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Retirement

Q&A: Getting a second financial opinion

September 11, 2023 By Liz Weston

Dear Liz: My wife and I recently retired. Our investments are managed by a certified financial planner. Our nest egg has not shown much growth over the last several years. We think it is time for another professional advisor to analyze our portfolio and see if we are really heading in the right direction. Is this out of the ordinary to seek more advice and how would we go about it, without offending our current planner?

Answer: You can certainly consult another advisor, but consider talking to your own first.

Start by asking the certified financial planner how your portfolio has performed relative to an appropriate benchmark over the last five years. The planner should be able to explain what benchmark was chosen and why. A portfolio that invests heavily in bonds, for example, will have a different benchmark than one that invests mostly in stocks.

If your portfolio is lagging behind this benchmark, then ask the planner what changes can be made to improve your investment performance. Switching from actively managed investments to passive ones, such as index mutual funds or index exchange traded funds, could save on costs and improve performance because few actively managed investments manage to beat the market.

If your portfolio is performing appropriately relative to its benchmark, then discuss whether you want to take on more risk for better returns. Many planners recommend retirees have a substantial portion of their portfolios in stocks for inflation-beating growth.

Your certified financial planner should be open to this discussion and ready to course correct if necessary. If you find that’s not the case, then it may be time not just for a second opinion but for a new advisor.

Filed Under: Financial Advisors, Q&A, Retirement, Retirement Savings

Q&A: Care planning for ‘solo agers’

August 14, 2023 By Liz Weston

Dear Liz: My wife and I don’t have children or any relatives nearby. So far, we’re healthy and completely independent, but that won’t always be the case. Do you know of any fee-based agencies or organizations that might provide assistance with such things as arranging a caregiver if needed, or helping our executor clean out our home?

Answer: A geriatric care manager can help assess your needs as you age and come up with a plan to meet them, including arranging for caregivers or finding an assisted living facility. You can get referrals from the Aging Life Care Assn.

An estate liquidator or a professional organizer can help with clearing your home. You (or your executor) can get referrals from the American Society of Estate Liquidators and from the National Assn. of Productivity & Organizing Professionals.

Also consider building a community of friends and neighbors who can help you as you age, and vice versa. You might be able to get some help from the nonprofit Village to Village Network, which is a group of community-based membership organizations helping people to age in place. The books “Who Will Take Care of Me When I’m Old?” by Joy Loverde and “Essential Retirement Planning for Solo Agers” by Sara Zeff Geber would be helpful reading.

Filed Under: Elder Care, Q&A, Retirement

Q&A: How to plan retirement withdrawals

July 24, 2023 By Liz Weston

Dear Liz: I am 65 and plan on working until 70 to get the maximum Social Security. I have a 401(k) worth about $290,000. How do I determine the maximum monthly payout I should take while being somewhat certain it will last until I’m 90? Our family has a history of longevity, typically living into the early 90s.

Answer: You may have heard of the “4% rule,” a guideline that suggests an initial withdrawal rate of 4%, with the amount adjusted each year afterward by the inflation rate. The rule stems from research by certified financial planner Bill Bengen, who in a 1994 research paper used historic market returns for a portfolio consisting of 50% stocks and 50% bonds to determine the maximum safe withdrawal rate for a 30-year retirement.

Some researchers believe a sustainable withdrawal rate should start closer to 3%, and others suggest higher rates if the account owner is willing to cut back spending in bad years.

However, most retirement accounts, including 401(k)s, are subject to required minimum distributions. These will start after you turn 73. (For people born in 1960 or later, such distributions will be required starting at age 75.)

The exact amount you must withdraw depends on your account balance at the end of the previous year as well as your age and life expectancy. The percentages you must withdraw could be slightly less or considerably more than 4% of your original balance.

Filed Under: Q&A, Retirement, Retirement Savings

Q&A: The thought of ending up old and alone can be terrifying. It doesn’t have to be that way

June 26, 2023 By Liz Weston

Dear Liz: My wife and I have no children to take care of us in our old age, and I am scared to death regarding what will happen to the surviving spouse when one of us dies or we become incapacitated. We are 69 and 67 respectively and I think a lot of “boomers” are facing this issue. Any thoughts?

Answer: Consider getting a copy of the book “Essential Retirement Planning for Solo Agers: A Retirement and Aging Roadmap for Single and Childless Adults” by certified retirement coach Sara Zeff Geber. The NextAvenue site also has a wealth of information on how to prepare for aging and incapacity if you don’t have kids or don’t have ones you can rely on.

Geber provides far too much valuable information to summarize here, but one important strategy is to create a strong social network. Not only can this combat social isolation and loneliness — which are as dangerous to your health as smoking — but these folks can help look out for you and vice versa.

If your social circle is small or you’re out of the habit of making new friends, consider activities that put you in contact with others such as volunteering, taking classes or joining exercise groups. Also check out the Village to Village Network, a nonprofit that helps people age in place by encouraging groups of neighbors to help one another with rides, services and activities.

Living in close proximity to others and in areas with robust social services also can make a huge difference for solo agers. Another option, if you have the means, is to consider a continuing care retirement community that allows independent living to start, with assisted living and sometimes nursing home care as needed.

Every adult needs an advance healthcare directive, such as the free ones at Prepare for Your Care. These documents allow someone you trust to make health decisions if you should become incapacitated. It’s OK to name your spouse, but you also should have at least one and preferably two or more backups. Filling one out can help you think deeply about the people currently in your life you can trust with this task, and may encourage you to deepen those ranks if they’ve gotten a little thin.

Filed Under: Q&A, Retirement

Q&A: How to get started managing your retirement assets

March 13, 2023 By Liz Weston

Dear Liz: I’m 72 and still employed with a salary of $80,000. My wife and I have a home with about $1.6 million in equity. We have almost $4 million in real estate investments, $200,000 in stocks, IRAs worth about $250,000 and about $175,000 in cash. Although it may seem like we have a lot, I really have no clue what to do at this time. I worry about the need for long-term care in future for me or my wife, or what would happen if I stopped working and lost that income. I don’t know how to manage the stocks and cash I do have or how to plan for the future. I tried contacting quite a few fee-only financial planners and they all told me they wouldn’t work with me unless I had $500,000 to give them to invest. Any suggestions on where I can get some real advice without giving someone complete control of money that I don’t have anyway?

Answer: You’re describing the “assets under management” model, in which advisors charge a percentage of the assets they manage for clients and often require the clients to have a minimum level of investable assets such as stocks, bonds and cash. This model evolved in part because many people balked at paying directly for comprehensive financial planning, which is time- and labor-intensive.

But this model often isn’t a great fit for people who are just starting out, who don’t want asset management or who, like you, have most of their money in less liquid investments.

Fortunately there are other ways fee-only planners get paid. Some, including those represented by the Garrett Planning Network, charge by the hour. Others, represented by the XY Planning Network and the Alliance of Comprehensive Planners, use the retainer model, in which clients pay monthly or quarterly fees. Interview a few planners from these organizations to find a good fit.

Filed Under: Q&A, Retirement, Retirement Savings

Q&A: What a bear market really means for your 401(k)

October 3, 2022 By Liz Weston

Dear Liz: With the stock market tanking and no rebound likely in the near future, should I decrease the amount I am contributing toward my retirement? I earn a high-five-figure salary and currently contribute 25% of my pay to my company’s 401(k). The current balance is $450,000 with about two-thirds held in a 2030 target date fund and the remainder in a 2035 target date fund. I hope to retire at the end of 2030 at age 64. I have no other retirement accounts, but I am married and my husband collects Social Security and a pension.

It’s hard putting hundreds of dollars into my 401(k) every two weeks only to watch it seemingly disappear. Would it be smart to decrease the percentage I contribute by 5% to 7% and then use that extra money to pay down a $40,000 home equity line of credit? Or should I just stay the course, keep my percentage the same and ride out this bear market?

Answer: Since you’re within 10 years of retirement, it’s time to hire a fee-only financial planner to get specific, individualized advice about your situation. The decisions you make in the years immediately before and after retirement can have a huge impact on how long your money lasts. Mistakes made in this time frame can be difficult if not impossible to reverse.

Take, for example, this impulse to reduce your contribution rate. Your money isn’t disappearing; it’s being used to buy stocks at a discount. When the market rebounds, as it inevitably will, those shares you bought on sale will benefit from the growth.

A planner would tell you not to cut retirement contributions simply because stocks had entered a bear market. The logical response to a bear market is to invest more, not less.

That said, variable rate debt is getting more expensive thanks to Federal Reserve Bank rate hikes. Reducing your 401(k) contributions a few percentage points to pay off that debt faster could make sense, especially if you’re not giving up free money in the form of a company match and your reduced savings rate will still allow you to retire on time.

Again, a fee-only financial planner could help you weigh your options and recommend the best path.

Filed Under: Investing, Q&A, Retirement

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