Bedrock retirement considerations

By Dr. Jason White
Director of Investments
Family Investment Center

As many of my friends and colleagues begin their retirement journey, I am often asked about key areas for successful planning. This bedrock advice is essential to securing a long and happy financial life away from the daily grind of work – a glorious time to be alive.

You must match your spending with your means. I am familiar with more than one case where a new retiree goes a little crazy with spending. A vacation here – a condo there – a couple of gifts to the kids and grandkids, and suddenly, we’re running out of money. Not a good situation to say the least.

It is well documented that newly minted retirees do spend more money during their first years of retirement while health is good and that list of “stuff-I’ve-always-wanted-to-do-but-never-did” is fresh and exciting. Nothing is wrong with this, just make allowances for the higher spending level and adjust your asset drawdown accordingly.

If you have your house paid for and can meet most of your monthly bills with Social Security and other annuity or pension payouts – that is fantastic! Just be sure to keep your invest-able assets growing during retirement to counteract the effects of inflation. After all, many folks today are living as long in retirement as they spent as a worker bee. A three or four decade retirement is becoming the norm. Enjoy, but stay within your means.

You and your spouse will need to make decisions about the timing and amount of distributions to draw from various retirement plans pools of money. If you are fortunate enough to have a traditional pension, you must decide if you want payments to end with your death, with the death of your spouse, or some sort of reduced benefit amount regardless of who dies first. From an actuarial standpoint, as my partner and founder of Family Investment Center, Dan Danford, taught me, these options are all equal. The amount of money you will receive as a pension benefit is determined based on your life expectancy, your spouse’s, and the benefit payment scheme you select. There is no better or worse option – the selections have identical risk/reward characteristics.

What does make a big difference is how your pension benefit choice fits in with other annuity payments, like Social Security, and your lump-sum retirement accounts – 401(k) rollovers, Traditional IRAs, Roth IRAs, and any additional savings you have accumulated.

If the total of your lump-sum retirement accounts exceed $100,000, your best bet is to seek out professional investment management to help ensure you do not outlive your nest egg. Most folks have never had the experience of managing that much money, particularly when their lifestyle now depends on those funds. A good attorney would never manage litigation in which s/he is involved as plaintiff or defendant – emotion and personal interest can cloud good judgment and dispassionate decision-making. The same principle holds true for large retirement accounts. Rely on trusted financial professionals to make sure your interests are protected.