March 23

Do You Have a Financial Plan for Your Retirement Years?

By Rick Banas of Gardant Management Solutions

Rick Banas, Vice President of Development and Positioning for Gardant Management Solutions Here is a question I had not thought of before in the planning I am doing for retirement.

Do my wife, Valerie, and I have a plan for our retirement years?

I am not talking about a financial plan to get us to retirement; rather, a strategic game plan to get us through retirement. How much money should my wife and I be taking out of retirement and investment accounts, which ones and when?

The sequencing makes a difference, according to the speaker at an informational program that Val and I attended last week.

I had suggested to Val that we attend the program for a variety of reasons. The speaker was Wayne Messmer, who is the co-founder of a Chicago-based financial planning firm that specializes in helping individuals plan for retirement.

My familiarity with Wayne, before we attended the program, had nothing to do with his financial planning business. I am a lifelong Chicago Cubs and Chicago Blackhawks fan. I thoroughly appreciate the way Wayne has sung our National Anthem at sporting events in the Chicago area over the years.

I also heard Wayne speak at a Knights of Columbus Men’s Retreat that was held at our parish. In his presentation at Holy Family Catholic Community, Wayne talked about his survival and remarkable recovery from a nearly fatal gunshot wound. He was shot in the throat during an armed robbery. His comments about the importance of faith, family, friends and forgiveness were truly inspirational.

I thought we might learn something during his presentation on Monday about why it’s never too early or too late to plan for retirement and knowing how long your money will last in retirement.

And, even if Val and I didn’t learn anything, the presentation was being held at Maggiano’s Little Italy in Schaumburg, Illinois. We would be able to enjoy a delicious gourmet meal at no cost to us.

I am glad we went.

One of the key points that Wayne emphasized was the need to develop a plan to provide predictable, reliable and sustainable income for life. The plan should take into account increasing longevity, inflation, market risk, taxation and the cost of healthcare and long-term care.

Working in the senior and assisted living industry, I certainly have seen the impact of the increase in how long we are living here in the United States. The average age of individuals moving into senior living and assisted living communities is 84.

Back when Social Security was first adopted in the United States, the retirement age was 65 and average life expectancy was 62. Collecting Social Security, especially for any lengthy period of time, was not the norm.

Now, it is increasingly common for individuals to live well into their 90s and 100s.

For those who retire in their mid-60s, Wayne stressed, it means that many individuals will spend 1/3 of their lifetime in retirement. Common concerns among individuals 55 and older are outliving their savings, the ability to pay for healthcare, and the ability to continue to enjoy the lifestyle that they have been accustomed to living.

My hope is that I will not have to lower my standard of living during my retirement years. I also hope to be able to leave a legacy for my children, grandchildren and several charitable causes.

As you look at how much you money you will need to get you through your retirement years, Wayne cautioned those of us in attendance not to assume that your cost of living will be significantly less than what it is now.

An inflation rate of just 3% annually, when compounded year after year over a projected 20-year to 30-year period of time, will mean that the living expenses you have today will be considerably more than twice as much when you reach your later years of retirement.

Healthcare and long-term care costs are likely to have a major impact on your cost of living in your retirement years. For instance, the annual cost of nursing home care in Illinois, according to a 2015 survey by Genworth, is nearly $65,000. The figure represents the cost for a room that you share with someone else. For a private room, the average cost jumps up to nearly $74,500 a year. The annual cost of home health and homemaker services is fast approaching nearly $50,000. One of the mistakes that I find many people are making as they look toward their retirement years is assuming Medicare will protect them from the cost of long-term care. The reality is much different. Medicare covers very little. Coverage only applies if you need short-term rehabilitation for a very limited period of time and only if you meet a certain set of conditions.

Wayne emphasized that when you are looking at retirement, understanding how much money your will really need to retire is only one piece to the puzzle.

What, for instance, might be the best way for Val and I to maximize our Social Security benefits? Looking at my Social Security benefits statement after listening to Wayne speak, I did a quick calculation of what my estimated monthly benefits would be if I starting collecting them early; at “full retirement age,” which is 66 for me; or continued working and delayed collecting benefits until I am 70. The four-year delay from 66 to 70 would mean an increase in monthly Social Security payments of nearly 35% for the rest of my life.

As we look to what we have been able to invest, what are the best strategies as we move from the stage in our lives where building wealth was important to the stage where our focus needs to be on preserving wealth? How much do we need to have in investments that are “safe” and in investments that are “less risky”?

What options are available to generate predictable and reliable incomes that can help sustain us during our retirement years?

How do the minimum withdrawal requirements from our individual retirement plans fit into the picture?

Assuming that we will need to tap into our savings to supplement the income we will need to get us through our retirement years, what is an appropriate amount that we can take out each year? Which accounts should we withdraw money from first? What should the sequencing be?

Hearing Wayne speak really helped me understand the importance of having a strategic plan developed for our retirement years.

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