Making Decisions in Retirement
As you approach retirement, you need to make some decisions. If you have limited assets, your choices are even more important.
- Should you work longer? (We typically recommend that you work as long as you can and save as much as possible.)
- Reduce your living expenses. If the car is too expensive and preventing you from saving, sell it.
- Can you work part-time?
- Defer your Social Security as long as possible. For older woman, this is often the primary source of income.
When looking at your home, consider the costs. If the house is too big and expensive, sell it. Is a reverse mortgage an option? Can you rent out an empty room or two?
"If you have significant assets, do you need long-term-care insurance or can you self-insure?" [Tweet This]
Issues to Consider as You Approach Retirement
As you get close to your retirement date, other things to consider include the need for an immediate annuity, the percentage withdrawal rate from your portfolio, and the allocation to equities and fixed-income investments.
A big risk for retirees is long-term-care costs. This is an area that requires some serious analysis. Should you look to insure yourself in this area? How much insurance do you need and when should you purchase it? If you have significant assets, do you need long-term-care insurance or can you self-insure?
Many of these issues are interrelated. For instance, if you take out a reverse mortgage too early, that asset won't be available if you need it for long-term-care expenses. If you buy an annuity, the funds won't be available for long-term-care expenses or other needs. These are areas that have trade-offs. Your decision may be completely different from someone else's based on your goals, family and resources available.
If you have other assets and resources, you will face additional decisions. For instance:
- How should you handle nonqualified executive benefits including deferred comp and stock options?
- Do you need to sell a business?
- What decisions need to be made around your legacy goals?
- Tax planning and estate planning becomes even more important.
Regardless of your situation, be extra careful with irrevocable decisions. Do you need help with these decisions? Should you hire a professional?
What to Consider When Hiring a Financial Advisor
If you want to hire a professional, it is important to understand how an advisor is paid. Some things to consider when hiring an advisor include:
- Find an advisor who works on a "fee-only" basis, who won't be biased toward selling products that generate larger commissions. Fee-only advisors can be found at www.napfa.com or www.garrettplanningnetwork.com.
- Fee-only advisors do not get commissions, so they are often able to provide more objective recommendations. There is research that shows that how an advisor is compensated influences their recommendations.
- Is your advisor acting in your best interest?
- Are they a "fiduciary" and required by law to put your interests first? Many people don't realize that 85% of the financial services industry does not follow a fiduciary standard.
- As mentioned in a recent PBS special, "The Retirement Gamble," 85% of financial advisors are only sales people who have no requirement to put your interests first—their only requirement is to recommend something that is "suitable" for your situation.
The bottom line: Make sure that you understand who are you are hiring and how they are paid before you choose a financial advisor.