Planning for Retired Couples
Are you ready to walk away from work and the income it provides? For most married couples, retirement may very well include 30 years of life expectancy, which requires rising income to meet rising expenses. Could your finances be improved by another year or two spent in the workforce? Maybe an extended period of part-time work makes sense to you. Let Vaughan & Co. Securities, Inc. help you make an appropriate retirement timing decision. Based in Ridgewood, NJ, our financial advisory firm offers some thoughts from our clients who have retired successfully.
What will you do next? Or have you already started doing it? Most of our clients like their job most of the time. A new retiree certainly deserves a few weeks of downtime. But after the initial rest, you will want to become productive. Many retirees make a mistake when they do not know what they are going to do without work. This is a good reason to keep working! You might want to travel, volunteer, explore new hobbies, or take on a part-time job. You should have a plan for what your retirement will look like and what you want to do if you stop working. Start the post-retirement activity before you retire. You may want to experiment. In addition, you have to know how much the retirement life will cost. Working on your garden is relatively inexpensive but traveling is expensive. (So is charitable work!)
Retirement Is on the Horizon
Do you have enough retirement income to meet your monthly expenses? You should estimate your current monthly expenses (which are paid after taxes, of course!) If you are going to travel, then add the cost of travel. Few of our clients will retire to a lower cost of living and spend less than pre-retirement. In addition, expenses go up every year even if you maintain the same standard of living. You need an annual raise just to meet the rising cost of living. We will budget for the ever-rising monthly expenses in retirement. Schedule an appointment if you need retirement planning for your family.
Once you have a sense of your expenses, we estimate how much income you will have coming in from Social Security, pensions, and annual withdrawals from your investment accounts. The annual withdrawal that can be made from your investment accounts is dependent on future investment returns. Since the future is always unknowable, we will have an extended conversation about a reasonable estimate of future investment returns. The reasonable estimate of future income will be driven by how much of your investment program is invested in stocks of well-managed, well-capitalized businesses. Then, we are able to make an estimate of your future income. If your income does not cover your monthly expenses (with a little cushion!), then you not retiring! The biggest mistake we can see is retirement with a shortage of income. If you can live and prosper on the income, then you could think about retiring now.
Preparing Well for Retirement
Have you stress-tested your retirement finances? Successful retirement planning involves planning for unexpected expenses. One client told me that “Financial emergencies happen every six months, but you can schedule them.” We will keep a meaningful amount in cash reserves, maybe municipal bonds, for these emergencies.
We know that markets fluctuate. We want to prosper in retirement and we expect that our financial matters will not go smoothly. A significant decline in your investments is a routine event. We should have a plan in place to address market downturns. Skilled nursing care or an assisted living stay can cost thousands more per month. We should be prepared with an emergency fund to help cover these costs in retirement.
The best time to plan for your retirement is before you retire. You have to plan your finances and your time. Retirement income planning is what we do for a living. Your prosperity is our business. Please let us know if you have any questions.
Each spouse is entitled to individual benefits as well as spousal benefits. Vaughan & Co. Securities, Inc. reviews your individual benefits and then assists you in determining your spousal benefits. Based in Ridgewood, NJ, our financial advisory firm works closely with you as you plan for a happy and comfortable retirement.
Collecting Benefits at Full Retirement Age
Your benefits, known as your Primary Insurance Amount (PIA) is the monthly benefit for which you are eligible at your full retirement age (FRA). FRA varies based on your year of birth. Originally age 65, the federal government has increased FRA for anyone born after 1937 in recognition of longer life expectancies. Life expectancy in 1937 was less than 65. Today, it is about 78. So, we expect our clients to live even longer.
The Social Security Administration (SSA) uses your highest 35 years of employment to arrive at your Average Indexed Monthly Earnings (AIME). For more information, please visit www.ssa.gov to get your Social Security statement. If you continue working after reaching FRA, the SSA automatically recalculates your benefits each year you continue to work. If your current income is greater than any of your previously calculated “highest 35 years,” your benefits will be adjusted upward. The increase generally will be made in October of the following year but will be retroactive to January 1. In addition, Social Security retirement benefits are automatically modified each year for inflation, known as Cost-of-Living Adjustments (COLAs).
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Contact us if you have questions about pre-retirement investment advising services. We proudly serve clients in Ridgewood, Bergen County, and throughout the greater Northern NJ area.