Take the Retirement Preparedness Quiz

Whether you are already retired or planning to retire within the next ten, twenty or even thirty years or more, it’s never too early (or too late) to put a plan in place.  Take a moment to take my Retirement preparedness Quiz to get a sense of where you are.

  1. Do you know approximately how much capital you’ll need at retirement to fully fund your   retirement years based on the lifestyle you want?  Yes/ No
  2. Do you have a written retirement plan strategy?  Yes/No
  3. Could you explain to another person how your money is currently invested?   Yes/No
  4. Are you confident in your investing skills or if you use a professional investor, are you confident in his or her skills?  Yes/No
  5. Do you know your projected (or current, if you are retired) Social Security income?  Yes/No
  6. Have you considered the potential impact of healthcare costs during retirement?  Yes/No
  7. In your retirement planning have you taken into account the possibility of having to provide some financial support for a parent or child?  Yes/No
  8. In your retirement planning, have you determined an appropriate withdrawal rate from your investment accounts?  Yes/No
  9. Do you have a Power of Attorney that complies with the new Alabama legislation that became effective January 1, 2012?  Yes/No
  10. Are you prepared to make the necessary changes to put your retirement “on track”? Yes/No

Add up all of your “Yes” answers.  If you got nine or more Yeses, give yourself a pat on the back and be willing to share some of your knowledge with others who are looking for help in their retirement planning.  If you got seven or eight Yeses, your retirement plan is likely in pretty good shape and you only need a bit of tweaking to get on track.  If you got six or less Yeses, don’t wait, you need to get focused now and make changes now or you’re likely to face a less than pleasant retirement experience.
Let’s take a quick look at why each of the questions is important.

  1. If I gave you a bow and arrow and said, “Hit the bull’s eye” …but didn’t show you the target, you’d think I was crazy.  In planning for retirement, you need to know your target capital account.  Here’s a good place to start: Divide your current annual income by .04.  Your answer will equal the amount of capital needed based on a four percent withdrawal rate (See comments on question #8).  Know that you’ll have ‘adjustments’ based on inflation, Social Security, and elimination of certain expenses such as 401k contributions…but this answer is sure to get you thinking!
  2. In my experience, if your plan is not written down, it will ‘drift’ in your mind over time.  Write it down, review it at least annually, and make corrections as appropriate.
  3. Most people who come to see me for the first time cannot explain the investment strategy they are using and don’t know exactly how their money is invested.  It’s critical to long-term success that you know both.  By the way, “Mutual funds”, is not the right answer!
  4. If you answered ‘No’ here, you need to get professional help from someone whose investment approach makes sense to you and someone with whom you are confident in their skills.  Ask your CPA, or friends or colleagues whose judgment you respect for a recommendation.
  5. Social Security has begun sending out annual paper statements again so be sure to review yours when it comes.  Sometimes they make mistakes so check for accuracy of your income records.  You can also check online at www.SocialSecurity.gov/MyAccount. There are a number of strategies for maximizing Social Security.  Consult with a professional advisor to help navigate the maze of options.
  6. Medicare and other government health benefits don’t pick up the entire tab if you get sick during retirement.  Some research suggests that you add $300,000 to your retirement planning estimates to account for out-of-pocket healthcare costs.
  7. I’ve seen it happen.  You’re retired and a parent or child needs financial support and you’re their financial safety net.  Think about your family situation and develop an appropriate strategy.  If it’s complicated, seek out a professional in elder law or estate planning.
  8. We typically consider a 4% withdrawal rate from investments during retirement a conservative withdrawal rate; 5% is a moderate rate; and 6% or higher is an aggressive withdrawal rate and significantly increases the likelihood of running out of money.
  9. The new Power of Attorney solves the problems we’ve had in the past where financial institutions refused to accept the POA due to language that did not conform to their specific requirements.
  10. Most people are not on track for their retirement goals.  Most retirees could increase their monthly cash flow if they had a better plan and were willing to make the necessary changes.  When in doubt, get professional help.

Understand that even if you’re already retired it’s not too late to make changes that can significantly improve your situation.  Get the help of a professional advisor.  To find a Certified Financial Planner near you, visit www.CFP.net.
SAVE THE DATE:  If you are looking for free financial advice or help with a wide array of financial issues, come to the 2015 Alabama Money Expo on Saturday, March 7th at Carver High School.  This is a free event offering help in a wide range of financial topics.  For more information, visit  http://almoneyexpo.com.