INDIANAPOLIS, Ind. – Retirement is something people plan during most of their adult life.
Some people start very early, and others wait. Whatever you have done, the first thing you need to do is take inventory of what you have in savings, investments and 401(k) plans.
“I’m going to retire June 29, so it’s here and I’m looking forward to retirement,” said Mike Whitesell.
Whitesell's retirement is literally days away. He’s saved his money, but he also took several financial hits during the recession. He's mostly recovered from those.
Whether you are close to retirement or are years away, what happens when the paychecks stop coming?
“Once you’ve retired it's just a pile of cash, so you have to ask yourself, 'How do I effectively use that pile of cash to create an income to sustain me and my family for the rest of my life and continue a legacy on forward?'” said Casey Marx, president of Crown Haven Wealth Advisors.
Marx says there is no "one-size-fits-all" solution when it comes to retirement planning. The first tip to retirement is planning and simply knowing where your money is--something many people don't know.
“You'd be surprised. In some cases, we find our clients have a pension they totally forgot about 30 years later and they're really excited that we find it. But the point is you have to consolidate all your accounts. And even if you're not going to consolidate it all into one spot, at least know where it's all at,” said Marx.
One of the biggest fears people have when retiring is running out of money. A spending plan should be part of your comprehensive retirement plan and can help alleviate those fears. Your spending plan will outline exactly how much money you can afford to spend in retirement.
People may have heard of an old rule of thumb that states you should plan to live on 80% of your current spending after you leave work. That’s not always accurate because many underestimate how much they will spend, especially if they plan to travel or stay active.
“It's been a long journey, but we're down to the last two years. The recession set us back. When planning retirement, we had one meeting with Casey, then we had another meeting and then made a decision to move all my investments into Crown Haven," said Rick Garlin, who will soon retire.
One reason for Garlin's choice is he's not locked into one type of investment. It's the same for Whitesell.
"But you're also allowed to participate in the equity market. And so over the last few years, we've seen some really nice gains and at the same time we have not had to worry about it plunging if the market went down," said Whitesell.
If you do go with an advisor, know their fee system. Ask very specific questions about what you will be charged, when and why. Whitesell and Garlin say their cost is very minimal with very little risk, which is key as retirement approaches.
"As a holistic advisory firm, we use a mixture of insurance products, securities products to craft custom tailored income plan," said Marx.
When planning for retirement, make a realistic retirement spending plan, set a social security strategy of what age to retire. Social Security isn’t something you should be relying on. The average monthly benefit is $1,461, which is likely not enough to support all your income needs in retirement.
One strategy to consider is delaying your benefits. Most people take Social Security at age 62, but this permanently reduces your benefits. To avoid a reduced monthly benefit, wait to claim Social Security until your Full Retirement Age if possible.
Also, use tax advantage accounts like a 401(k), especially if there's an employer match. If you have a 401(k) from a different job, consider moving those savings to a self-directed IRA or rolling them into a new 401(k).
"Your money is continually compounding on top of itself in a 401(k) for a period of 5, 10, 20 and even 40 years? And that's huge when it's time to retire," said Marx.
If you want an advisor to help manage your money, ask around and do your research.
"We went with someone we researched and trusted because, again, it's for long term. It's your money, but it's how are you going to invest that money and are you going to sleep at night knowing it's in the correct place?" said Garlin.