Tuesday, December 7, 2021

Your Longest Vacation



Darcie Guerin

“Never lose sight of this important truth that no one can be truly great until he has gained knowledge of himself, a knowledge which can only be acquired by occasional retirement.” – Johann Georg von Zimmerman, Swiss Physician and Philosopher, 1728-1795.


Question: My husband and I are both 65. We don’t want to be caught off guard during retirement. What advice can you offer?

Answer: While some surprises are positive experiences and lots of fun, eyes wide open is the way to go when planning for the financial reality of retirement, or the longest vacation you’ll ever take. Retirement brings many unknowns; you don’t want to be caught off guard if you can help it. With so many decisions to make, preparing for some of the “surprises” provides greater confidence and comfort for your financial future. Here are a few topics to focus on as you prepare to enjoy your longest vacation.


It is no surprise that health care is one of retirees’ biggest concerns –and expenses – in retirement. With health issues being the number one reason people retire early, your savings could dwindle with out-of-pocket health costs. There may also be a gap between employer-sponsored healthcare and eligibility for Medicare when you’re 65. Also, don’t forget that there are separate Medicare expenses such as outpatient services, prescriptions, eye and dental care in addition to Medigap and long-term care insurance needs. The average 65-year-old couple will spend approximately $400,000 out-of-pocket throughout retirement until age 92, not including long-term care costs.*


Types of income are taxed differently, so it is important to understand how this affects any consulting or part-time work in retirement. Taxes also change by state of residence and marital status, so understanding their implications is wise. In addition, you may have to pay on your Social Security benefits once you start receiving them. At age 70.5, you have to take required minimum distributions from traditional 401(k) s and IRAs. Depending on their size, the withdrawals could move you into a higher tax bracket. Talk to a tax professional to understand your obligations.


Many people believe that paying off their mortgage will reduce their housing costs. However, whether downsizing or staying in your home, there are still expenses to consider. Downsizing includes moving costs, while staying put where you are could mean renovations to adapt health and mobility changes. Lastly, if you’re considering purchasing a second home, getting a mortgage could be difficult without current income.


Speaking of income, because of inflation, things that cost $1 today could easily double in price over the next 25 years. Twenty-five years is coincidentally a realistic length of time to spend in retirement given today’s medical advancements and extended life expectancies. Decreased purchasing power due to inflation is very real. This is a valid reason to consider owning some growth-oriented investments in your portfolio. Run through hypothetical scenarios and speak with your financial planner about how you can make your money last as long as you’ll need it to, while keeping pace with inflation. This could mean investing for growth although you may have thought you’d be more conservative at this time in your life.


Although expenses change as you slow down, it may not mean that they’ll decrease as much as you imagined. More free time often translates into new hobbies and travel, resulting in higher expenses overall as you explore new interests. When calculating anticipated retirement spending, keep in mind that traditional “rules of thumb” do not work for everyone. Implementing a personalized, realistic and sustainable withdrawal strategy (taking taxes and market issues into account) is key. Your strategy should make sense for your retirement and have the ability to evolve and respond to your changing needs. Evaluate projected cash flow needs in conjunction with income sources. When there is disparity, it is time to examine “wants” versus “needs” and prioritize what is most important to you.


It’s not unusual to help your children and/or grandchildren with some of their expenses. In the past five years, sixty-eight percent of people age 50 or older have provided financial support for adult children.* You may also want to contribute to your grandchildren’s education via 529 plans, or help with preschool costs. While it may be less obvious, making contributions towards the care of aging parents or in-laws may be an element of your plan. Almost half of all families spend $5,000 annually caring for a parent.** Eighty-eight percent of those people didn’t plan for this important necessity. Have the discussion now, and if appropriate, include these possibilities as contingency items in your plan.


Think about your goals, talk about your concerns, plan for probable retirement expenses and the “what ifs” for what will be your longest vacation. Doing so may help you avoid or at least minimize the impact of unpleasant surprises, allowing you to enjoy the kind of surprises that will make you smile. Stay focused; invest and plan accordingly.

*According to Pew Research Center.

**As reported by bankrate.com.

The opinions expressed are those of the writer, but not necessarily those of Raymond James and Associates, and subject to change at any time. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed.

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”


This article provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. Call or email Darcie at 239-389-1041 or darcie.guerin@raymondjames.com with questions or suggestions for future columns. Visit her website: www.raymondjames.com/Darcie


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