The Final Piece of Your Retirement System
Planning for retirement is often considered a marathon, not a sprint. It starts when we’re young and get our first “real” job and we’re encouraged to start contributing to the company’s 401k plan. Over the years, we may seek retirement planning advice from friends or family, but we still have years before we retire so we don’t usually have a real plan at this point. We have a smattering of various financial products that were purchased for specific, isolated needs.
But as we approach our 40’s and 50’s, we start to realize that it’s time to get serious about it. We no longer have decades until we retire, and we might begin to understand that there’s more to a retirement plan than just our investments. We start hearing terms like “health care”, “inflation”, and “taxes”, things we may haven’t been too concerned about before, but these are now buzz words in the media.
As the retirement marathon continues, we tend to see many pre-retirees looking for retirement planning advice from professionals. Someone who can educate us on the issues we may face in retirement, what a retirement system should include, and then help us create a process to bring it all together, in writing.
It’s usually at this point that we meet with many pre-retirees for the first time in our office. Take a recent meeting I had with a nice couple from North Falmouth, I’ll call them Gerry and Beth. In their mid-50’s, they had saved for decades of saving in a variety of investment vehicles and were ready to formalize their vision of retirement. They brought with them a folder of all their investments and holdings, and even included a spreadsheet of their assets, insurance policies and brokerage accounts. Gerry was very interested in finances, he considered it a hobby of sorts and he had done this homework.
He had researched health care expenses and their Medicare options. He had run a number of calculations to help them decide how to file for Social Security when the time came, and how much income they could rely on each month. Gerry was pretty confident in himself and his work, and rightly so. But his plan wasn’t complete.
As we sat down and got started, Gerry said “I think you’ll find that we’re in pretty good shape. I’ve researched retirement plans a lot and have covered pretty much everything. Now we want to just put it in writing. We’re happy to look at suggestions you may have, but I think you’ll find that we’re pretty well set.”
I commended them for coming in, and for the excellent retirement planning they had done so far. I was fairly certain that I would have some recommendations for their current plan, although I didn’t say this just yet. For example, their retirement money is still being managed by an accumulation strategy, just buy and hope. As they get older, they will likely want to refocus on more distribution investment strategies. You see, instilling quantatitive data that strives to manage the downside can help protect what they have instead of buying and hoping investing and risking large losses. Once they get close to retirement, any large losses in their portfolio will be much more difficult to make up because they have less time before they need to start taking income. Heck, I will explain that to them later.
Instead, I asked them, “Can I see your estate plan”?
Gerry looked a little confused – and then a little embarrassed. He went on to say that he and Beth had named their kids as beneficiaries on their bank accounts and insurance policies. In his mind, this part of his plan was taken care of.
Hmmm . . . We have an issue.
Now, Gerry is a smart guy, but even he didn’t realize that his plan was missing a key component – how their assets will be distributed once he and Beth pass away. Estate planning considerations are numerous, and the laws are complex. And without the proper documents in place, they are setting their kids up to deal with state probate laws, legal costs and potentially lengthy delays in settling their estate.
Unfortunately, they’re not alone. According to A recent survey from Ameriprise Financial₁, "Couples, Money & Retirement", polling 1500 Americans ages 45-70, most acknowledged that they do not yet have an estate plan in place. More than half (52%) of couples surveyed said they have not yet set up an estate plan.
In my experience, a lot of folks don’t complete this step because they don’t believe their estate isn’t big enough to warrant planning. But that’s not true. In fact, estate planning is for everyone, no matter their wealth or complexity of their financial situation. You see, estate planning is about making decisions about what you want to happen after you die or in the event you’re incapacitated and can’t make health-related or financial decisions on your own, even temporarily.
A complete retirement system will include an advanced tax plan, an income plan that is measureable and predictable, an investment plan built around distribution planning, and an estate plan. The estate plan must be properly drafted by an experienced estate attorney. It may include a will, trust, medical directives, power of attorney documents, and more. Without these items in place, your beneficiaries will be at the mercy of the probate courts – with the associate costs coming out of their inheritance.
Does your retirement system include an estate plan? If not, make this a priority so you can confidently cross the finish line to retirement success!
And as always - be vigilant and stay alert, because you deserve more!
Have a great week.
Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA. Insurance offered through its affiliate, CutterInsure, Inc. We do not offer tax or legal advice. Jeff can be reached at jeff@cutterfinancialgroup.com. This information is intended to provide general information. It is not intended to offer or deliver investment advice in any way. Information regarding investment services is provided solely to gain a better understanding of the subject of the article. Different types of investments involve varying degrees of risk, including the potential for loss. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. Market data and other cited or linked-to content is based on generally available information and is believed to be reliable. Cutter Financial does not guarantee the performance of any investment or the accuracy of the information contained in this article. Cutter Financial will provide all prospective clients with a copy of Cutter Financial’s Form ADV 2A, Appendix 1, applicable Form ADV 2Bs and Form CRS as well as the firm privacy policy. Please contact us to request a free copy via .pdf or hardcopy. 1. https://tinyurl.com/2rr5mnwf
