By Robert Fezza and Steve Siders
Planning for retirement can be confusing, especially when so much conflicting information abounds about life in retirement. Here are some myths that commonly masquerade as facts.
My kids will be off the payroll… Illness, job loss, and divorce are just a few issues that can derail your child’s financial independence. No matter how old your children are, you’ll want to do everything you can to protect them. Even if they are financially independent, you may want to contribute to big ticket items, such as a down payment on a house, or an annual gift so you can see them enjoying their inheritance now, rather than after you’re gone. If grandchildren are in the picture, nothing will keep you from spoiling them, monetarily or otherwise. We suggest building these intentions into your retirement plan—even if only as a contingency.
I will not worry about money… When you’re working, you don’t have time to fixate on economic and political issues that gyrate the financial markets. You are busy and have a regular paycheck; plus, you know that your investments have time to rebound after a market lull. But once you retire, those issues may be more top of mind; after all, your regular paycheck is coming from your investments. Determining when, which accounts, and how much you withdraw can be worrisome. To overcome these worries, we suggest building up at least two years of living expenses in cash savings prior to retirement. When you experience down markets, you can draw from the cash buffer, rather than your investments.
I can drop my life insurance… Viewing life insurance solely as an expense in retirement could be a mistake. When one spouse passes away, the widow’s Social Security and pension income could decrease, but their expenses may stay the same. Life insurance proceeds can help the surviving spouse pay off a mortgage, medical expenses, or provide for living expense in retirement.
I must convert to Roths… Many worry that the required minimum distributions at age 70½ from retirement accounts will push them into a higher tax bracket, so they think that converting the entire traditional IRA into a Roth will reduce their taxes. In contrast, most who convert their entire account end up paying more in taxes, as the first-year RMD (required minimum distribution) is approximately 3.7% of an IRA at age 70½ and only increases to 5% by age 80. This means that most retirees don’t experience the jump in taxes as feared.
I shouldn’t take money from my retirement accounts before age 701⁄2… Rather than leaving your retirement account to grow into a large balance by age 70½, it may make sense to draw some money out prior to the RMD to balance your income sources for tax planning purposes. You’ve worked hard for the money, you should enjoy it when you want.
There is a lot of misinformation out there. We enjoy having meaningful conversations about money to help you steer clear of misconceptions that could derail a prosperous retirement. Life is a journey. Navigate it wisely. ❍
Robert Fezza, CFP® and Steve Siders, CFP® own Odyssey Personal Financial Advisors, 500 Sun Valley Drive, Suite A-6, Roswell, GA. Their firm specializes in working with people who are serious about making progress towards their financial goals. Odyssey manages portfolios greater than $250,000. 770-992-4444, www.odysseypfa.com. Securities offered through Cetera Financial Specialists LLC, member FINRA/SIPC. Advisory services offered through Cetera Investment Advisers LLC. Cetera entities are under separate ownership from any other named entity. The views expressed are for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security which may be referenced herein. This information is not a substitute for professional guidance in financial, tax, estate planning or legal matters.