Why Informed Decision-Making for Retirement Income Is So Important
By Jennifer Rossettini, CFP®
For those of us still in our working years, there are two things we are good at from a financial planning perspective: earning income and saving some of that income. What we are not so good at as we head into our retirement years is figuring out how to turn all of that hard work and savings into an income stream that will help us live comfortably in our retirement years. While we are working, we have a couple of things going for us. We are contributing to Social Security. Some of us (and our employers) are saving to an employer retirement plan. And some of us are saving over and above our employer retirement plans into personal savings and investments. Where many of us miss the boat is coming up with a plan to turn all that we had going for us during our working years into a secure retirement income.
Granted, there are many variables to contend with as we enter retirement. Where are we going to live? How long are we going to live? What is happening with the stock market? How high is inflation going to be? When should I begin taking Social Security? How on earth are we going to pay for health care? Fortunately, a secure retirement doesn’t necessarily require a crystal ball. What most of us need is a financial plan that not only incorporates our income needs, contingent expenses, and legacy goals, but also addresses things like longevity, inflation, long-term care, and market risk. Being in a position to make informed decisions can improve your income dramatically. For example, just choosing the right Social Security claiming strategy can increase your retirement income by 9%. Social Security benefits can be claimed between the ages of 62 and 70, with credits provided for those who wait. Nearly one-half of Americans claim Social Security benefits at age 62, presumably because they haven’t been counseled otherwise. With the right advice and the ability to make an informed decision on when to take Social Security, you can maximize the benefits that you will receive over your lifetime.
Similarly, planning for a tax-efficient withdrawal of your assets can increase your income by an additional 3.2%. Instead of keeping the same asset allocation for both tax-deferred and taxable accounts, and withdrawing proportionately from each account during retirement, a better approach may be to spend down taxable accounts first and let the tax-deferred assets continue to grow. Finally, instead of relying on the “4% rule” by taking 4% of your portfolio at retirement and increasing that amount by inflation in the following years, consider going through an annual process of determining the maximum withdrawal rate based on your asset allocation, time horizon and a desired probability of success. This “dynamic withdrawal strategy” could increase your retirement income by an additional 10%.
In summary, there are many important decisions to be made at retirement to turn savings into income that will last. A good financial advisor and/or financial plan will help you make informed decisions that will increase your income and improve your odds of financial success.
Ask Kit Kat: Baby Panda On the Way?
Hook Law Center: Kit Kat, what can you tell us about a baby panda watch at the National Zoo in Washington, D.C.?
Kit Kat: Well, we’ll keep your fingers crossed. Mei Xiang, a female panda at the National Zoo, was artificially inseminated on March 30, 2019. However, the zoo won’t know if the procedure was a success for 3-6 months. The zoo didn’t want to leave things to chance, because the window of fertility for a female panda is only 24-72 hours each year. Also, Mei Xiang is 21, and nearing the end of her reproductive life, perhaps. Zookeepers had been watching her hormone levels since about mid-March, because she had begun acting like she was ready to breed. She was restless, vocalizing more than normal, playing with water, and marking her scent around her pen—all typical for a female panda that was ready to mate. A male panda named Tian Tian, had also noticed. The two share a “howdy window,” which enables them to socialize, but still maintain their separate areas. He was very attentive, and didn’t want to lose sight of her. However, Mei Xiang didn’t respond to his advances in the way the zookeepers had hoped. Therefore, they took the matter into their own hands. They used his sperm, and they artificially inseminated her.
Now the wait begins. The zoo staff will periodically do ultrasounds, but that in itself is a difficult feat on a panda. The fetus tends to be small and will only weigh about a pound at birth. Also, Mei Xiang has had false pregnancies in which she acts like she’s pregnant (nesting, eating less), but she really isn’t. In 3-6 months, they’ll know for sure. Mei Xiang has given birth at the zoo, but only 3 have survived—Tai Shan, Bao Bao, and Bei Bei. Tai Shan and Bao Bao are 14 and 6, respectively, and they have been returned to China under the terms of a placement agreement. China requires that most pandas leased to the United States be returned to China at the age of 4. Giant pandas are considered “vulnerable” by the International Union for Conservation of Nature. Worldwide, there are only 500 in captivity and about 1,800 in the wild.
So let’s hope for the best, and that Mei Xiang gets one last chance to be a mother! We’ll all enjoy it, too! (Dana Hedgpeth, “Baby panda watch hits National Zoo,” appeared in The Virginian-Pilot from The Washington Post, March 31, 2019, p. 7)