Eventually, almost every person asks the question, “Is it time to retire?” The real question is, “Are you prepared?” It’s quite common for people to save for retirement but as it gets closer they begin to wonder if they are ready. They also realize it’s a lot more complicated than they originally thought. In this episode we’ll discuss 5 steps to prepare yourself your retirement day and my methodology to determine if you’re ready.
STEP #1: UNDERSTAND YOUR SOCIAL SECURITY BENEFIT
- Get your statement and know your three numbers
- Understand the spousal benefit
- Understand what happens if you take early or delay
- See other shows for more info:
- Don’t make your Social Security decisions in a bubble!
STEP #2: GET A TOTAL OF ALL YOUR RETIREMENT INCOME
- Determine any other sources of regular income during retirement and when they will begin, such as a pension, annuity, rental income, etc. Make sure you make pension and annuity decisions based on both spouses if you are married.
- Once you know your Social Security and other income sources you can add these up at different ages. For example, you could run a scenario at 62, 65, full retirement age, and 70. Because Social Security increases as you delay, the monthly benefit will increase as you wait.
- Write down your total income at various ages.
STEP #3: KNOW YOUR RETIREMENT INCOME GAP
- Your next step is to determine how much you need or want during retirement on a monthly basis. Make sure and take into account health care expenses if you’re going to retire early or a house being paid off early in retirement, for example.
- The difference between what you want and how much income you’ll have is your income gap. In most cases this isn’t a linear projection meaning you may want a vacation in 5 years, a new car in 2, etc. Making a plan for this is important as well. After all, retirement is supposed to be fun!
STEP #4: DETERMINE OTHER ASSETS FOR RETIREMENT
- Make a list of your 401(k)s, IRAs, or other retirement accounts and total them up.
- Determine which accounts to pull from first.
- Analyze the tax consequences of each of these accounts. For example, taking money out of a bank account vs an IRA, or a Roth IRA vs a 401(k).
- Model different withdrawal rates to decrease your risk of running out of money.
- Be aware of the sequence of return risk!
STEP #5: DEVELOP A STRATEGY
- Do you have a strategy? Do you understand it? How confident are you about your strategy?
- Up until now you’ve been accumulating assets. As you approach retirement you’ll most likely need to start spending those assets. You’ll also need to invest differently as retirement approaches and you’re in retirement.
- Often people forget to preserve their assets (The 10-year rule)
- Coordinate your Social Security with your other assets
- The 3 buckets
- Determine investment strategies that align with your income plan.
- Not everything is a hammer!
IT DOESN’T HAVE TO BE ALL OR NOTHING
- We often think of retirement as a thing we do once rather than it being a process.
- For example, if you’re done with work at 62 but want to delay a little later to take Social Security, you don’t always have to work full-time in the job you dislike until you retire. It’s possible to retire and still work.
- For example, if you know your Social Security benefit at 66 is going to be $2,500 per month and you’re going to also pull $2,500 from your investments to give you $5,000 per month at 66, you don’t necessarily have to work full-time until 66.
- With the right income plan, you could potentially retire at 62 and find part-time work that brings in $2,500 per month until 66, which is the same as Social Security. If your assets are sufficient enough, you could also start withdrawing $2,500 per month from your investments.
IS IT TIME TO RETIRE?
- This can be complicated
- That’s why people like myself do this
- Many advisors don’t know Social Security and many aren’t comprehensive
- If you would like to sit down and discuss your Social Security benefits, your assets, and create a plan on when to retire, call us at 801-810-8434 or go to thriverp.com and click on get started to learn more.
- Thrive Retirement Planning is a holistic fiduciary firm and we can meet with you either in person or virtually.
Do you have questions about when to take Social Security and how to maximize your benefit? Take our free online Social Security Masterclass by going to thriverp.com/ss.
