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When is the Worst Time to Retire

Minute video: Do not let timing ruin your retirement.

 

When is the worst time to retire.

Many people seek the optimal time to retire. Unfortunately, there is also a terrible time to retire.

Here we will cover a few factors to consider when deciding to retire to avoid the “worst” time to retire.

First, if you retire and you will not have medical coverage, this is a clue that it is not the time to retire. This is a huge risk. Without insurance, you are one accident away from insolvency or a severely underwhelming retirement. And if you retire and do get insurance on the open market, you may find the cost essentially unaffordable and cause a catastrophic meltdown of your assets.

Second, you have no real source of income to meet your critical needs. As mentioned in an earlier blog, Social Security retirements are unlikely to be enough. If that is the case, where is the rest coming from? It is incredibly surprising how fast a “nest-egg” can be depleted.

Investment returns go sour. Investments that can vary in value are subject to the risk that they will perform badly at the wrong time. So, while your investment nest egg loses value, you will compound the loss by drawing living expenses. This a double whammy from which your portfolio may never recover.

Imagine retiring in January 2000. Within 10 years the account could easily be down 50% in an all equity portfolio - and that does not include any withdraws along the way. If in your estimates you barely had enough to retire in 2000, then you surely are sunk in this scenario. So, the time to think twice about retirement is when the market is high.  Or if you elect to retire, make sure you planned on a low rate of return.

 

This video and text is for information use only and is based on information believed to be true. Much of the information is readily available, but some is drawn from Advisor Products articles. The reader acts on these ideas at their discretion and should consider consulting an accountant, financial advisor, or attorney. No promise is made that an idea or concept is appropriate or would work well for the reader. This is not an offer to provide legal advice or act as an attorney. Contact Steven Erickson JD, MBA, CFP(R), Accredited Wealth Management Advisor, Chartered Retirement Planning Consultant at 573-874-3888 This email address is being protected from spambots. You need JavaScript enabled to view it. , if you have questions or to set an appointment. Serving Clients in Columbia, Jefferson City, and the surrounding counties.

 

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When is the Best time to Retire

1-minute video: When is the best time to retire?

 

When is the best time to retire?

The answer to this question is incredibly complex. Here we touch upon a few of the key issues.

One issue is how much and when will you spend in retirement. On the surface this may be a simple calculation, but when you factor in taxes, inflation, lifestyle choices, and potential health issues, it becomes less clear.

Another is issues is from where will you get the income to cover the expenses. If you have a pension, these figures may be fairly easily to calculated. Typically, pensions will not cover all of your needs especially later in life. So, you need to calculate how much you can expect your investments to generate in income whether in interest, dividends, or due to the sale of an assets. This is where this issue gets complicate since no knows just how well an investment will perform.

Mentioned above is health care cost. This is a growing issue as more Americans are living longer than before. Depending upon your current age, your life expectancy may exceed thirty years from the time you retire. That may mean you might work fewer years than you are retired. And many of you who are readying this article may live a decade beyond your life expectancy. Retiring too early can be a huge, irrecoverable risk.

Lifestyle issues can alter when you retire. Some people can simplify their lives by downsizing and abandoning the trappings of modern living. Others may want to enjoy the remaining active years they have. Either path will influence when you can retire.

Simply put, the decision to retire is one of the most complex, stress creating decisions you may ever make. There are the objective issues and the subjective issue that impinge on your choice. Make a good one.

 

This video and text is for information use only and is based on information believed to be true. Much of the information is readily available, but some is drawn from Advisor Products articles. The reader acts on these ideas at their discretion and should consider consulting an accountant, financial advisor, or attorney. No promise is made that an idea or concept is appropriate or would work well for the reader. This is not an offer to provide legal advice or act as an attorney. Contact Steven Erickson JD, MBA, CFP(R), Accredited Wealth Management Advisor, Chartered Retirement Planning Consultant at 573-874-3888 This email address is being protected from spambots. You need JavaScript enabled to view it. , if you have questions or to set an appointment. Serving Clients in Columbia, Jefferson City, and the surrounding counties.

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Can inflation hurt you?

1-minute video: Impact of Inflation in retirement

 

Can inflation hurt you?

Inflation is a rise in price over time. Commonly you will read about the Consumer Price Index (CPI) which provides the direction of prices of the component items upon which the index is based. Not everything you might buy in a week or month is in the list, but the idea is to get a representative sample of many important items.

Lately, news stories have talked about the rise in inflation. A rise in prices, or CPI, in isolation does not tell you much especially if not compared to something meaningful to you. For many years this rate has been low by historical standards, but now it is beginning to rise. Along with this rise is a rise in interest rates, both long-term and short term rates, which effects the rate borrowers pay for goods and services they pay for with debt whether a car, house or even a credit card debit that is not fully paid at month’s end.

So, can inflation hurt you? Yes, it might if your income fails to grow as fast as inflation. Hypothetically, if a grocery item you always consume costs $3.50 today and inflation is 4%, then in eighteen years you will need $7.00 to buy the same item. If you are on a fixed pension, you have a problem. The cost has doubled, but your income has not.

You can not control inflation, but you can control in what investments you place your money. For most people, some portion will need to be in assets which, in the long-term, rise in value faster than inflation. That way, when the item doubles in price, hopefully your investments will have more than doubled in value. Finding the right mix of investments for your situation will take time, effort, and expertise. The right mix is different for everyone and changes through time.

 

This video and text is for information use only and is based on information believed to be true. Much of the information is readily available, but some is drawn from Advisor Products articles. The reader acts on these ideas at their discretion and should consider consulting an accountant, financial advisor, or attorney. No promise is made that an idea or concept is appropriate or would work well for the reader. This is not an offer to provide legal advice or act as an attorney. Contact Steven Erickson JD, MBA, CFP(R), Accredited Wealth Management Advisor, Chartered Retirement Planning Consultant at 573-874-3888 This email address is being protected from spambots. You need JavaScript enabled to view it. , if you have questions or to set an appointment. Serving Clients in Columbia, Jefferson City, and the surrounding counties.

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Best Social Security Benefits

Time Your Social Security Benefits For Top Results

What's the payoff for working most of your life and paying Social Security tax into the system? When your time to retire finally comes, you'll be eligible to receive Social Security benefits based on your work history and when you choose to begin receiving benefits. If you're married, you may have additional options for Social Security, even if one spouse has worked little or not at all.

A particular couple's optimal strategy depends on your age, the age of your spouse, and your health status, among other factors.

Your basic options for receiving benefits are to start early, begin benefits at your full retirement age (FRA), or to delay benefits until later.

  • You can begin receiving Social Security retirement benefits as early as age 62, but if you do, you'll lock in smaller benefits than you would have gotten if you'd waited longer. If you retire at age 62, your benefit will be about 25% lower than if you waited until FRA.
  • If you wait until FRA (also called "normal retirement age") to apply for benefits, there's no reduction. Your FRA depends on the year in which you were born. For most post-World War II Baby Boomers, the age is 66. However, FRA increases gradually and tops out at age 67 for those born after 1960.
  • Finally, if you postpone your benefits until after FRA, you'll receive an increased monthly payment. For each year you wait, you'll get about 8% more, until you reach age 70. (Waiting past 70 doesn't increase your benefit amount.)

 

These basic rules apply to individuals. If you're married, you can claim benefits based on your own work record or you can get 50% of the benefit your spouse is entitled to, if that's higher.

Because Social Security benefits are guaranteed for life, starting early with a smaller benefit still could deliver significant income over your remaining years. Yet you may collect more overall if you start later or if you live for a long time. According to the Social Security Administration (SSA) the average life expectancy of someone at age 65 is now 84.3 years for a male and 86.6 years for a female.

What should a married couple do? Every situation is somewhat different, but consider these three common scenarios:

Scenario 1. Adam and Eve are close in age and income. Because they're both in good health and enjoy their jobs, they plan on working past FRA. They also have enough savings, plus their work income, to sustain them easily until age 70. Currently, Adam has a life expectancy of age 88, while Eve's is age 90. If they elect early benefits at age 62, they would be entitled to an estimated lifetime benefit of almost $1.25 million. But if they wait until age 70 to apply for benefits and then live as long as expected, they could receive close to $125,000 more.

Scenario 2. In our next example, Romeo and Juliet have shorter life expectancies due to health issues. Currently, Romeo has a life expectancy of age 78 and Juliet has a life expectancy of age 76. If they claim benefits at FRA, it's estimated that the couple will receive almost $100,000 more than if they delayed benefits until age 70, based on their life expectancies.

Scenario 3. Jack and Jill are both in their early sixties. Jill is in better health than Jack. If they start benefits at age 62, let's say Jack would get $1,500 a month and Jill $750 per month. Those amounts would rise to $2,000 monthly for Jack and $1,000 for Jill if they claim benefits at FRA. However, by delaying benefits until age 70, Jack will receive about $2,650 a month. What's more, if Jill outlives Jack as expected, she is entitled to benefits based on 50% of Jack's higher monthly amount. Depending on how long Jill lives, her total benefits easily could increase by $50,000 or even more.

One of these scenarios might be similar to your situation, but you'll need to factor in your own variables—including how long you want to or need to work, as well as other financial and personal considerations and your health status—as you consider the best times for you and your spouse to begin receiving Social Security benefits.

 

This article was written by a professional financial journalist for Erickson Financial Solutions, LLC and is not intended as legal or investment advice.

 

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