You’re Finally Retired – Now What??

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By Eve Kaplan, CFP®

If you can’t attend our free workshop “You’re Finally Retired – Now What??” (May 26, 2011 at the Scotch Plains Library, 1927 Bartle Avenue, Scotch Plains, NJ), we’ll repeat this workshop in Autumn 2011 at the Berkeley Heights Library.

Here’s a useful summary of the key points from that workshop:

1. When is it best to take Social Security – take it at 62, 66 or 70?
2. What’s the best way to minimize taxes if you consider IRA distributions and/or Social Security payments (if you are not yet taking Social Security).
3. How much (4%? 5%?) should you take from your retirement portfolio to retain principal? Does this change after your portfolio hits a speed bump (euphemism for 2008-type meltdown)?
4. What’s the best way to avoid the risk of outliving your assets?
5. How can you beat back the inflation scourge in your retirement years?
6. How much should you set aside to cover medical expenses in retirement?
7. Is it too late to consider long-term care insurance?
8. If you have long-term care insurance, does it have the “top 3 must have” features?
9. Should you consider annuities? How can you create your own “home grown” variable annuity product and bypass overhead and commissions.
10. Where should you turn for financial advice?
11. What are the key estate planning documents you need?
12. What happens if your partner is impaired or has dementia?

I’ll zero in on several topics this month (to be continued next month).

Social Security: Sure, there’s a lot of talk about the budget deficit, but this program will be around for decades to come. If you can at all afford to postpone benefits, consider taking Social Security at 70. Why? You receive 100% of your benefit if you take Social Security at “full retirement” (66). You take home much less if you take benefits at age 62. If you wait until age 70, you get a whopping 143% of your “full retirement” benefit in exchange for waiting an extra 4 years. This wait becomes increasingly valuable if you live past 78/79.

IRA versus Social Security: Tax rates will increase in 2013, so if you’re retired and your income is relatively low, consider tapping your IRA in 2011-12 if you need cash (and consider postponing Social Security, if you aren’t already taking it). Bunching Social Security with IRA distributions will drive up your taxable income. A financial planner can help you decide the correct timing for both.

The Inflation Scourge: This is a big one – inflation (and periodic portfolio meltdowns) is the enemy of all retirees. Anyone on a fixed income should be concerned about inflation because it eats away at purchasing power. Some basic inflation-mitigating strategies do assume a “pinch of this” and a “pinch of that” since no single strategy should be used in isolation in a portfolio. The key is to diversify amongst various strategies that include:

1) TIPS and I-bonds – both have a fixed rate and an inflation rate. TIPS are issued by the US Treasury. TIPS generate taxable phantom income as the underlying principle adjusts for inflation, so they’re best held in tax-deferred accounts
2) Stocks (especially high dividend-yielding stocks). While more volatile than bonds  (who can forget Fall 2008?) they have the ability to grow and outpace inflation.  Stocks have outpaced inflation in every 20-year period from 1926 through 2009.
3) Commodities – a volatile asset class that nonetheless has the ability to offset inflation risks in a portfolio. These are best held in tax-deferred accounts in relatively small doses.
4) Commercial real estate. Commercial real estate tends to raise office and retail rents in response to inflation since CPI changes often are factored into rent increases. Real estate securities (REITs) are best held in tax-deferred accounts.

Copyright © 2011 by Eve Kaplan

Eve Kaplan is a Fee-Only Certified Financial Planner in Berkeley Heights. Kaplan Financial Advisors is a Registered Investment Advisor in New Jersey and New York. Her firm provides financial planning for individuals, and 401k/403b plans for companies. She can be reached at 908-898-0549 or www.kaplanfinancialadvisors.com.