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.