Retirement Planning | Tips & Tools for Financial Health

Boasting abundant mountain vistas, proximity to beautiful lakes, low cost of living and small-town atmosphere, Central Virginia and its surrounds rank high on the list of “Great Places to Retire.” But while finding an appealing place to enjoy post-career years may be easy, for many the task of preparing for and surviving retirement financially is daunting. No two financial situations are identical, so there can be no one piece of advice that applies universally. As a starter, though, we’ve asked a couple of retirement planners from the area to weigh in on some of the most significant retirement planning issues.

Three-Phase Retirement Planning

Patrick Ayers, President and CEO of Ayers Financial Services, reminds us that the base for a comfortable retirement is actually established during the 30 to 45 years of work which he calls the “Accumulation Phase.” These are the working years when couples juggle jobs with family-raising, all the while growing their wealth. “Your goal then,” he says, “along with paying the mortgage and life’s other bills, is to accumulate a ‘mountain of money’ that can be drawn upon to supplement your retirement entitlements after you stop working.

“For that extended period,” Ayers continues, “you are counseled to play by asset growth rules, investing as much as you can in relatively high-risk growth instruments—principally stocks and mutual funds. But when retirement does arrive, the need changes from a ‘growth strategy’ to an ‘income strategy.’” Indeed, the financial management rules for the retired period, which Ayers calls the “Distribution Phase,” are different.

A simple equation applies to retirement finances, Ayers explains: “The retirement equation is how much monthly income you’ll need to exist and enjoy life in your retired circumstances minus what will come in from Social Security, pensions and other guaranteed* sources.” That difference—what Ayers calls “the gap”—is what you’ll need to take from your “wealth mountain” every month.

Since people are now living longer in retirement—often as long or longer than they worked, Ayers notes—they need an adviser qualified to manage income and distribution. That very likely is not the same firm or person who helped during their accumulation phase.

Ayers also points to the importance of the third or “Legacy Phase” of retirement planning. This involves stipulating how any wealth that remains after death will be passed on—to a surviving spouse, children, church, charities and the like.

Given the choice, Ayers asserts, far too often beneficiaries will take an inheritance in lump-sum form despite significant federal and state tax implications of that decision. That’s a sure way to forfeit—unnecessarily, he says—a significant portion of your hard-earned wealth.

“Good planning should stipulate ways for wealth to pass that will minimize loss to taxation. Look for an adviser who takes a multi-generational approach to planning and who will work with your beneficiaries upon your death,” Ayers recommends.

Ayers says other key questions a good retirement adviser can help address include:

• Can we really afford to retire…and when?

• What debts should be paid off first?

• How much money will I be able to access each month based on my accumulated assets and entitlements?

• What income sources should I draw on first?

• When should I begin taking Social Security?

In terms of taking Social Security, he notes: “Every year you can delay taking Social Security will increase your monthly benefit by 8 percent. It’s often wise to defer, using lower-yielding investments to cover your ‘gap’ as long as possible.”

*Guarantees mentioned herein are backed by the claims-paying ability and financial strength of the issuer. Securities and advisory services are offered through Madison Avenue Securities, LLC (MAS), member FINRA/SIPC, and a Registered Investment Advisor. MAS and Ayers Financial Services are not affiliated entities.

More Retirement Planning Resources

Another resource for retirement planning can be your local bank—like Forest’s First Bank and Trust Company, a community bank, which uses Infinex Investments, Inc., Member FINRA/SIPC, of Meriden, Connecticut as its securities Broker/Dealer. William Herbert, a private banker at First Bank and a Certified Financial Planner/Financial Advisor for Infinex, explains that Infinex provides community banks with a broad array of wealth management and financial planning services.

According to Herbert, individuals should begin planning for retirement as early as possible. “Key considerations as retirement nears are the amount of savings that has been accumulated, the level of debt that will be carried into retirement, and what defined-benefit pension plans will be available. For retirement funds to grow, it takes time; starting to save early puts time on your side,” he says.

There are many different types of retirement accounts to consider, and an advisor can help you determine the best for you. Herbert explains that a 401(k)—an employer-provided retirement plan—is a defined contribution plan that provides the opportunity for both an employee and an employer to contribute. “Often these plans allow an employer to match the contributions of an employee,” he notes. He also says that if your employer offers such a plan, it is very important to take full advantage of participation, since earnings in a 401(k) grow tax-deferred.

Another option is a Traditional Individual Retirement Account (IRA) in which earnings also grow tax-deferred. Herbert explains, “A required minimum distribution (RMD) must begin being taken at age 70 ½; the IRS determines the RMD amount based on the year-end value of the account, the holder’s age and life expectancy.”

Another option is a Roth IRA. “The earnings for a Roth IRA grow completely tax free as long as the account owner waits until at least age 59 ½ to begin taking distributions and a Roth account has been established for at least 5 years. Thus Roth IRAs are a good source of tax-free income and do not have required minimum distributions,” says Herbert.

If knowing what tools are available is a critical part of the planning process, it’s also important to know what steps to avoid for financial health in retirement. “The most common errors people make in their retirement planning are taking distributions from their retirement accounts too early, and retiring before they have obtained an adequate level of retirement savings,” says Herbert. Underestimating healthcare costs can also have catastrophic effects on retirees’ financial health, and Herbert says that a discussion of long-term care (LTC) is important. “A number of alternatives to address this important need have been developed. Everyone should actively evaluate LTC as a potential part of retirement planning,” he says.

It’s not uncommon to hear retirees gush about their “unemployment status.” They may even say that the retirement years are the very best years of life. More than likely, those comments will come from folks who have properly planned and prepared for their “golden years.” Following some of these tips just may help you enjoy retirement to the fullest. F

Securities and Insurance offered through INFINEX INVESTMENTS, INC., Member FINRA/SIPC. Infinex and the bank are not affiliated. First Wealth Management Group is a trade name of the bank. Not a Deposit • Not FDIC-Insured • Not Insured by any Federal Government Agency • Not Guaranteed by the Bank • May Go Down in Value