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Retirement Planning


Retirement planning today has taken on many new dimensions that never had to be considered by earlier generations.  For one, people are living longer. A person who turns 65 today could be expected to live as many as 20 years in retirement as compared to a retiree in 1950 who lived,  on average, an additional 15 years.  Longer life spans have created a number of new issues that need to be taken into consideration when planning for retirement.

The Shrinking Pension Crisis and The Challenge for Retirees: Pension Income Replacement

Many workers in decades past relied on company pension plans to provide them with steady income through retirement. However, today you may be on your own investing part of your paycheck in a 401K or other retirement plan that can experience significant losses as we saw during the financial collapse of 2008.

What Retirees Need

Retirees who were surveyed identified their needs considering today’s realities, in a workforce.com article by Lisa Beyer “The Rise and Fall of Employer -Sponsored Pension Plans. Their top need was identified as having the potential for a guaranteed income steam for life. In addition, retirees indicated the need to have steady, stable and durable income that is consistently received even in down markets. They also cited the need for a growing or as least stable income base and potentially higher monthly income as they age. Moreover, retirees stated that the flexibility to start and stop income if possible while having a legacy for spouse and survivors would be desirable. Lastly, they expressed the need to avoid the risk of outliving their assets.

Accumulation vs. Distribution Phases of Financial Planning

While saving enough for retirement requires diligence and discipline, in many ways it can be the easy part. Managing your investments so that you don't run out of money arguably is trickier and requires more skill than saving it in the first place. People don't initially think about the risk of outliving their money, but they should put as much effort into trying to make wealth last as they did to building that wealth in the first place. Possibly the biggest challenge of your retirement planning is to take the money you've amassed over your life to this point and turn it into a reliable, durable income stream to support a post-work life that could last as long or maybe even longer than your work life.

While amassing a retirement nest egg can make you feel like you completed a long journey, the real trip starts when you begin tapping that nest egg. The reality is that not every investor is going to be able to retire with a portfolio that can provide sufficient income to meet their current and future needs. In addition to Social Security and any pension or other funds, the investor will need to draw the interest, dividends, and capital gains income from their portfolio, and likely principal from their investment portfolio, to meet expenses.

This means using a total return approach to the portfolio using cash flow from capital appreciation, dividends, income and other sources. Considering risks like inflation, and less-than-expected investment returns is bad enough. However, when you add a lesser known but potentially more harmful one like Sequence of Return Risk, your retirement funds can deplete faster and more dramatically than ever anticipated.

Therefore, this website is devoted to the remedies posed by the above mentioned as well as other insidious retirement risks. Please continue reading the INVESTMENTS and ASSET ALLOCATION sections for more on this important dilemma in retirement for today’s retirees.

Lifetime Income Need

There actually is a lifetime after retirement and the need to be able to provide for a steady stream of income that cannot be outlived is more important than ever.  With the prospect of paying for retirement needs for as many as 20 years, retirees need to be concerned with maintaining their cost-of-living. 

Health Care Needs

Longer life spans can also translate into more health issues that arise in the process of aging.  The federal government provides a safety net in the form of Medicare, however, it may not provide the coverage needed especially in chronic illness cases.  Planning for long-term care, in the event of a serious disability or chronic illness, is becoming a key element of retirement plans today. 

Estate Protection

Planning for the transfer of assets at death is a critical element of retirement planning especially if there are survivors who are dependent upon the assets for their financial security.  Planning for estate transfer can be as simple as drafting a will, which is essential to ensure that assets are transferred according to the wishes of the decedent. Larger estates may be confronted with settlement costs and sizable death taxes which could force liquidation if the proper planning is not done.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Gladstone Wealth Group, nor LPL Financial provide tax or legal advice. We do not offer all of these services directly, but can assist with providing a referral.

Paying for Retirement

Retirees who have prepared for their retirement usually rely upon three main sources of income: Social Security, individual or employer-sponsored qualified retirement plans, and their own savings or investments.  A sound retirement plan will emphasize qualified plans and personal savings as the primary sources with Social Security as a safety net for steady income.

Social Security

Social Security was established in the 1930’s as a safety net for people who, after paying into the system from their earnings, could rely upon a steady stream of income for the rest of their lives.  The age of retirement, when the income benefit starts was, originally, age 65 which was referred to as the “normal retirement age”.  Now, for a person born after 1937, the normal retirement age is being increased gradually until it reaches age 67 for all people born in 1960 and beyond.  The amount paid in benefits is based upon the earnings of an individual while working.  If a person wanted to continue to work and delay receiving benefits, they could do so build up a larger benefit.  Conversely, early retirement benefits are available, at a reduced level, as early as age 62.

Employer-Sponsored Qualified Plans

Most employer-sponsored plans today are established as “defined contribution” plans whereby an employee contributes a percentage of his earnings into an account that will accumulate until retirement.  As a qualified plan, the contributions are deductible from the employee’s current income.  The amount of income received at retirement is based on the total amount of contributions, the returns earned, and the employee’s retirement time horizon.  As in all qualified plans, withdrawals made prior to age 59 ½ may be subject to a penalty of 10% on top of ordinary taxes that are due. 

Depending on the size and type of the organization, they may offer a 401(k) Plan, a Simplified Employee Pension Plan or, in the case of a non-profit organization, a 403(b) plan.

Traditional and Roth IRAs

Individual Retirement Accounts (IRA) are tax qualified retirement plans that were established as way for individuals to save for retirement with the benefit of tax favored treatment. The traditional IRA allows for contributions to be made on a tax deductible basis and to accumulate without current taxation of earnings inside the account.  Distributions from a traditional IRA are taxable.  A Roth IRA is different in that the contributions are not tax deductible, however, the earnings growth is not currently taxable. To qualify for tax-free and penalty-free withdrawals of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum).  Depending on state law, Roth IRA distributions may be subject to state taxes..

Distributions from traditional IRAs and employer-sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching 59 ½ , may be subject to an additional 10% federal tax penalty.