Retirement Planning Checklist

Below is a basic list of items to consider when working to formulate an income plan for retirement.  Much of what makes up this list requires a more detailed explanation as to why you might run into trouble when taking advice from someone else.

I’ve heard of some advisors telling some clients of mine that they don’t have enough money to retire when that’s not the case.  And more often than not I see a lot of advisors use funds from the wrong type of account to fund an annuity so special attention needs to be paid to allocation, not only with respect to your portfolio but also your blend of qualified and non-qualified assets.

Most plans that center around annuities require a far greater investment in that annuity than is appropriate.  This is one of major reasons for the negative press annuities receive.  The result is that many people avoid annuities when there is actually a strategy that can be used to strengthen a portfolio, adequately protect assets for income and increase wealth through retirement.  And yes, you can do that with annuities.

If you plan to do this on your own or with the help of a local advisor, you need to be able to verify that person knows what he/she is doing.  At the end I’ll tie it together with some final advice and hopefully this will offer some support to those of you planning to do business elsewhere.

Here is the list…

  • Total assets in relation to needs
    • Basic question that shows at a glance whether income goals are attainable
      • Annual income needs should be less than 5% of total liquid assets
    • More accurate if planned discretionary spending is included (new vehicle, daughter’s wedding, home repairs etc.)
  • Percentage of total qualified money
    • How much of your assets are in IRA/401(k)?
    • Calculate approximate required minimum distribution when you turn 70, even if you’re not yet 70
    • This can and often times does dictate an income plan and causes you to draw more than you want or need thus paying more in taxes
    • 80% of plans I see have come with strategies and products that have not adequately accounted for required minimum distributions
    • Keeping this in mind from an earlier age can help minimize tax liability or present an opportunity for a laddered Roth conversion
  • Current Account Allocation
    • Where are you in relation to the traditional mix of 60% equities and 40% bonds?
    • What percentage of assets would you like to protect?
      • No wrong answer – some want to protect it all and some don’t want to protect anything
    • How much you should protect depends on how much income you need.
    • In most cases it is advisable to have the same allocation percentage for both qualified and non-qualified funds
  • Safe Assets and Income
    • Safe allocation from above should provide majority of income
    • Some choose bonds – low cash flow and require performance and withdrawals from remainder portfolio so this carries a fair bit of risk
    • Many use annuities – guaranteed income but typically comes at a high cost
      • In most cases annuities require you to allocate a far greater percentage of your portfolio to safe assets
      • Locks up money and makes an inflexible plan
    • Other ways to use annuities – deferred fixed contracts using withdrawals for income
      • Saves on fees and makes asset more flexible
      • Creates opportunity to change and rework plan as time passes
  • Fixed vs. Fixed Indexed Annuities
    • Fixed annuities offer a guaranteed rate – Fixed indexed offers potential for more
    • Some would rather just take the guarantee and others like simple protection of principal with the opportunity to yield better than the guaranteed rate
    • In some cases your personal preference is the decision maker but there’s one advantage indexed annuities have over fixed annuities
    • Indexed annuities offer 10% free withdrawal and most fixed annuities only offer interest withdrawals, making them identical to bonds in regards to creating income
    • Using something similar to the flex strategy requires larger withdrawals in order to really get the most growth from the remainder of your portfolio

Ok, this is a general list and requires much more detail that I plan to build into this over the coming weeks.  When you create an income plan it takes a specific level of care and consideration.

First you need to have enough money to retire.  This mostly depends on how much income you need but additional expenses are important as well so you can get as close to the total as possible.  One person I recently met with had every planned car purchase and home improvement project planned for the next 20 years.  It doesn’t mean it will happen that way but it gave him the opportunity to text the viability of various income plans.

Next, you need to make sure that any qualified money in your IRA/401(k) is specifically considered as part of any income and allocation plan.  Lots of people have been sold annuities that cover income needs in their 60s that won’t work as well once RMDs are added to the equation at age 70.  And likewise, many advisors propose annuities that require deferral past age 70.  In either case RMDs were not considered and one person had a larger than expected tax burden while the other purchase an annuity that never created the intended benefit.

Next, consider your current portfolio allocation and how it relates to your optimal blend of assets.  If you have saved adequately and have reasonable income expectations then you can usually design an income plan without making any major changes to your portfolio.

And finally, learn to evaluate the different options you have for protecting assets and creating income.  Done correctly you can do both at the same time.  I am not partial to any one contract but I am being honest when I say that guaranteed income contracts in this market do not offer a way to maximize potential with assets.  While they may be safe you could be short-changing yourself.  I do believe deferred growth contracts are better for both protection and income and deciding what you use is a personal choice.

There are several ways to create a reasonable retirement plan.  There is a “best” way to do it and not everyone is going to do it that way.  With the financial services industry working the way it is you are likely to only see standard options so my objective is to first make sure you don’t make a mistake and second to give you ideas to improve your chances.

Best of luck to you all as you look to make the right moves for your future.  I am here to help and answer any questions you have.  Feel free to call or email any time.

 

All my best,

 

Bryan J. Anderson

Annuity Straight Talk

800.438.5121

Make an appointment now!

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