How We Help: Retirees

Written By: Kevin Reardon, CFP®

Numerous clients have told us their last day of work was one of the scariest days of their life, as they say goodbye to future paychecks and begin to live on their nest egg. We have accumulated wisdom at Shakespeare over the last 25+ years on how to help new retirees navigate this change. Below are the common meeting agenda topics we address with clients before and after their retirement date.

Take Inventory

Before you know where you’re going, we must first know where you are. The first step is to put together a quick Net-worth Statement.

Example: Client pulled together their various financial statements (bank, brokerage, retirement accounts, mortgage, car loans) and provided to Shakespeare. We assembled the data in an organized format through our financial planning software and reviewed with the client. We were able to identify a few assets the client had omitted from their plan, including cash value life insurance and an inherited asset from their parents. 

Estimate Retirement Income & Expenses

We determine how much you can expect from Social Security, pensions, rental income, or any other passive income sources in retirement. When projecting future income, don’t forget how much you’ll need to take from retirement accounts in the form of Required Minimum Distributions (RMDs) when the time comes. In addition, we review your current and future expenses to get an accurate view of your spending.

Example: Client’s Social Security statements indicated their benefit at Full Retirement Age (FRA) would replace 30% of their pre-retirement income. One spouse had a traditional pension from their employer which would replace another 30% of their income. We devised a strategy of replacing the remaining 40% of their needed income with automatic monthly withdrawals from their financial accounts, optimizing the withdrawals between brokerage and retirement accounts to minimize taxes. 

After reviewing the client’s annual budget, we added one-time expenses for future car purchases, occasional home maintenance projects, and the costs of weddings for their children. 

Healthcare Planning

Healthcare expenses can be one of the largest expenses in retirement and a potential risk to your financial viability if you don’t have adequate coverage. We review all healthcare options available, including Medicare, continued health insurance through your employer (COBRA), and purchasing health insurance on the Healthcare Exchange.

Example: Clients were ages 65 and 63. We identified the older spouse would begin Medicare, educating them on the differences between Medicare Supplement policies and Medicare Advantage Plans. The older client purchased a Medicare Supplement policy based on their health history and desire to more accurately quantify future out-of-pocket expenses. We helped the younger client purchase insurance through the Healthcare Exchange until they turn 65, when they will go on Medicare.    

Investment Management

Many retirees will spend upwards of 40 years in retirement. Managing your nest egg to handle market volatility, keep pace with inflation and provide the needed income is critical. We review and make any needed adjustments to your Asset Allocation (percentage in stocks, bonds, cash, etc.), understanding your most conservative allocation should come a few years before and after retirement.

Example: Client’s current asset allocation was overly aggressive, so we helped reduce their equity weighting from 90% to 70% and added additional bond holdings to moderate risk. We identified the client had more than 10% of their wealth in a single security and devised a strategy of both gifting and selling shares to reduce risk and satisfy their charitable interests. After a strong rally in the markets, we rebalanced their portfolio to reduce risk and lock in gains.    

Tax Planning

The year you retire may be the highest tax year of your life, and the first few years after retirement may have low tax liability. We plan for these scenarios to help preserve your assets. Asset location is a strategy of placing tax-efficient assets (stocks) in non-qualified accounts, while placing tax-inefficient assets (bonds) in retirement accounts. This strategy, when coupled with a tax-sensitive withdrawal strategy can add substantial ‘tax alpha’ over time. We also accelerate charitable contributions into high tax years. Harvesting capital gains in lower tax years and harvesting capital losses as they occur are also effective strategies.

Example: Client was in their final year of employment and received a sizeable bonus and realized substantial income by exercising stock options. We gifted five years of charitable bequests into a Donor Advised Fund (DAF), using a highly appreciated asset from their brokerage account to maximize their charitable deduction during this high tax year. We helped implement an asset location strategy, which placed their tax-inefficient bond holdings in their retirement accounts, while keeping tax-efficient assets in their brokerage account. In the year after retirement, recognizing they were in the 12% tax bracket, we sold appreciated assets to take advantage of the 0% capital gains rate.  

Stress Test

We help you stress test your retirement plan to identify any shortfalls before you pull the plug. You can do all of the above in the years leading up to retirement to maximize your financial plan.

Example: We helped run a ‘what if’ scenario assuming the client had higher expenses than anticipated and identified an additional $15,000/year could be spent. We also stress tested the plan for an extended bear market during the early years of retirement and found the client would either need to reduce spending $5,000/yr or work one more year to insulate the plan from this event.      

Partnering with Shakespeare Wealth Management will give you the knowledge to make informed decisions and the peace of mind you strive for in retirement. Contact us to schedule a consultation and take the first step toward achieving your financial goals.