Retirement is a major life change. It’s often considered one of the biggest periods of adjustment, both emotionally and financially. While you have spent decades of your life working toward this period, the transition can also be quite shocking.
One of the best ways to prepare for your impending retirement is to start examining your financial plan. It’s important to consider what financial needs you will have in retirement and also ask yourself what kind of lifestyle you want to lead in retirement in order to accurately predict what your spending habits will look like.
Below, we have identified three questions that we help our clients answer so they can financially prepare for a retirement that excites them.
1. What portfolio allocations should you have heading into retirement?
Generally, we recommend four main buckets of funds that are allocated for different purposes as you ease into retirement.
Bucket 1: Emergency Reserves
Emergency reserves are important in any stage of life; however, they are particularly important in retirement because at this stage of life you are not working to earn income. Emergency funds should be used for unexpected costs that arise from time to time, such as sudden housing maintenance costs or medical expenses, and should be held in risk-free accounts.
Bucket 2: Pensions and Social Security
Pensions and Social Security are guaranteed income and are considered very low risk. This bucket should be used to pay for your baseline expenses. You’ve paid into Social Security your entire life, so now is the time to rely on that income and any pension you receive from your former employer.
Bucket 3: Stable Income
Stable income stems from more solid investments, like rental property, real estate, or your 401(k), and can also be used to cover your baseline expenses. Unlike the prior two buckets, Bucket 3 is not risk-free but should continue to grow if everything goes according to plan. If the market takes a dip, you may not want to withdraw from your 401(k). That’s why it’s important to have proper diversification and the other buckets to rely on.
Bucket 4: Lifestyle Enhancement
Bucket 4 contains investments that are designed for high growth. This bucket is for lifestyle enhancement and lifestyle costs; it’s not designed to cover baseline expenses, but more for extraneous purchases that improve your lifestyle.
2. Where should you pull money from for income generation in retirement?
Timing is really important in retirement; in fact, it could be the most important thing to consider when designing your financial plan in retirement. For example, you can start collecting Social Security at age 62, but your monthly check will be a lot lower than if you wait until your full retirement age. If you can wait until age 70, your benefit will increase 8% each year past your retirement age.
Additionally, use your portfolio allocations to your advantage. For example, if the market is down, it is best not to withdraw from those investments and rely on other buckets of investments and reserves.
3. What are the best long-term care-funding strategies before or during retirement?
No one starts retirement thinking that the latter years of their life will be spent in long-term care, but the reality is that many Americans end up in long-term care. In 2015, 47.8 million Americans over the age of 65 were in long-term care, so this is something you should prepare for.
Two of the more popular strategies to prepare for this include purchasing long-term care insurance or purchasing hybrid life insurance or an annuity policy that includes long-term care benefits. With the former option, if you don’t use the policy, your estate will not see any of the money you put toward premiums. The latter plan will pay out at one point or another.
Different strategies work better for different people, and a trusted financial advisor can walk you through which one will work best for your situation.
We Can Help
Designing a retirement plan can be overwhelming—but it doesn’t need to be. If you are looking toward your future retirement and have questions, we at Lohr & Company would love to help. Schedule a complimentary introductory meeting online or reach out to us at 434-260-6742.
1 https://www.cdc.gov/nchs/data/series/sr_03/sr03_43-508.pdf.
About Greg
Greg Lohr founded Lohr & Company, a multi-generational financial advisory firm, in 1993 to help more people plan for a rewarding, well-deserved retirement. Before he entered the financial services industry, he worked as an electrical engineer. But after spending a few years as an engineer, he decided to follow his heart and return to school for an MBA in finance from the College of William & Mary. Although he originally entered the finance industry because he was excited about the personal opportunities, it was the satisfaction of seeing people at peace with their money that has kept him here for his entire career. He is passionate about building lifelong relationships with his clients and walking with them as they navigate financial decisions and milestones.
When he isn’t working, Greg enjoys spending time with his beautiful wife and their adult children. In addition to managing their family farms, Greg and his wife also manage a growing Airbnb venue. In the cold weather months, you can find Greg hunting whitetail deer in the breathtaking Virginia landscapes. To learn more about Greg, connect with him on LinkedIn.
About Ethan
Ethan Lohr always knew his dream was to follow in his father’s footsteps and carry out his same mission: to help more people find financial peace and security in retirement. Ethan started practicing for his future career quite early, at the age of 6, advising his sisters on their savings with the help of his trusty calculator. But it wasn’t until he graduated from James Madison University that he truly began developing his talent as a financial advisor at Lohr & Company. Ethan is a CERTIFIED FINANCIAL PLANNER™ professional.
Ethan is most fulfilled when he’s helping clients develop a sound plan and then executing that plan. He knows that pre-retirees often have many unanswered questions and may be feeling trepidation about retirement—and rightfully so. Retirement is one of life’s greatest transitions and Ethan knows how important it is to get everything right the first time. He works to ease his clients’ fears, provide them with confidence, and help them take the necessary actions to move forward.
When he isn’t serving clients, Ethan enjoys spending time with his wife and two sons. You can also find him practicing his swing on the golf course, exercising, and hunting with his dad. To learn more about Ethan, connect with him on LinkedIn.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Advisor. Fixed insurance products and services offered through Lohr & Company, LLC or CES Insurance Agency.
