Retirement Guys: When to retireWritten by Nolan Baker Mark Clair | | email@example.com
In June 2014, over 4.5 million Americans left their jobs either voluntarily (i.e., they quit), involuntarily (i.e., layoffs), or as a result of other circumstances (e.g., retirement, death, disability). (source: BTN Research and the Department of Labor).
At some point, you might be wondering when you should retire. It takes a bit of homework to try and figure out the best time, especially for someone who is going to retire by choice. Instead of retiring by chance, several important decisions need to be made and planning should be done.
Health and health costs are an important factor. According 1980 Social Security records, only 2.9 million Americans where getting disability payments from the Social Security system. That number has skyrocketed to 11 million people in 2013. We could write an entire column debating the reason why there was such a large increase. But, the fact remains the same: more people are retiring due to health-related issues.
Prior to the Affordable Care Act, someone who retired before the age of 65 due to health-related issues may have faced major financial risks since they may not have been able to buy health insurance. Now thanks to this new law, health insurance is an option on the exchange. Yet that doesn’t mean a retiree will consider it affordable. Someone looking to retire before the age of 65 should review and consider the cost of health insurance as part of their monthly budget. Review plans and pricing at www.healthcare.gov.
Retirees should have plenty of reliable income. Tom Hegna, author of “Pay Checks and Play Checks,” was one of the speakers at a financial conference that I, Nolan, attended. In his book, he dives into the numbers behind what it takes for a retiree to have money for the rest of his or her lifetime to cover monthly expenses and how to plan to have additional money for enjoyment, aka play checks. Up to five years prior to retiring, a family should add up its reliable monthly income. Examples are Social Security, pensions and annuity income. Then subtract expected monthly expenses. If there is a gap, Hegna recommends moving a portion of money into an annuity that will provide a lifetime income guarantee to fill the gap.
People looking to retire should not let the recent performance of the stock market lead them into a false sense of security with making their decisions. As licensed financial professionals, we feel having a portion of money in the stock and bond market can be a great place for long-term money. Yet, just remember the returns of the stock and bond market are beyond any individual’s control. People may tell you what they believe is a reasonable return to expect when investing in stocks, bonds and mutual funds, but the market doesn’t really care what they, you or I think. The markets will go up and down, and can change directions in a hurry. A retiree should not bet his or her retirement on the market continuing to go up for the next five years as it has for the past five years. We hope it does, but if it doesn’t, have a Plan B.
Avoid lifetime income reductions. As we pointed out, reliable income sources can be in the form of pensions, Social Security and annuities. Almost all of these types of income sources have one thing in common: the older a person is when they begin taking income, the higher the payments will be. Full normal retirement age is 66 for drawing Social Security benefits for anyone born between 1943 and 1954. A 25 percent lifetime reduction in benefits applies to someone who starts drawing Social Security at the age of 62. Take time and carefully consider when to start income payments before electing benefits, it may make sense to live off other assets first.
Get out of debt. Thirty-one percent of Americans have applied for some form of credit in the prior 12 months, including auto loans, home mortgages and credit card debt (source: BTN Research and the Federal Reserve). Those who are close to or in retirement time should avoid debt like the plague. Focus on paying off as much debt as possible to free up more monthly income in retirement.
For more information about The Retirement Guys, tune in every Saturday at 1 p.m. on 1370 WSPD or visit HYPERLINK “http://www.retirementguysnetwork.com”www.retirementguysnetwork.com. Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc. does not provide tax or legal advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. 419-842-0550
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