Ten Steps to Being a Savvy Retiree

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Posted Jul 16

If you haven’t figured it out already, I like lists. I don’t like failure. Aviators- regardless of their experience -all use preflight checklists due to the extreme consequences of failure in their avocation. So to keep my clients from crashing and burning, I like to promote checklists. This one is from an old American Skandia publication: “Ten Steps to Being a Savvy Retireee” according to my editorial license. By the way, nothing here is a myth, contrary to the blog title.

ONE: Meet with your financial adviser(s). The original publication had this as step #10. But why waste time or take the risk of missing out on the latest developments? Advisers who have been around for a while have seen just about every possible type of client, from extremely successful to woefully unsuccessful. Wouldn’t you like to know who to emulate and who to avoid?

TWO: Calculate the financial impact of working in retirement. You may suffer reduced Social Security benefits or higher taxes. You need to know your Social Security “breakeven corridor”.

THREE: Understand the outcome of early retirement. 71% of retirees who retire earlier than they preferred (due to health or layoff) wished they had saved more. Plus, you may incur penalties and miss out on substantial compounding by retiring too early. Finally, you may unduly reduce your Social Security benefits. Permanently.

FOUR: Choose the right assets for income. This is a relatively old statistic but it’s probably even worse today; American incomes decline by roughly 50% between ages 65 & 85. An often neglected factor is taking income from the wrong assets at the wrong time. If I were a financial journalist, I would give you a snappy rule of thumb. But it just depends on your unique circumstances.

FIVE: Compare your payout/income options. This was more relevant when pensions were common. They’re not anymore. But generally, if you can, take the smallest distributions you possibly can from qualified accounts (IRAs, 401k’s, etc.).

SIX: Build a diversified portfolio. Actually, the word “diversified” has assumed more meaning than it deserves. The idea of “safety” has been bundled into it, illegitimately. You can have a diversified stock portfolio and still lose your shirt. I would say, build an appropriate portfolio that does not subject you to greater odds and degrees of loss than your lifestyle can handle, and then only if the rewards are commensurate with the risk. Finally, why take any risk when you don’t have to? The greatest risks result from doing nothing.

SEVEN: Develop a prudent strategy to meet your lifetime expenses. This all depends on your plans. Are you more concerned about security, leaving money to your kids, charitable donations? Be sure your strategy deals first with your financial survival. Be sure you will be able to pay the electric bill and buy your prescriptions before you get grandiose about the grandkids.

EIGHT: Take care of the legal stuff! Is your will old? Do you even have one? How about powers of attorney, advance directives, and trusts. If you would like to be a financial and administrative burden to those you leave behind, then ignore this step.

NINE: Be sure your beneficiary designations are appropriate. For example, many IRA custodians & annuity companies now allow you to just check a “Stretch” box in the beneficiary section if you want your IRA balance doled out over a number of years to your beneficiaries so they don’t take a big tax hit in one year. Beneficiary designations are a simple, free, and automatic method to pass most of your money assets outside of probate. But don’t fiddle with them without expert advice.

TEN: Plan your retirement lifestyle. I know few who do this. They just hope for the best and brace themselves for the worst. Or, they hunker down and deny themselves unnecessarily. What do you want to do, have, be? Those are the questions.