The holiday of Shavuot is one of my favorites. I enjoy the focus on Torah learning, the beautiful flowers, simple preparation relative to other holidays, and I’m a cheesecake connoisseur. It also lends itself to sharing a top ten list in the theme of the Ten Commandments, which we read over the chag.
Below are ten financial considerations upon which all soon-to-be retirees should focus before transiting to the next stage of life. While the top concerns are usually related to finances, there are also lifestyle adjustments that must be considered to ensure a fulfilling and secure retirement.
Streamline your finances: Keeping your finances consolidated and organized is always sensible. It is even more important as you get older. Tracking a multitude of accounts at various brokerage firms becomes increasingly more cumbersome and stressful as you age. I recommend that all my clients approaching retirement consolidate their accounts wherever possible. This includes rolling over old 401(k)s, consolidating various IRAs and taxable accounts where appropriate, and managing all banking (e.g. checking) at one institution. Furthermore, having a seamless process for a child or trusted family member to make decisions on your accounts in case you no longer have capacity will save a lot of heartache and frustration later.
Pay off debt: Debt can be a useful tool in many aspects of life, like buying a home, affording a car, or growing your business. As long as a person acts responsibly and has a long runway to pay back that loan, it can enhance their life or take their career to the next level. However, as folks enter their retirement years, many shift to living on a fixed income. Being saddled with debt, and its associated extra expenses, can be burdensome and make retirement life much more stressful. That is why I advise all retirees to eliminate all debt before retirement.
Implement the correct asset allocation: For many retirees, gone are the days of retiring in your mid-60s, getting a gold watch, collecting a few years of social security, and dying a few years later. In the United States, a 65-year-old male can statistically expect to live another 17 years on average, until around 82, while a 65-year-old female can expect to live another 19.7 years, until around 85, on average. In my practice, I have multiple clients who are in their mid-90s and are still mentally sharp and in decent physical health.
These numbers mean that you should plan for a long retirement and your money should be invested accordingly. This necessitates investing in assets, like stocks, that will outpace inflation in order to maintain your purchasing power in retirement. However, it’s important to also maintain enough cash and bond exposure in case the market crashes. A properly structured portfolio should position you to withstand any market downturn, while still allowing you to maintain your lifestyle in a 30+ year retirement.
Claim social security at the right time: Social Security is a crucial income source for many retired Americans. Getting it right is critical for a financially successful retirement. If you are in good health and don’t currently need the cash flow, holding off on claiming Social Security is a smart strategy to mitigate the impact of inflation. Today, full retirement age (FRA) for a retiree to get their full benefit ranges from 66 to 67, depending on the year you were born. One can claim Social Security as early as age 62, but anything before FRA comes with a reduction in benefits up to 30%. Conversely, Social Security will add an additional 8% delayed retirement credit to your monthly payout for each year, up until age 70, that you hold off on claiming the benefits. That’s a guaranteed annual return of 8% for deferral after your FRA.
Determine your safe withdrawal rate: A safe withdrawal rate is the percentage that retirees can withdraw from their accounts each year without running out of money before reaching the end of their lives. This is a key aspect in determining how long you can maintain your lifestyle. A popular guideline is the 4% rule, which suggests that an individual can withdraw 4% of their total portfolio value annually to sustain their lifestyle without running out of money.
One important factor when determining your safe withdrawal rate is your expected lifestyle in retirement. It’s also important to consider any legacy goals. How much money you’d like to leave to your children or charity will directly impact how much money you can withdraw each year from your nest egg.
Plan for long-term care needs: Long-term care involves needing assistance with the “activities of daily living,” which include bathing, dressing, grooming, using the toilet, eating and moving around. These services are not covered by Medicare and can be prohibitively expensive. It is difficult to predict how much or what type of long-term care a person might need. The best time to think about long-term care is well before you need it so you can consider all your options. The main strategies for paying for long-term care are self-funding, insurance, or Medicaid planning. Each one of these approaches has a myriad of considerations and should be discussed with a professional who can help assess which option is the most suitable for your needs.
Proactively downsize: Many retirees hesitate when it comes to downsizing. They stay in their current home too long, oftentimes resulting in selling their home later under less favorable or more challenging circumstances. Downsizing sooner can help simplify your life by offloading the burden of maintaining a larger home, minimizing expenses, and moving into a residence that is more conducive to aging.
Get rid of your stuff: Whatever possessions you’ve accumulated, it’s worth making a concerted effort to get rid of them in retirement. This can be through gifts to family members or a donation to the charity of your choice. Giving away your things while you are alive can provide a tremendous sense of fulfillment as you see others benefit and enjoy these gifts. Additionally, it will relieve your heirs of the burden of sorting through your stuff upon your death.
Move near family: One of the effects of aging is the need to rely on others for help. This may be due to both mental and physical decline. It can also be simple things like the inability to keep up with technology and needing assistance. Proactively deciding to move near children or other family members can make life much less stressful for everyone involved. Furthermore, being near loved ones allows folks to seamlessly take part in family celebrations and gatherings that will enhance your retirement years.
It’s undoubtedly difficult to pick up and move away from a community where you spend many decades and planted your roots. However, retirees who proactively move while they are still relatively young and healthy, will position themselves to have a more enjoyable and fulfilling retirement with far less stress.
Develop a daily routine for retirement: Working provides many benefits, including daily structure, intellectual stimulation, social interaction and a sense of purpose. Sadly, many retirees discover what they lost from being out of the workforce only after they’ve retired.
It’s essential for retirees to re-create all the aforementioned benefits gained from working while in retirement. This may include consulting part time, volunteering, philanthropic work or various other projects that can be pursued every day for several hours a day throughout your retirement years. Many people envision their retirement as a life of leisure, sipping cocktails by the beach, playing golf or visiting their grandchildren. Unfortunately, none of these activities is a full-time pursuit. Most hobbies can’t be done full time. (Read: A daily chavrusa and the daf yomi are both great things, but neither will substitute for all the benefits of working.) It’s imperative for folks to develop and even test out their daily retirement routine while they are still working. This aspect of retirement readiness is just as important as the financial considerations.
One thing that I say often to folks contemplating retirement is the necessity to plan to retire TO something, not FROM something. Being frustrated at work or trying to get away from a difficult boss are not good reasons to retire. Situations at work change daily, and bosses come and go. Making an emotionally charged decision to stop working can be devastating if not thought through fully. The reason for retiring is because one has the burning desire to pursue other interests, goals and lifestyle choices. These new pursuits should be clearly defined and laid out. Not knowing what activities and challenges you’d like to engage in when you retire may lead to boredom and more rapid mental and physical deterioration.
This is by no means an exhaustive list. After all, I’m limited to ten reasons (to stick with the Shavuos theme) and number of words. Therefore, it’s prudent for every soon-to-be retiree to meet with their own financial advisor to discuss their unique goals and circumstances. These may include other topics like Medicare and Medigap considerations, estate planning strategies, or philanthropic pursuits, to name just a few common topics that come up with retirees. However, the above ideas will certainly put you on the right path to a successful retirement.
Wishing all readers a Chag Shavuot Same’ach!
