April being Financial Literacy Month, this might be a good opportunity to address some typical retirement planning concerns.
Recently, the Federal Reserve conducted a “stress test” to gauge the likelihood that 19 large U.S. banks could survive a dramatic economic decline. If you are considering retiring, perhaps a personal “retirement stress test” can help determine if you are indeed ready.
Develop your income plan. A comprehensive view of your resources (Social Security, pension, investments), should define how much you can spend without running out of money. So, it should be conservative in its assumptions about factors including inflation, longevity, taxes, and investment returns.
Avoid excessive investment risk. Your portfolio should be allocated to provide an income stream that keeps pace with inflation, but secure enough to weather the ups and downs of the markets.
Don’t overlook healthcare considerations. A Fidelity study indicated that the average retiree spends more than $600 per month on healthcare costs, including insurance. And if you are not yet Medicare eligible, you will need to secure private insurance coverage until then (typically age 65).
Debt can be a symptom of poor spending discipline, which may be masked during your earning years, but can wreak havoc on your fixed income in retirement. Pay off debt before retiring. Consolidating debt by mortgage refinance may seem like a solution, but consider the impact of ongoing payments on your income plan.
An investment product is not a substitute for a plan. Annuities and other insurance products are good examples. They may be marketed to provide many benefits, including growth, principal protection, and guaranteed income, but this all may come with costs that include restricted liquidity, adverse tax consequences, and high fees. A plan brings together all the different aspects of your retirement finances, like income needs, investment allocation, tax issues, and healthcare considerations.
What else should you consider? When the Federal Reserve stress tested the big banks, they sent a team of professional analysts to certify that nothing was overlooked. At LeConte Wealth Management, we serve that role for our clients, and invite you to see how it might be valuable for you.