If you turn on the news on any given day you may feel like the sky is falling.  While history is not an indicator of future results, it is helpful to know that even during some of the greatest pullbacks in the market, we haven’t seen it go to zero and over time sticking with a long term strategy with a properly allocated portfolio has been successful.  We like to encourage our clients to turn the tv off.  That may be an exaggerated idea but the reality is time in the market is key, not timing the market.  A plan can help you stress test your portfolio for various scenarios and plan for cash flow needs. 

Planning for retirement can be stressful and overwhelming, especially if you're doing it alone. At First Citizens Wealth Management, we have a team that is ready to guide you through the process, help tackle your fears and celebrate your next season of life. Please contact us at wealth@myfcb.bank or 641-422-1600 to help you build a financial plan that leaves you a little less salty.