Retirement isn’t just a financial decision — it’s a life transition that deserves a deliberate plan.
Introduction
Raise your hand if this sounds familiar: Do I have enough money to retire?
Wondering whether or not you’ll have enough saved to get you through your retirement and to help you live a comfortable lifestyle as a retiree is very normal. In fact, you may feel that you have a laundry list of questions that bubble up every time you start to think about retiring:
- How do I access my retirement savings?
- How do I set up an estate plan?
- When do I start taking Social Security?
- What tax-efficient distribution strategies can I use?
And those are just a few of the questions we hear on a regular basis at Foster Group!
Honestly, this endless list of questions is what makes it difficult to tackle your retirement plan by yourself. Doctors, in particular, may find that planning for their retirement while balancing life’s many other responsibilities is challenging. Even if you’re interested in personal finance and have generally lived a financially responsible life, you may find that setting aside the time to fully understand retirement planning just isn’t feasible with your busy schedule.
This is where working with a financial planning team can be extremely valuable. Just as you’ve spent years honing your education as a doctor, the team at Foster Group has spent years furthering their financial planning educations and gaining valuable experience from working with clients just like you. We hear your questions, and we want to help shed some light on the answers. Although this guide isn’t a comprehensive list of things you should consider so you and your spouse or partner have the opportunity to enjoy an exceptional retirement, it’s a kick-start to get you going.
Ready to dive in? Let’s start with the number one question we hear from doctors who are looking ahead to retirement.
1. Do I have enough money?
The Highlights
If you’re wondering whether or not you have enough money for retirement, there are a few key items to consider:
- The expected growth rate of your investments
- How inflation will impact your cost of living
- Your total amount of anticipated expenses during retirement
Dig Deeper
Retirement planning can make even the savviest saver a little bit nervous. We all want to have enough set aside for retirement to help ensure that our lives and the lives of our spouses or partners can be exciting and fulfilling during our golden years. Unfortunately, calculating whether your retirement savings is “enough” can be tricky to do.
You may have heard a number of retirement savings calculations floating around. There are “rule of thumb” philosophies, the idea that you’ll spend a percentage of your pre-retirement income each year as a retiree, and some people even throw out ballpark figures.
The truth is that “enough money” for retirement looks different to everyone. A ballpark figure isn’t going to tell you exactly how much money you need to get by. That’s why, when you ask yourself whether or not your retirement savings are enough, it’s better to dig a little deeper.
You’re not necessarily afraid of not having enough saved; you’re afraid that if something happened to the markets or your expenses increased dramatically, you wouldn’t be okay. One way to plan for the unexpected in retirement is to create a “lifeboat.”
This lifeboat is the preservation piece of your portfolio that you keep in lower-risk investments. Your lifeboat is there to help you in the event of unexpected expenses or if the market crashes and takes a portion of your retirement savings with it. As you continue through your retirement, preserving a portion of your savings starts to become more important than growing your investments. You’re more focused on making the money you’ve already grown last than continuing to grow your wealth. At Foster Group, we help determine exactly how big your lifeboat needs to be and allocate your investments accordingly.
2. Am I investing correctly?
Highlights
As you get closer to retirement, you need to check your risk tolerance and make sure that your assets are allocated appropriately. Your allocation between growth (equity) and preservation (fixed income) is the most important investment decision you will make, so it’s important to get this right.
Proper asset allocation and diversification between different types of investments can help reduce the probability of a negative outcome. It’s also wise to take a close look at and understand the fees your accounts are charging you. The last thing you want is excessive fees eating into your retirement income! Choosing a financial advisor who is not compensated based on the specific investments they recommend can help ensure your interests are aligned. A fiduciary financial advisor can help advise you on everything from your risk tolerance to fees you pay to help make sure you’re investing in a way that lines up with your goals.
Dig Deeper
Every investor needs to stick with an allocation that matches their goals and their long-term plan. The two components that should be weighed when trying to create their ideal asset allocation are:
- Capacity. Risk capacity is based on your investment time frame (the time until you need to use some of your investments) and your financial goals. Naturally, as you approach retirement, your capacity decreases.
- Tolerance. Risk tolerance is more about your ability as an individual investor to emotionally tolerate the risk associated with market fluctuations. This will be different for everyone.
As you get closer to retirement, your tolerance for risk generally decreases. Still, many pre-retirees and retirees feel overwhelmed by the idea that they might miss the “next big thing” if their investments are conservatively allocated. Working with an advisor can help you find the appropriate asset allocation that’s tailored to your actual plan. Your advisor can help guide you through your unique risk tolerance and ensure that you have enough saved.
Finally, you need to take a close look at the fees associated with your portfolio. During retirement, you need to maximize every dollar in your savings. Having excessive fees eat through your hard-earned savings can negatively impact your income during retirement. Our team at Foster Group can help you to audit and evaluate your investments in an effort to help you strike the right balance between fees and value in your portfolio.
3. How do I access my savings during retirement?
Highlights
Through your pension and Social Security benefits, you can start constructing a monthly income during retirement. Beyond that, taking distributions from your retirement savings accounts in a tax-efficient way can help increase your cash flow and minimize the amount of taxes you need to pay during retirement.
Dig Deeper
During retirement, your income is comprised of four primary resources:
- Savings
- Pension (if applicable)
- Social Security
- Potential Part-time Income
If you have a pension, you’ll receive payouts based on which pension option you elect when you retire. For example, if you elect a single life option, your pension will pay out a set amount to you every month for the rest of your life. Selecting the right pension option will be different for every individual, based on their unique situation and the other “income” sources they have.
Once you enroll in Social Security, you receive a set amount based on how much you paid into the program over the course of your career. You can adjust these payout options a little bit by delaying when you start taking Social Security to get a higher payout, which we’ll cover in more detail in Section 4 of this guide.
However, your retirement savings works a little bit differently. Retirement savings is comprised of two types of accounts:
- Accounts funded with pre-tax dollars (401k, IRA, 403B, etc)
- Accounts funded with after-tax dollars
Your taxable accounts, the ones funded with pre-tax dollars (like a 401k or Traditional IRA), have Required Minimum Distributions (RMDs) associated with them. These RMDs are determined by the IRS and require you to take assets out of your accounts and to pay income taxes on those funds over the course of your retirement. This doesn’t mean that you are required to spend the funds. In fact, you are free to reinvest anything you take out. RMDs are the IRS’s way to collect taxes on the funds since the tax was deferred at the time the money was put into the account.
An advisor can help you create a spend-down strategy that balances the impact that taxes have on your retirement income while still making sure that your cash flow always meets your spending needs during retirement.
4. When do I take Social Security?
Highlights
Social Security is complex, and each situation is uniquely different. In short, if you had a crystal ball showing you the future, you could make a black and white decision. You can take Social Security at several different times of your life. However, if you choose to take your benefit at 62 rather than waiting for your full retirement age, your benefits will be reduced up to 30%. Beyond your monthly cash flow considerations, you also need to think about spousal benefits and how your Social Security can protect you and your partner.
Dig Deeper
When to take Social Security is one of those planning items that you could perfect if given a crystal ball. The truth is, you don’t know how long you have left. There is a number of questions you should ask yourself to help determine when to take Social Security benefits.
- Do you and your spouse both have earnings histories?
- Are you or your spouse still working?
- Do you have other assets to cover expenses or is Social Security a necessity now?
- What is your age? Are you a widow/widower?
- Do you have health concerns?
All these questions help steer you down a decision-making path toward the best possible choice for you and your family, with multiple factors impacting your final decision. The critical component of Social Security planning is to plan for longevity. It’s easy to assume what our life span will be but with modern medicine, more people are living longer than ever before. Enrolling in Social Security benefits for you and for your spouse can be part of a lifelong income strategy. Working with a team of advisors to build a comprehensive financial plan can help determine when to take Social Security to get the most out of your benefit and extend the life of your savings.
5. Do I have enough/the right insurance?
Highlights
As retirees 65 or older, you and your spouse will likely sign up for either original Medicare or a Medicare Advantage Plan. If you retire before age 65, you’ll want to explore other health insurance coverage options, which can be quite expensive. Beyond health coverage, long-term care (LTC) and life insurance is a critical planning piece to help protect your wealth and your family.
Dig Deeper
That being said, looking into private coverage options, COBRA, or health insurance through your spouse’s employer (if they’re still employed), is always wise. In some cases, you may be able to find more comprehensive coverage at a better group rate.
The other common question that pre-retirees have is around life insurance. You may have term policies falling off, and/or be holding onto a permanent policy and have questions about renewing or keeping policies. As your obligations lessen (mortgage, debts, dependents, etc.) your “need” for life insurance often diminishes, as well. Maintaining the right amounts and types of life insurance is still important.
Long-term care (LTC) insurance helps pay for your long-term care situations that aren’t covered by health coverage. There is typically a waiting period before payments start, so you will want to know the provisions of your policy. Many folks in retirement secure a policy earlier as rates do increase with age. However, LTC may not be the right insurance for your needs.
The question of how much and what type of insurance can be best answered by a comprehensive financial plan. One that looks at all aspects of your financial health. A fiduciary financial advisor, one that puts your interests ahead of their own, can help you weigh the pros and cons of your insurance options during retirement.
6. So-and-so is doing X, shouldn’t I be doing that?
Highlights
Don’t fall into the comparison trap! Even if your colleagues are making smart financial moves, they’re making them based on their individual financial situation. Don’t get distracted from your path by what someone else may be doing. Stick to your plan.
Dig Deeper
The key here is to run your own race. Your personal finances aren’t going to look like your coworker’s, and vice versa! What’s working for them may not work for you. There’s no way for you to know what other factors are impacting their financial decisions.
It’s easy to fall into a comparison trap when it appears that someone is having a lot of success with their financial strategy. Here’s the thing:
People aren’t showing you what’s not working.
That’s right. You’re only seeing their financial highlight reel. Most financial conversations you have with someone about investing, saving, or reaching goals, is showcasing their successes. That doesn’t mean that they haven’t had drawbacks! Stick to the plan that you’ve developed with your goals and dreams in mind.
7. How do I transfer my wealth
Highlights
Developing an estate plan that helps you leave a legacy after you pass away — and incorporating giving (either to family or to organizations you love) during retirement helps you make an impact today.
Dig Deeper
As a doctor, your life has been focused on giving to others. When you start getting closer to retirement, you may want to consider how you can use your wealth to continue giving, both to your family and to the organizations and causes you care the most about. At Foster Group, we divide your financial giving into two categories:
- Charitable giving during retirement
- Giving as part of your estate plan
When we work charitable giving into your retirement budget, we focus on how we can be the most tax-efficient in your generosity right now. Beyond that, we encourage you to ask yourself:
How do you want to make an impact?
The truth is, your wealth is just a tool. It can be used to provide you with your ideal retirement, but it can also be used to support your family, grow local charities and organizations you care about, and make a positive impact on the world around you. At Foster Group, we believe in encouraging you to look at your wealth as a way to give back to the communities you’re passionate about, whatever they may be.
8. What are you retiring to?
Highlights
Going from 100 mph during your lifelong career as a doctor, to tapping the brakes during retirement can be jarring and daunting. Taking the time to plan for the financial aspect of your retirement, as well as your retirement lifestyle, can help.
Dig Deeper
As a doctor, you’ve spent a large portion of your life living in a constant state of busy. Between your bustling career, family life, friends, hobbies, responsibilities, and taking care of yourself, life has never slowed down for you! For many doctors, retirement can be a rough transition. It may feel like you’re going from a career where you have a clearly defined purpose and where you’re changing lives, to being retired full time and wondering what to do with your day.
The team at Foster Group understands that this transition may be tough, and that’s why we believe in helping our clients plan for more than just the dollars and cents of their retirement. By walking you through a retirement budget, planning your big goals (like travel, or major purchases you plan to make), and organizing your retirement lifestyle, we help you to retire to something rather than from something.
The Value of a Financial Advisor
Working with a financial planner you trust can help to reduce stress and create a plan that is tailored to your unique goals and financial needs. Foster Group’s commitment to fee-only, fiduciary financial planning is intended to give you peace of mind, knowing that you’re being Truly Cared For® by financial planners who always put your best interests ahead of their own. We believe in clients having full access to the collective abilities of all our team members, rather than being served by just a single advisor. And, perhaps most importantly, we are committed to going beyond the portfolio, to understand the hearts and purposes of our clients.
We display our values-driven approach not just in what we say, but in how we serve our clients, our communities, and our fellow team members. By advancing our advice with science and getting the right people in the right positions, we are in constant pursuit of a better client experience.
We invite you to enter into a conversation, into our world of expertise, and into a long-lasting relationship in which we do everything within our power to live up to our promises.
