As a corporate executive, you’ve spent your career helping to build companies, shouldering responsibility, and leading teams. You’ve dedicated much of your life to your job, but have you given as much time and energy to your retirement years as you have your working days? You have worked hard your whole life and you shouldn’t leave your golden years to chance. Why risk running out of money or having a lower quality of living than you desire? To get started on a rock-solid retirement plan, here are three things to consider before you make the move.
1. Create A Social Security Strategy
Social Security benefits can be claimed anytime between ages 62 and 70. However, there are literally hundreds of potential claiming strategies that you will need to choose from. The timing of when you (and your spouse) decide to collect these benefits will impact the amount of payout you each receive. At 62, you become eligible to receive social security income benefits for the first time. But before you file your claim to social security, it’s important to review your options for claiming so that you decide which is the best claiming strategy for you – and it’s not always the same one as your golfing buddy!
Did you know that if you start claiming benefits at age 62, your benefit is about 26% lower than if you waited for full retirement age, or FRA, and the benefit is over 40% less than if you wait until you are Age 70 to claim? It’s also important to consider how long you’ve worked and your lifetime average monthly earnings, which are used to calculate your benefit. In some cases, working a few extra years can have a big impact on your monthly social security benefit.
Finally, you’ll want to review your spousal benefits and spousal claiming strategies, especially if you are widowed or divorced. It may be beneficial to start claiming spousal benefits now and delay claiming your own benefits until later.
Picking the Social security strategy that is right for you is very complicated, so it’s important to work with a financial professional that understands the options available and can help you determine the best strategy for you.
2. Plan A Retirement Withdrawal Strategy
Just because you’ve worked hard to save for retirement and you have built up a nest egg doesn’t mean you can rest easy. Properly managing your investments are a critical part of a successful retirement. Before you decide to retire and then start tapping into your investments during retirement, you need to develop a withdrawal or distribution strategy to withdraw your funds so they last the rest of your life, however long that may be. Nowadays, it’s not uncommon for a retiree to live for twenty-five or thirty years beyond their working years. We prepare our clients for this by running various scenarios that looks out to age 95, or even longer. Most of our clients like to have a projection as to how long their money can last. We run the numbers and help them get the answers.
Since you know that stocks have historically earned an average of 8% a year, you might assume that you can afford to withdraw 8% of the initial portfolio value (plus a little more for inflation each year). But in reality, to protect against the uncertainty of the market, you may have to limit your withdrawals to 4% or even less. Since there is no simple, one-size-fits-all plan, you need to figure out what will work for you and your unique situation, taking various factors into account, such as time horizon, risk tolerance, asset allocation, and unexpected living expenses. We will work with you to give you the peace of mind that comes with proper planning.
3. Consider A Roth IRA Conversion
When it comes to your retirement, IRAs are one of the most widely-used retirement vehicles. One IRA strategy that high income earners should consider is a Roth IRA conversion, which can provide several benefits. For one, unlike regular contributions to a Roth IRA, with a Roth conversion there are no income limitations in the year you convert. If you have not been eligible to contribute to a Roth due to income reasons, it may make sense, believe it or not, to pay the taxes to convert some or all of your traditional IRA to a Roth and you’ll still reap the benefits.
Secondly, you do not have to take the Required Minimum Distributions (RMDs) from a Roth beginning at 70½ like you would with a traditional retirement account. Because of this benefit, your money can grow tax-free for as long as you’d like and can be an excellent way to leave a legacy for your heirs.
Additionally, when you convert your IRA, you are paying taxes now so that you don’t have to when you make withdrawals in the future. While it can be tempting to think short-term and only invest in a traditional IRA for a tax deduction, the Roth’s tax-free retirement income can be an even greater benefit to you. There’s no way to predict what tax rates will be throughout your retirement years, but by paying taxes up front, you could protect your savings from future tax hikes, and on a net basis, it may benefit you to convert some, or all, of your traditional IRA to a Roth IRA. We have the experience and capabilities to provide a customized analysis to help you determine which method is best for you.
Are You Ready To Get Started?
You don’t have to go it alone and plan for your retirement on your own. An experienced, knowledgeable advisor can provide you with guidance and advice that you can’t put a price on. Regardless of whether you’re about to retire, or still a few years away, you will benefit from creating an action plan to meet your retirement goals. At Haddon Wealth Management, we want to help you set up a rock-solid retirement plan so you can feel confident about your future. We can work with you to assess, plan, and implement customized financial solutions that will help you live the lifestyle you’ve been working so hard to attain. Take the first step by calling us at (856) 888-1744 or contacting us online to schedule a complimentary consultation.
Gregory M. Hart, CFP® is the founder and managing director of Haddon Wealth Management, LLC, a registered investment advisory firm that provides comprehensive wealth management for clients who value a relationship-driven approach that delivers customized solutions. He seeks to address clients’ many financial needs in an integrated approach combining both investment management and financial planning which may include some or all of the following: detailed retirement planning using a year-by-year cash flow analysis, tax-minimization estate planning, social security decision analysis, education planning, and much more. Based in Haddonfield, New Jersey, Greg works with clients throughout the Delaware Valley as well as nationwide. To learn more, connect with Greg on LinkedIn, visit our website at www.haddonwealthmgt.com, or call (856) 888-1744.