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2014 Retirement News

September 11, 2014

Are you close to retiring? Here are a few of the top issues facing retirees.

The PFP (Personal Finance Planning) section of the American Institute of CPAs recently uncovered the top issues facing the retirement community. Several demographic, financial, and social factors have altered issues related to retirement planning.

8 issues facing retirees:

  1. Increase in life expectancy-The longstanding assumption that 4% is a safe withdrawal rate is being challenged by longer life expectancies among the retirement community.It states that if in the first year of retirement a retiree withdraws 4% of their nest egg and tweaks that amount for inflation from then on, his/her money would last at least thirty years. With the advances in medical care; however, at least one spouse in a married couple retiring at age 65 will probably live past their additional expected 30 years.
  2. Developing a proper asset distribution-Retirees need to balance factors including cash flow needs, risk tolerance, time horizon, return requirements and income taxes so as to develop a suitable asset allocation in their investment portfolios.
  3. Health care expenses-The increase in longevity means that retirees need to plan for higher medical expenses as they age.
  4. Keeping track of spending- Maintaining money in a cash reserve is crucial during retirement. A large number of retirees make use of the "bucket strategy" which involves setting aside an "investment bucket" for future stability and a "cash bucket" for expenses for the present and near future (1-3 years). Paying attention to the tax impact of your withdrawals is also critical. When calculating long-term expenses, realize that not all categories of expenses grow at the same rate of inflation. Also, many retirees mistakenly assume that they will spend less in retirement.
  5. Social Security Issues- In 2033, the social security reserves are projected to run out. Retirement planning should factor in the possibility that their social security benefits may be reduced or even eliminated. There are several strategies to maximize social security benefits, and careful planning is essential.
  6. Estate Planning-Retirees should have an up to date estate plan. Frequently, retirees move from one state to another and fail to make sure that their estate documents are consistent with the local law of their new home state.
  7. Long term care- The number of retirees who require long term care is increasing, and the length of time that care is needed is also increasing. Long-term care policies can provide a leveraged way to pay for this care.
  8. Appreciating retirement-It is important for retirees to carefully monitor their spending habits, but it is also important that they enjoy their retirement.

Retirement planning can be a stressful venture if not handled correctly.Adjusting from an earning mode to a spending mode takes time and discipline.If retirees pay close attention to the above mentioned advice and map out a plan to manage expenses while staying healthy, happy, and financially comfortable, they will be on the road to a long and enjoyable retirement. Questions? Contact Peri Ann Aptaker CPA/PFS, CFP, CBA or any member of our Private Client Services Group.

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