Retirement decisions go beyond money
CHARLESTON, W.Va. -- If you've just retired or are about to retire, the questions can be overwhelming. What do I do now? Have I saved enough money? Where will I live? What about Medicare and health insurance?
Ideally, you should start planning long before you actually retire, says Jim Winter, owner of Mountaineer Financial Planning in St. Albans.
"When you're in your 50s, you can begin to think about the social side [of retirement], because that will drive your goals," Winter said. "If you don't know what your goals are, you won't know how much money you'll need."
By social side, Winter means the non-financial issues of retirement: How do you plan to spend your newfound leisure time -- volunteering, traveling, pursuing hobbies? Do you expect to downsize your home or move to another community? Do you plan to spend more time with your children and grandchildren?
All these decisions, in turn, affect how much money you'll eventually need.
But planning should start far earlier than that, Winter said.
"I think people just starting out need to start preparing for retirement -- saving -- because what we see is short-term goals override long-term goals," he said.
That may seem like a tall order for someone struggling to make rent and pay off college loans. But you're better off taking small steps early than waiting until mid-career or later, he said.
A certified financial planner and CPA, Winter has clients of all ages, from couples just out of college to widows.
"We do fee-only financial plans," he said. "We don't sell specific products. I just charge by the hour."
In addition to investment planning, Winter can offer advice on saving for college, tax planning and life-insurance evaluation.
"It's very individualized. Does it make sense to draw Social Security and at what age?"
People shouldn't automatically start drawing Social Security when they retire, he said.
"One of the first questions you look at is what is your personal health and your family history of longevity. The longer you live, the greater the benefit of deferring Social Security.
"The way Social Security works, if you take it early, say 62, you're penalized. It's discounted, reduced." If you wait till you're 66 or even longer, your monthly check will be higher.
"The other factor is how badly do you need the money. If you don't have other resources, you may have no choice but to start tapping," Winter said. "We're living longer and longer, so if you're able to delay, it makes sense."
If you haven't taken the time to calculate your household budget, now's the time to do it, he said.
"People nearing retirement, I find they don't really have a grasp of what their living expenses will be and how they'll be different. It's important to wrap your arms around that. That's one of the first things we do." Money management programs like Quicken and Mint make the job easier, he said.
Health-care costs can be a sticky area.
"One of the issues if you're retiring early is how you're going to take care of medical costs. It's fairly expensive to buy medical policies unless your company covers you in retirement.
"The other issue with health-care costs, are you going to need long-term care?" Care in a nursing home, especially for an extended period, can drain a nest egg.
"There's some people that try to insure against long-term care. Others do not," Winter said. "It's something to worry about, anyway." If you do get insurance, it's cheaper to start early.
Winter said he prefers to avoid rules of thumb, which are common in his industry, because each person's finances are different. He threw some out anyway.
For a post-retirement budget: "Normally what you see is you need 80 percent of your income. Part of that is you're saving for retirement; that's part of your income. And employment taxes, that's part of your income. And employment-related expenses.
"But other expenses can go up. You may travel more in retirement. It's just a matter of what you want to do and how that might differ from what you want to do today."
Among other rules of thumb Winter dislikes:
- Minimum nest egg for retirement -- "Eleven times your annual salary, but that can be meaningless or meaningful."
- Annual drawdown of your nest egg after retirement -- 4 percent, based on a investment mix of 60 percent stocks and 40 percent bonds.
That's a riskier mix than a lot of people would choose, he said, especially after the 2008 stock market meltdown. "The only thing we caution is to not get too conservative, even in retirement, because your life expectancy is 20 years."
As to specific choices, Winter would recommend a variety of low-cost no-load mutual funds, mostly index funds, for both stocks and bonds.
Studies have shown Americans, and West Virginians in particular, do a lousy job of saving. A recent Corporation for Enterprise Development report said nearly half of West Virginians lack even a basic safety net, let alone retirement savings.
"If you look at nationwide statistics, half or more are not prepared for retirement," Winter said. "I think the biggest issue is people underestimate the funding they'll need to support themselves -- a savings shortfall, basically.
"So if there is a shortfall, what can we do to offset that?
"I tell my clients it's never too late, but it is too late if you don't take action. The alternatives may be working longer, working part-time or reducing expenses."
Reach Jim Balow at firstname.lastname@example.org or 304-348-1702.