With two children in college, the Brocks once again find their life situation ch

Question

With two children in college, the Brocks once again find their life situation changing. Compared to five years ago, their total assets have declined due to college expenses. The Brocks’ oldest child will graduate next year, but the youngest will enter college in a couple of years. The drain on the family’s finances will continue. While the family’s finances are adequate, both Pam and Josh are beginning to think more about retirement. Over the years, Josh has taken advantage of different career opportunities. Today his annual salary is higher than ever. However, his employment changes have resulted in a smaller pension fund than would have been available had he remained with the same organization. The current value of his pension plan is just over $115,000. The investment program Pam and he started almost 10 years ago is growing and is now worth about $62,000. But they still worry whether they will have enough money to finance their retirement when Josh retires in 15 years. Pam and Josh should also be concerned with various estate planning actions. They have talked about a will and investigated the benefits of several types of trusts. However, they have not taken any specific actions.

What steps do the Brocks need to take to prepare for retirement?

Explanation / Answer

As Brocks move from the world of work into retirement, his preparation should consider 10 key steps first.

They are:

1. Brocks should prepare a budget that takes into consideration typical monthly costs and his family plan for big potential expenses (e.g., travel, home renovations, moving).

2. Brocks must meet with a financial planner to determine if he is really financially ready to retire. There are some financial advisors who offer consulting agreements (i.e., hourly rate) if someone do not seek comprehensive wealth management services. Whether he want only investment advice or more comprehensive wealth management, a second opinion can help him get some peace of mind. Research the advisor’s qualifications. If he is seeking a fee-only advisor, check out the National Association of Financial Advisors (NAPFA) website.

3.Though Brocks and his wife have some investments, but still he must assess his emergency fund. For a working couple or a couple where one is working and one is retired, we typically suggest a fund of cash assets aimed to last 12 to 18 months. For a couple where both are retired, we suggest two full years of cash available to fund living expenses. That helps retiries avoid having to sell investments to raise cash in a down market.

4. Brocks must figure out what he will do for health insurance once he leave his job and retire. Will he seek private insurance or do he qualify for Medicare (available once turn 65)? Become well versed on his options and how to get benefits. For over 65, the Medicare benefits does not include dental or vision coverage.

5. Start considering where he and his family want to live and whether downsizing – moving to a smaller home – is an appropriate option for the family. Get his house appraised; knowing that value could give you a sense of comfort. Most people’s largest investment is their home.

6.Brocks get re-evaluation of his estate planning documents and make sure they are in order.

7. Examine his current risk management policies. Make sure that he don’t let his insurance policies lapse. Weigh your needs and costs. If someone work part-time or do consulting work during your retirement, check to see what potential liabilities he have and whether he can insure against them.

8. Brocks meet with his accountant to talk about estimated taxes in light of his retirement. What will be his expected new income bracket and how will that affect him?

9. Before Brocks leave your job, find out what sort of benefits in retirement his employer provides. Meet with his company's human resources manager to make sure you’re aware of all your options. Anything that could put more money in your pocket can be helpful as you shift to retirement.

10. Brocks and his family decision on a Social Security strategy is of most importance. He can start receiving reduced benefits at 62. He will get more by waiting until 66 (for the current crop of baby boomers) and receive the most by collecting at 70. Brocks consider seeking professional assistance before he elect a benefit payout option.

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