A retirement plan is a lot like an orchestral score, and when all the pieces come together it can be a beautiful thing. Are you making music, or could your plan use a tuneup?
If you love music, and symphony orchestra performances especially, youve no doubt reveled time and again at how the whole thing comes together so magnificently.
The strings, percussion, woodwinds and brass sections each have their part all equally important. But without the conductor, I suspect most concerts would be chaos. Its the conductor who makes sure each instrument comes in at precisely the right time fast or slow, soft or loud as he or she interprets the score. To do that, the conductor must learn every part of every piece of music to be played and have a fundamental knowledge of every instrument and artist who will play it.
You can probably guess where Im going with this.
So often, when I meet individuals and couples who are planning for retirement, theyre doing it on their own and without much thought to what they need or when theyll need it. They might have a jumble of investments, each of which sounds good on its own, but those instruments arent necessarily working together to create the retirement theyve envisioned.
Much like an orchestra conductor, this is when a financial planner could come in and help turn the chaos to harmony. The right adviser should have a fundamental knowledge of all the investments and strategies available, as well as the ability to put together a comprehensive retirement plan that addresses each individual clients needs, goals, strengths and weaknesses.
There are five important parts in a comprehensive retirement plan that should play well together.
Many pre-retirees I meet have been diligently saving money in a tax-deferred retirement account (such as an IRA, 401(k), 403(b), etc.). Some may also have a pension benefit through their employer. And, of course, theres Social Security. But as they near retirement, most people need guidance on how to combine those income streams to create a reliable paycheck to replace the one they received while working. If you were told youd need less income in retirement, that isnt necessarily true particularly in the early years, when people generally are more active. Younger retirees usually have plans to travel, golf, dine out and do the things they couldnt do when they were employed. An income plan will help determine whats possible. And if your income will drop in retirement, a plan could help stretch your dollars further.
Your portfolio should work hand in hand with your income plan. Its important to be sure your investments are allocated appropriately based on your risk tolerance and your short- and long-term objectives. While saving for retirement, your goals may have been more focused on growth and accumulation and you may have felt more comfortable with a higher exposure to risk. But in retirement, your allocation should be significantly different. If not, you could be in for some sour notes during a market downturn and if a big loss happens just before or after you retire, it could be devastating to your nest egg.
Pre-retirees often underestimate how much theyll end up paying in taxes in retirement. If you dont prepare a long-term plan, taxes could take a sizable chunk out of your nest egg. Your adviser should make tax strategies a priority and be able to tell you how the money you withdraw from retirement accounts, including required minimum distributions (RMDs), could affect your tax bracket from year to year; if (and how much) your Social Security benefits will be taxed; and if your income could cause you to pay more for Medicare.
People tell me all the time that they dont ever want to become a burden to their families, and yet, they often fail to plan for expensive health care and long-term care costs. According to the 2019 Genworth Cost of Care Survey, the national median cost of a home health aide in 2019 is $4,385 per month, a private room at an assisted living facility was $4,051 and a semi-private room in a nursing home was $7,513. Those bills are seldom covered by Medicare, and they can quickly deplete a retired couples resources. Looking at options to offset those costs before they get out of hand can make a big difference in the quality of care retirees receive and lower the possibility that they might have to rely on others for help someday.
I think most people hope to leave some sort of legacy to their loved ones or favorite charity. But making those wishes a reality is far more complicated than simply telling your children what you want them to have. The most basic estate planning tool is a will, and thats all it takes for some families. But a will often must go through the probate process, which can be expensive and invasive and doesnt guarantee your wishes will be followed. Though it isnt always necessary, a trust may be a better option for you and your family. Its definitely something you should discuss with a financial adviser and/or an attorney. Dealing with a death is difficult enough. Whatever your plan includes, it should be as clear and issue-free as possible.
When all the parts of a retirement plan work in sync, its a more enjoyable experience for everyone involved. But its a lot to think about especially if youre still working and dont have time to research every investment tool and strategy. A knowledgeable and experienced financial adviser could help fine-tune your portfolio and lead you through each new and necessary movement, whether its the markets that are changing or your life in retirement.
Kim Franke-Folstad contributed to this article.
Securities offered through Securities America, Inc. A Registered Broker/Dealer. Member FINRA/SIPC. Advisory services offered through Cooper McManus, a Registered Investment Advisory Firm. Link Financial Advisory, Cooper McManus and Securities America are not affiliated.
Richard London is a CERTIFIED FINANCIAL PLANNER and founder of Link Financial Advisory (www.linkfinancialadvisory.com). As an independent financial planner, he goes into the market and finds the best solutions and strategies for his clients. Richard grew up and lives in Las Vegas with his wife and two children, and he holds a bachelor's degree in finance from the University of Nevada, Las Vegas.
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
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