Which Retirement Doctor Are You?

You clients have called you and said they are thinking about retiring. They have seen articles in the newspaper with retirement tips. A friend of theirs suggested some web sites to look at. Now they want your input.

Their concerns are common, so the question is: What is your advice for them?

What guidance will you give them that does not involved a product or carrier?

(Related: Leadership Is Not a Birthright… and It Shows)

Guidance that is designed to help them evaluate the timing of their retirement as well as the long-term effects of their planning on their income, assets, health and impact on their loved ones is the real reason they come to you.

First keep in mind that your client will at least consider these options, almost without exception when they are retiring at Social Security full retirement age:

• Social Security: They will sign up for Social Security. Many people have questions about how retirement works; you can refer them to some web site to learn how Social Security works and view some informative short videos.
• Medicare: When they sign up for Social Security they will automatically be enrolled in Medicare, in fact if they are going to continue to work for a period of time they will have to opt out of Medicare Part B.
• Supplemental Health Plan: Some 80% of individuals will purchase some type of supplemental health plan to cover the co-pays and deductibles and/or medical expenses that Medicare does not cover. They will purchase either a Medicare Advantage or Medicare Supplement if not some state specific version of these.
• Final Expense: Many will purchase a life insurance policy to either cover the cost of final expense or replace the first year income lost by a spouse passing in later years. Why will they do this, so they don’t leave a financial burden on their family.
• Short/Long Term Care: Many will purchase a plan to help pay for expenses not covered by Medicare or other health insurance to help cover expenses when they are recovering at home after a procedure.

Here are six other topics to talk about, to start a conversation that might be useful both for them and for you.

1. Retirement Income Estimation

“When you estimate your own expenses in retirement, remember that some of your expenses will decrease. For example, you won’t have to pay Social Security taxes on income if you’re retiring at full Social Security, or work-related expenses. However, other expenses – prescription drugs, long-term care insurance, and others – may go up considerably.

The estimator tool is available here.

2. Survivorship

Nearly 85% of older married women outlive their husbands. A husband’s pension is often reduced by half after he dies, and if the couple receives two Social Security benefits, the lower benefit is eliminated.

3. Life Expectancy

According to data compiled by the Social Security Administration:

• A man reaching age 65 today can expect to live, on average, until age 84.
• A woman turning age 65 today can expect to live, on average, until age 86.

And those are just averages. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.

4. Inflation

Inflation has fluctuated since 1970s between 7% down to 3% in 1990s, CD’s or money market funds have not kept up while many use them to hold emergency funds while the stock market has offered higher returns for long-term investments. And while this many mean the possibility of greater gain the higher risk of loss has to be accounted for. So what vehicles or investments can help our clients protect against inflation;

1. Social Security – while not always usually Social Security increases slightly each year through a Cost-of-Living Adjustment (COLA), for 2019 the COLA is 2.8% for most
2. Inflation-indexed Treasury bonds – The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater. TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.
3. Inflation-indexed annuities – An inflation-indexed immediate annuity is a form of a fixed annuity. You receive a guaranteed stream of income from the insurance company, and that income will rise each year based a pre-determined formula; usually the increase is tied to changes in the CPI (Consumer Price Index). An inflation-indexed annuity will provide a lower initial amount of monthly income than a non-inflation-indexed immediate annuity, but over time, as inflation continues, the monthly income will gradually increase, surpassing the amount you would be receiving from an equivalent non-indexed annuity.

So what does it mean to plan for retirement – Your clients will have retirement expenses not covered by monthly pension and social security benefits. They will need to consider the issue of not outliving their means.

While some will be tempted or want their money to go to their heirs it’s important they understand that the money in their retirement vehicle is for retirement and not for heirs