Why is planning after retirement extra complicated than anticipated?


If you think your 401 (k) plan is difficult to invest in, just wait until the time comes when you need to start taking money out of your retirement plan.

Are you ready for this

“When it comes to early retirement planning, the investor must decide three things: how much to invest, location, and asset allocation,” said James DiLellio, associate professor of decision-making science at Pepperdine Graziadio Business School in Los Angeles. “There are many more choices in old-age provision. For example, how much to withdraw, how to allocate assets, when to receive a pension, if any, when to start social security benefits, deductions from taxable versus deferred tax accounts, and planning the use of your estate after your death. “

It’s hard to predict the future. It’s even more difficult to plan. If you are like many others, you prefer the comfort of knowing over the fear of unpredictability. When you’re at work, you can nestle into a leisurely routine. Once you retire, everything changes. Change can happen in many ways. And that change is only the first you will face.

“The transition to retirement can be daunting on many levels – emotionally, psychologically, and financially,” said Tiffany Lam-Balfour, Investing and Retirement Specialist at NerdWallet in Greensboro, North Carolina. “Your career is often emotionally meaningful and it can be difficult for some retirees to find a new purpose. Psychologically and financially, the transition from saving for retirement to spending in retirement can be challenging as the mindset changes while dealing with different risks and circumstances that most people have not experienced before. “

If you see change the way you would any opponent you face on a field of play, you stand a chance. What do you do when you prepare to go up against a rival? You study this opponent, learn about his movements, his tendencies and your own vulnerabilities to him. For a better insight, study past games, both your own and your enemy’s.

The same is true here. You have to realize that change is your enemy. And you need to understand the context in which change will attack you.

“Post-retirement planning can be more complex than pre-retirement planning because the whole structure of people’s finances changes dramatically almost overnight,” said Ryan Cicchelli, founder of Generations Insurance & Financial Services in Cadillac, Michigan. “They have moved from the accumulation phase of their life to the maintenance phase, and that can be an eye-opener. During the accumulation phase, most people preparing for retirement contribute to their retirement account. Your employers are likely to contribute to their accounts too, and then the market will contribute with returns. Once they transition into retirement, the market will be the only one still contributing to their accounts. In addition, following a strategy means discipline with the balance between withdrawals and returns. People should also know very well how much administration fees they are paying annually. “

When you’re not ready for that sudden switch from making money (or saving) to taking (or withdrawing) money, another emotional factor can make things seem more confusing: the fear of running out of money. You suddenly realize that every decision you make has a butterfly effect that can haunt you.

“It can seem very easy for your cat to put a squirrel up a tree, but it can be very difficult to bring the cat back down,” said Paul Tyler, chief marketing officer for Nassau Financial Group in Hartford. “Your wealth is similar. Your nest egg will grow if you follow the basic rules consistently. However, in order to avail of that wealth in retirement, you need to wager big on your health, market volatility, and lifespan. “

Of all of these decisions, determining where and when to withdraw money can be the scariest. There are so many parts to your retirement finance machine that any misstep can draw the entire mechanism into account.

“Post-retirement planning is much more complex, as decisions have to be made about where our income comes from, not just where to put the funds,” says Ben Soccodato of the SKG team at Barnum Financial Group in Elmsford, New York. “The fact that the market or your portfolio is not rising linearly can mean the difference between success or failure in a retirement plan when you come from the right place at the right time or from the wrong place at the wrong time.”

These decisions are difficult and annoying because you realize they are so unforgiving. For example, you can make a disastrous investment decision in your 20s. It’s not worth worrying because you have literally decades to recover from this one mistake.

Fast forward forty or fifty years and a similarly disastrous decision might be irreversible. You just don’t have time to recover from a bad choice.

“At this point in your life, you’ve probably made all of the money you’re going to make in your career, and there is little room to make up for lost ground as you could while you still have an income,” says Jason Field, financial advisor at Van Leeuwen & Company in Princeton, New Jersey. “When planning the savings / accumulation phase, cash flow and risk management are in the foreground of planning.”

This doesn’t mean you shouldn’t be ready to spin. After all, things change after they change too.

“Once you retire, it is a lot harder to adjust,” said Michael Windle, owner and financial advisor at Custom Wealth Solutions in Plymouth, Michigan. “When putting together a retirement plan for a retiree, it is important to consider all the potentially hidden things that may arise, B. Health problems, protection against market downturns, adjustment to tax changes and inflation. Ideally, you want to put a plan together before you actually retire. Remember that you could be retired for up to a third of your life or more and that having a specific plan is paramount. “

Out of all the changes, among all the details, stands out one nagging reality that in the coming year is likely to get more than just worse, it is likely to get more complicated. You don’t want to think about it, but you should. Everything you do in retirement from now on will be shaped by this unique certainty: taxes.

Taxes can change the calculation between the amount (before tax) your retirement plan reports and the amount (after tax) you actually have to spend on the things you need.

“When you retire, you need to make sure you are withdrawing money from your accounts in a tax-efficient manner (taxable or non-taxable, tax class effects, etc.),” ​​said James O’Donoghue, financial advisor at BCG Securities in Cherry Hill, New Jersey. “The biggest problem is making sure you’re not obviously running out of money, but retirement costs are often higher and more complicated than expected. For example, no employer-sponsored insurance, estate planning, etc. “

It’s not just the tax implications throughout your life, ultimately you may need to understand and consider the tax implications on your inheritance.

“When customers retire, they face a number of decisions, such as: B. How much they can afford to spend money. how to maximize the value of the accumulated portfolio (tax optimization); How to Best Get Income from Investments and When to Start With Social Security Services, ”said JJ Jeffries, principal consultant at Capco in Charlotte, North Carolina. “While decumulation planning poses complex investment challenges like Roth remodeling and social security planning, it also opens up other life events that can go beyond investments like trust and estate planning and philanthropic donation.”

There is nothing in the retirement phase that comes close to the complexity of estate planning. This exercise leads to a cornucopia of questions.

“Estate planning becomes more of a focus in retirement as you consider what your estate should look like,” said Evan Turner, financial advisor at Nicola Wealth in Kelowna, British Columbia, Canada. Turner says you want to know things like, “What will happen when your estate arises and how best to plan to make sure your goals are met, but also the least amount of people dealing with the problem Amount of work / stress going into you Discount? What are your goals for your property? Are there family members or charities that you would like to care for after death? What is the taxable consequence of your estate based on the current situation and is there any possibility of implementing a plan that would result in a more favorable after-tax result? Is there a way to have less judicial involvement or more privacy in the estate in order to get assets to your desired beneficiaries (individuals / charities) faster or less publicly? “

And this is only the tip of the iceberg for estate planning, as in addition to federal laws and regulations, each state has its own regulations for estate.

Even if you are not yet having inheritance problems, the act of retirement brings a number of challenges with it. The more you know about their complexities, the better you can anticipate and address them.

“Post-retirement planning is complicated because asset allocation brings many more factors to long-term planning,” said Michael Foguth, founder of Foguth Financial Group in Brighton, Michigan. “Making money or growing is very easy. However, protecting and dispersing wealth alongside protected growth is very complicated because of the many moving parts and factors to consider. “

So, if you thought retirement was a breeze, you might still be right. But only if you are prepared for all of the zigzags that will undoubtedly arise and you surround yourself with understanding people (including family) who can help keep track of things.

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