Retirement Planning

Retirement wasn't even heard of a century ago. Today retirement has become a whole new stage of life. How do you plan to spend your retirement years? Travel … Recreation … Visiting Family … Volunteer Work? Seeing your retirement dreams come true depends largely upon how well you plan for your future today. Without the right planning now, you could be headed in the wrong direction.

One traditional rule of thumb says people will need 70 to 80 percent of their pre-retirement income to maintain their lifestyle in retirement. The higher your pre-retirement income, the smaller the role Social Security and employer sponsored pension plans play, and the greater the role personal investments will play, accounting for 60 percent or more of many retirees income.

Many clients think of us as their retirement plan pilot. First we select our airplane. We assemble a flight plan that identifies where you are and where you want to be. Working together we select what promises to be the most efficient and least turbulent flight path to reach our destination. Like any good pilot, we have spent years training for different weather conditions so that no matter what happens we are prepared to respond calmly and appropriately to help our clients make a comfortable landing in retirement.

Retirement Projection Process

• We examine our client, (or if married, clients) current ages, anticipated dates of retirement, and life expectancies.
• We make assumptions as to future rates of federal and state income taxation and increases in the cost of living (inflation).
• We determine whether our clients intend to use their principal up during the course of retirement, or if there is some need or desire to leave a legacy, including a substantial pool of capital.
• One of the most important components of data that we enter is the anticipated annual retirement income that will be needed. We examine this including an earlier retirement on behalf of one spouse and also in later years the anticipated impact of one spouse passing away before the other. Again, inflation is taken into account here as well, as we are assuming that the income need will likely increase during retirement because of inflation.
• We carefully analyze your investment portfolio, taking into account how each portfolio component is owned and what the taxable nature of each position is. We determine a likely spending order for each of these assets based on both investment and tax considerations.
• Next, we make assumptions as to possible future rates of return on the various investment holdings, based upon historical experience.
• We move into projections of Social Security income including any anticipated annual benefit increases, pensions, or lump sum rollovers that are expected. For some individuals there may be other in-flows or out-flows that are expected to take place, for example consulting income after retirement, inheritances that are expected, ongoing expenses for children who haven’t yet finished school, or predictable one time expenditures after retirement.
• We factor in the impact of Required Minimum Distributions from IRAs and other retirement investment assets.
• From all of this input we are able to build projections that show how our income needs match against projected available income for each year of retirement. We will see projections of anticipated investment values throughout the course of retirement, and be able to analyze anticipated cash flows.
• As this analysis comes to fruition, possibilities of future results become clear. Our role then turns to examining what types of changes may help make the picture become more desirable. Sometimes we have the pleasure of telling people to spend more money, or to give more away. Other times, we suggest re-arranging investments, targeting a different spending pattern, retiring at a different time, and other such decisions to take advantage of those elements of the retirement projection that are within our control.

Pension Option Analysis – Private Pension Replacement Alternative

Many clients who come to us have Defined Benefit Pension Plans. These pension plans, often offered to Public School Employees, State and County Employees, Municipal Employees, and the employees of some larger corporate employers provide a fixed income for life to a retiree. Typically, these plans are based on a formula that takes into account the length of service that the employee had within the retirement plan and the Final Average Salary that the employee had at the time of retirement.

For the retiree alone there is a maximum pension amount available. This is the largest annual income amount that the plan is willing to pay out, and it continues for the life of the retiree and then stops. Often retirees are married and concerned about continuing their pension for their spouse in the event of their death before their spouses death. Defined Benefit Plans provide for an annuity payout structure and they offer Joint Life Alternatives that will provide an ongoing pension for the retiree’s spouse after the death of the retiree. That is the good news. The bad news is that there is a cost for this ongoing pension that benefits the spouse. This cost is a reduced pension during the lifetime of the retiree, to an annual amount that is often substantially less than the maximum available for the lifetime of the retiree only.

We offer a number of services aimed at assisting soon to be retirees in making wise decisions about which options to choose.

We consult with families considering retirement to help analyze the choices, and properly frame a discussion regarding the implications of the different choices. In some cases a retiree has another option – rolling over the pension into a rollover IRA. We can also examine the rules and implications of this decision with a prospective retiree and when appropriate the spouse.

For many couples the irrevocable choice of which option to select from a retirement plan may be one of the most important financial decisions that must ever be made. We can often assist a family in designing a private insurance plan that can have multiple benefits as an alternative to using the employer’s pension options.

Depending upon your circumstances we may be able to:

• Gain a much greater degree of flexibility
• Maintain an ability to change beneficiaries after retirement
• Provide for the next generation in the family to receive an unexpended benefit on the death of both spouses
• Potentially reduce the cost of providing protection and therefore increase available retirement income
• In some cases additional cash values may become available for use in the later years of retirement if the family’s objectives change.

This planning is highly personalized. The guarantees are usually not the same as those available under the retirement system. There are features and benefits that favor each of the options. Each case must be carefully examined to determine if the merits justify using the employer plan or an alternative private insurance plan. Our experience may prove invaluable for those considering retiring from a Defined Benefit Plan.

Return to top

Each of our services is offered only under a written agreement to provide the specific service selected. Such agreement or agreements shall define the scope and nature of duties accepted by our firm or firms. No agreement to provide service exists until such time as a properly executed written agreement is accepted and exercised by an authorized official of our firm or firms.

Advisory Services offered through WealthPro, LLC, Registered Investment Advisor. Securities offered through The Strategic Financial Alliance, Inc., Member NASD/SIPC. WealthPro, LLC, The Strategic Financial Alliance, Inc., and Solomon Associates^SM are independent entities and each is responsible for its own business.