Stressed out? Ready to retire? Show 70


Here’s a quick guide on how to determine if you can retire. Some of our clients come to us when they are approaching retirement, and they’re trying to figure out things like:
  • How should I elect to take Social Security?
  • Do I have enough money to retire?
  • How should I draw my money down or use it?
  • What will my health insurance cost be in retirement?
  • What options do I have for long-term care?
In this newsletter, I’ll briefly break down each of those concerns and tell you how we go about answering these important questions. (Amelia, pictured below, came by to have lunch with me last week.)
Amelia, my lunch visitor
The first step is determining what it takes to pay your bills each month and how much money you need for lifestyle expenses. If you don’t know this number, this is a step one.
Next, we help our folks figure out the best way to claim their Social Security benefits. This decision can literally result in a difference of hundreds of thousands of dollars. If your financial advisor has not talked about your Social Security benefits, ask yourself if you think it’s an important conversation.
There are hundreds of different claiming strategies and nuances to this decision. We will run a comprehensive Social Security Timing Report that analyzes your choices based on when you claim, what you will earn at your full retirement age, and what life expectancy you’d like to plan for.
No retirement income plan would be complete if it didn’t factor in a reduction of Social Security benefits, because the government has been warning us of this probable eventuality for more than a decade. So, we’ll factor in what a 76% reduction in benefits in 2033 will do to your portfolio. A twenty to thirty percent reduction is what most reports indicate may happen in the 2030s.
When we have the two Social Security numbers, which are what you will earn and what your benefit may be reduced to, we can figure out the most advantageous way to claim benefits. Then, we can move on to the next part of the equation.
Social Security typically only funds 40% of a person’s income in retirement. There are ways to generate income to shore up that funding gap. There are productive ways to allocate your money to equity positions to generate a somewhat reliable source of income, and this is typically achieved by active portfolio management.
Social Security Card | Image: Google.
Did you see Facebook went offline on Monday for hours? During the course of trading the company’s stock fell more than 5%. Commonly, people will bring their accounts that demonstrate how their money is currently invested, and many of those account statements we look at have money invested in Facebook stock.
With traditional money management, the investor would do nothing in the event of drop. With active management, when things are going south, trades are executed in order to avoid major losses. The alternative is a passive buy and hold approach that hopes for a quick recovery. That’s not say that a buy and hold strategy isn’t appropriate for a part of a portfolio.
There are other guaranteed ways to generate income through the use of annuities. The advantage of this approach over using an equity position is that we can generate a known outcome. We can know with certainty what your paycheck will be twenty years from now.
Image: USNews
We’re seeing quite a few accounts heavily allocated to bonds or cash equivalents. This is partly due to the major market drop during COVID last year and then rapid bounce back. People don’t seem to want to be on the next bounce down.
A gentleman came to me in 2019 and his accounts were in cash, and of course I asked why it was like that. He said he’d been cash since the Great Recession in 2008. His money had been unproductive for 11 years! If only, I’d met him sooner! There are ways through the use of appropriate annuities to productively grow your money with zero fees and zero downside risk.
How you should draw your money down is largely determined by your portfolio’s tax status. Do you have tax-deferred IRA money, tax-free Roth money, or non-qualified accounts? Historically speaking tax rates are low, but if you’re like most people you don’t think they’ll be like that for long. If that’s the case, your tax-free money is your most valuable money. Tuck it way and use it later in life when tax rates are likely higher.
We have Medicare when we’re 65 and older, so the government pays 80% of our health insurance cost (with a few caveats). The government charges us a monthly premium for our out-patient care. Then we are responsible for the other 20% of our healthcare cost. There are a couple different routes here, but in my opinion the best plan you can buy is what’s called a Medicare Supplement. The government calls it Medigap. We break this down and explain the actual cost. The long and short of Medicare is do you want to have a set predictable cost you will pay each month or do you want to pay later when you get care?
Medicare does not cover long-term care costs, and this is why keeping your money intact may be critically important. The latest stats are 70% of us will need long-term care. If we can figure a way to generate retirement income off just the interest earned, that can go a long way to helping with long-term care.
Clearly, this is a lot to digest. If you think you may benefit from having someone come alongside you and help guide you through this process so that you can avoid many common pitfalls that stand between you and a successful retirement, please let us know. Respond by calling us at 864.641.7955.
Until next week,
David C. Treece,
Financial Advisor

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