Reaping the Harvest

Financial Planning & Retirement

BY » Peter Eisenhauer

WWe asked some local financial advisors for tips on financial planning for people heading into or in retirement. How do you ensure you reap the full reward for your years of hard work and see that harvest provide for a full and active lifestyle? What are things that people most often miss in the process?

“I tend to encourage people to look at their big picture first, and then move on to the details later,” said David Hedges, a Certified Wealth Strategist (CWS®), and President of Bookman Bright Inc. in Davidson. According the Hedges, the big picture items include: investments, insurance, liability issues, Qualified Retirement Plan/ IRA issues, stock options, business succession plan issues, plans for gifting to children and charitable giving. A complete plan will also deal with durable power of attorney issues titling of assets, executor trustee issues, as well as distribution of wealth and charitable inclinations at death.

“Now within any of those categories, there are multiple things that may need to be dealt with,” said Hedges. For example, under investments: are your investments of good quality? Are they the right types of investments to reach your goals, be

they generating income or growing wealth. Then there is the question of risk. How much should you be taking? “Plenty to consider,” notes Hedges. The complexity suggests the need for qualified professionals to help manage all these issues.

It is also important to go into this process with the right mindset, suggests Justin Rindskopf, Two Waters Wealth in Huntersville.

“The problem many people have is that they concentrate too much on things that are outside of their control and it ends up costing them money,” said Rindskopf. An example would be focusing on market rates of return. Rindskopf suggests instead that you focus your attention on three areas that are within your circle of control where small differences can accrue and lead to a major impact on you financial health in the long run. These areas are:

1) Fees and expenses associated with your investments. Rindskopf says it is well worth your time to look beyond the summary statement of advisor fees and find out the amount of internal fees that can accrue and reduce your payout in the end.

2) A second area that is very salient for retirees is tax reduction strategies. “There is a large adjustment that most people have to make in their mindset after retirement, the instead of having one major source of income from a salary or business, they will have multiple sources of income including pension payments, Social Security and other annuities,” said Rindskopf Author Sally Balch Hurme in her book “Get the Most Our of Retirement,” discusses that transition. “if you are like many people,” Hurme writes, “one of the hardest things to do upon entering retirement is to move from a savings mode to a spending mode. It can be scary to stop getting a regular paycheck and start having to withdraw from those hard-earned savings.” Part of overcoming those anxieties, Rindskopf advises, is to focus on the items that are within your control. In the case of distributions from tax deferred plans such as 401Ks, that means paying close attention to the tax implications of your various options for taking that income. Hedges says the question is “how to generate tax favorable income, i.e., which accounts to pull from first?”

3) The third area is aligning the level of risk in your investments with your goals.

“I would say their risk tolerance, investment objectives, and overall time frame when people switch from portfolio growth to taking income when they retire is most commonly overlooked,” says John Balcerzak, CFP, of A4 Wealth Advisors, LLC, in Huntersville. “The closer you get to retirement you need to De-Risk your portfolio and make sure your portfolio matches your risk tolerance at that time.”

Different goals will call for different strategies. The great benefit of reviewing your finances with this mindset, says Rindskopf, is peace of mind. “You have clarity as to what you are doing with your money and why. You have added confidence when you know how and why your financial plan has been constructed.”

The other side of the coin is that failing to plan carefully results in lost income and lost opportunities.

The payoff is that if done well, it gives you more flexibility and more options. For one thing, Rindskopf notes, some people may even discover they can retire earlier than they expected. Hedges also notes that clients often discover hidden resources “once you turn over all the rocks.”

Jeffrey Karp, President of Karp Financial Strategies, in Mooresville agrees that many people find unexpected resources when going through a careful review of their finances. Karp cautions, however, that can be downsides to seemingly golden opportunities. You have enough income to retire early? Great, but how are you covering health insurance until Medicare kicks in? Your children didn’t need all that money you had set aside in a 529 plan? Well great, you can cash out, but there might be a penalty to pay. What about keeping the plan for the grandchildren? “There are always choices to be made,” says Karp.

On a note of reassurance, Karp says that people in retirement should not feel that they have to eliminate all of their debt. ‘Smart debt’ — low interest, long term, non-revolving debt such as a remaining mortgage or even a car loan are not a problem. Things to avoid, however, are high levels of credit card debt, or open lines of credit with variable rates of return and possibly large balloon payments at the end of a term.

All the advisors stress that beginning a thorough process is the key to success. Hedges gives the example of an area business owner, a new client.

“I started asking a few questions and it didn’t take long for me and the new client to realize that there were some immediate improvements to be made,” said Hedges. “Here’s one: I asked her if she had an idea of what kind of income she would like after she decides to sell the business? She didn’t. I also asked her what the plan was to transition/ sell/monetize the business that she had worked so hard on?” There was no plan.

“These answers are not uncommon,” said Hedges. “Answering these types of questions are not on a top ten list of things that a business owner needs to get done in the course of a day.”

And while it is never too late to improve your financial plan, it is really never too early. Rindskopf and partner Derek Bostian had just met with a couple who were a year or so out from retirement. They were glad to get their plan in order, but said they wished they had done it ten years ago. This is not uncommon, and very understandable, Rindskopf said. “Life is chaotic, and you have to make planning a priority.”

Maybe this time of harvest is the moment for you to make a solid plan for bringing in the sheaves.