727.441.9022 611 Druid Rd E • Suite 105 • Clearwater, FL 33756 RETIREMENT’S CHALLENGES 92 TAMPA BAY MAGAZINE | MARCH/APRIL 2017 V. Raymond Ferrara, CFP® Chairman Chief Executive Officer Eric R. Ebbert, MBA, CFP® President Chief Operating Officer It is hard to believe but by many estimates everyday 10,000 baby boomers turn age 65 and that will continue for the next 15 years. Many are well prepared for retirement given Social Security, retirement plan money, and personal savings. But most are not prepared except for Social Security and a small amount, if any, of savings. According to Fidelity in its 2016 third quarter report, the average person age 65 has only $94,100 saved in an IRA. This is certainly not enough for most people entering retirement. How do you know when you have “enough” to last what could be 30-35 years in retirement for a couple age 65 today? There are so many unknowns – inflation; the economy; sequence of investment returns; political upheaval; health insurance; the viability of Medicare and Social Security, and the list goes on. What is the lifestyle that you intend to lead? Where and how will you lead it? What will be the health issues going forward? Is long term care in the future? In order to minimize these unknowns, we believe it is helpful to have a written retirement plan. Depending on one’s circumstances, it could be as simple as a long letter, or as complex as yours finances. But where do you begin? It seems so daunting. It starts with your personal net worth and cash flow statements. When and how should you take Social Security? Will you work in retirement? What is your life expectancy? As a general rule it is said that you should replace 100% of your income. But that doesn’t necessarily mean all you make. Suppose you retire making $100,000 per year. Is that what you need to replace? For most the answer is “no”, because you do not deposit $100,000 into your checking account. First, when you retire you are no longer paying Social Security and Medicare taxes – about $7,500. You will no longer be contributing to a retirement program - $0 to $22,500. There are other considerations, but let’s just use these two. Let’s say you are saving $7,500 into the retirement plan, so you are really living on $85,000 per year. Between the two spouses, Social Security will pay about $30,000, so you need to replace $55,000 annually and you will want to make adjustments for inflation. The generally accepted rule of thumb is that you can start to draw down from investments at an initial 4% rate. This means you need a minimum of about $1.4 million. Maybe that number seems unachievable so some people don’t even try. The earlier you start, the better off you are. As an example, to achieve the $1.4 million goal one needs to save about $7,000 per year starting at age 25 assuming a hypothetical return of 7%. But if one waits until age 35, this jumps to almost $15,000 annually. The later you wait, the more difficult it becomes. However, it is never too late to start. Regardless of how much you save, there is the issue of when, where, and how you take distributions. Beginning this year the leading edge of the baby boom generation turns 70 ½ and with only a few exceptions to this rule, must begin taking money out of their retirement plan savings. Do you need this to live on? If not, should you reinvest into a regular investment account? If so, should you take it in cash or “in kind” by transferring the assets without selling them – which can save commission and other costs? Should I take the payments at the beginning of the year, the end of the year, or on a monthly/quarterly/semi-annual basis? What about giving it to charity up to $100,000 annually and have it qualify for the required distribution? Should you take out more than is required and roll it over into a Roth IRA which can grow tax free and doesn’t require distributions during your lifetime? These are just a few of the questions that need to be addressed and answered. Please consider giving us a call for your complimentary one hour consultation. About ProVise Management Group, LLC: ProVise is a financial planning and investment management firm registered with the Securities and Exchange Commission (SEC) and has been in business since 1987. Our 12 professional advisors serve approximately 1030 clients in over 30 states. As of 9/30/16 we were managing approximately $1.22 billion for our individual, corporate, not-for-profit, and 401k retirement plans. Please visit our website at: provise.com. Investment Advisory Services offered through ProVise Management Group, LLC. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and are subject to change.
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