5 Baby Boomer Strategies for Pursuing Retirement Success

5 BABY BOOMER STRATEGIES for Pursuing Retirement Success

INTRODUCTION

Gone are the days of the pension, the gold watch, and the annual flight to Sun City. For the Baby Boomer generation, retirement will look markedly different from that of their parents. Here’s what you need to know in order to try and position yourself for retirement success.

At Wealth Enhancement Group, we offer a series of retirement planning guidebooks on specific financial topics like how to choose an advisor, maximize Social Security, manage portfolio volatility and reduce taxation.

This guidebook is different. It focuses on the common issues, needs and experiences driving the newest generation of retirees: those of you who were born in the 20 years following the Second World War. Many of you are already grandparents—but you’re a new generation insofar as retirement is concerned. The oldest Boomers turned 65 in the last 10 years, and now are retiring en masse.

Boomers have vastly different retirement needs and preferences compared with your parents’ generation. This guidebook will help you understand the unique challenges and opportunities you face as a Boomer in retirement.

THE GENERATIONS DEFINED BORN

AGE IN 2018

THE GREATEST GENERATION

Before 1928

91 - 103

THE SILENT GENERATION

1928 - 1945

73 - 90

THE BABY BOOMER GENERATION

1946 - 1964

54 - 72

GENERATION X

1965 - 1980

38 - 53

THE MILLENNIAL GENERATION

1981 - 1997

21 - 371

No chronological end point has been set for this group. For the purpose of following a cleanly defined group, Millennials are defined as those 19 to 35 in 2016. Pew Research Center

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RETIREMENT FOR BOOMERS: Daunting but Attainable Let’s look at the facts.

About 10,000 Boomers retire every day.

That adds up to about 3.5 million new retirees every year, a trend that will continue for the next 14 years. Such high numbers mean that Social Security and Medicare will likely undergo significant changes to remain solvent. For you, this may mean fewer Social Security filing options, higher Medicare premiums and higher taxes on your Social Security benefits.

You’ll likely live longer than any previous generation.

According to the Social Security Administration, a Boomer reaching age 65 now can expect to live another 20 years or more.2 And while longer lives are great, it also means more years to finance—and those later years are more likely to contain hefty health care costs.

Some Boomers actually spend more money after they retire.

We start with lifestyles that tend to be more expensive than those of our elders. While conventional wisdom says expenses go down in retirement, an EBRI study shows one in four retirees exceed their pre-retirement spending by 20% or more in the first few years of retirement.3 That calls for some proactive thinking about your future spending and income needs.

Your retirement accounts may have taken a hit from the recession and college expenses.

From costly college tuitions to layoffs, pay cuts and pension deficits, there are a number of reasons why Boomers face a big shortfall in their retirement assets.

But don’t despair.

Retirement planning with a professional advisor helps, even if your finances are less secure than you hoped, and even if you’ve done little or no planning until now. While it’s always best to start the planning process early, it’s not too late to make a course correction and work towards the retirement lifestyle you’ve always wanted.

BABY BOOMERS TEND TO HAVE TOO LITTLE IN SAVINGS TO MEET THEIR RETIREMENT NEEDS4 $70,000

Projected Income

$60,000

Income Gap

$50,000 $40,000

Social Security Administration Life Expectancy Calculator - https://www.ssa.gov/ cgi-bin/longevity.cgi

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3

https://www.ebri.org/pdf/briefspdf/EBRI_ IB_420.Nov15.HH-Exp.pdf

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http://blogs.wsj.com/economics/2015/10/26/ baby-boomers-hugely-underestimate-whatthey-need-for-retirement/

$30,000 $20,000 $10,000 $0 All Preretirees

Affluent

Nonaffluent

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Men

Women

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STRATEGIES FOR TACKLING COMMON BOOMER ISSUES

1. Plan for two retirements, not just one.

The employment rate for married women with children jumped from 37% in 1968 to 70.5% in 2016.5 On the whole, that’s good for retirement savings, but the flipside is that planning for post-retirement income is more complex with two people. While many couples think of their lives as one, there are plenty of individual situations to sort out. Emotionally, you’ll need to decide how the first spouse to retire will spend his or her days while the other is still working. Financially, there will be two sets of retirement accounts, and their eventual Required Minimum Distributions (RMDs), to plan for.

2. Ask for help when making Social Security claiming decisions.

Since benefits will be higher if you delay filing—up until age 70— when to file is a complex problem. Your health, expected returns, and marital status are but three of the factors that you may need to include in your claiming strategy.

3. Maximize health care savings.

Because medical costs are rising so fast, Boomers will be paying higher premiums for Medicare and Medigap plans. If you have access to one, a Health Savings Account offers tax-free growth and tax-free withdrawals for certain expenses, including some Medicare premiums.

A year of nursing home care costs over $85,000 on average, and a year of a home health aide could run you nearly $50,000. Only longterm care insurance covers those costs, otherwise, you’ll be paying out of pocket.6 Investing in long-term care insurance before you’ll need it may end up saving you hundreds of thousands of dollars out of pocket.

4. Prepare for the emotional and financial stress of being in the “Sandwich Generation.”

The “Sandwich Generation” is comprised of anyone who supports aging parents and adult children at the same time. It’s a relatively new phenomenon that’s hitting Baby Boomers hard. Financial reserves once intended for retirement are being used for parents’ long-term care expenses and/or helping Junior pay tuition and bills. Of course you want to help your loved ones, so it’s in your best interests to plan ahead if you think you may find yourself in this boat.

5. Understand the complexities that working in retirement add.

For many reasons, many Baby Boomers return to part-time or fulltime work in retirement. Working in retirement has financial pros and cons that impact your income, taxes and Social Security benefits. Only careful consideration based on your specific circumstances will help determine what’s best for you and your loved ones. https://www.bls.gov/news.release/famee.nr0.htm https://www.genworth.com/about-us/industry-expertise/cost-of-care.html

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EARLY BOOMERS Born 1946 - 1950

You’re quite likely to be retired already, unless you’ve chosen to postpone retirement.

MIDDLE BOOMERS Born 1951 - 1958

Your retirement is imminent or just a few years away; you may have already taken early retirement.

LATE BOOMERS Born 1959 - 1964

While you should be actively planning for it, your retirement is still likely to be several years down the road.

NOW, LET’S TAKE A LOOK through three hypothetical retirement journeys, focusing on common Boomer concerns and how a financial advisory team can help you find potential solutions.

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THE EARLY BOOMERS Ron & Carol Ron, born in 1948, retired at 65 from his sales executive job, but quickly became restless. With the support of his wife, Carol, he went back to work at age 66 as a part-time fundraising consultant at the private school where she still works. It’s been great for maintaining Ron’s mental agility, which is important because of his family history of Alzheimer’s, but they were surprised to see that the additional income had such a large impact on their tax situation and Medicare premiums.

THE EARLY BOOMER’S KEY QUESTIONS: • Should I consider taking a retirement job?

• How will RMDs (Required Minimum Distributions) impact us at age 701/2?

• What can we do to plan ahead for rising health care expenses?

• What steps can I take now to help ensure my wishes are realized upon my passing?

TIPS FOR THE EARLY BOOMER:

1. Carefully weigh the pros and cons of a retirement job.

First and foremost, you should be sure the job is something you will enjoy and not just about the extra income. Working will increase cash flow and potentially allow you to delay drawing down on retirement accounts, but it may also increase taxes on income, capital gains and Social Security. In other words, it may not necessarily offer the financial rewards you expect.

2. Prepare to take RMDs.

When you reach age 701/2, the IRS requires you to withdraw a certain amount from all of your tax-deferred retirement plans—or face a stiff penalty. It’s up to you to calculate this amount, and the IRS won’t remind you to take them. If you aren’t sure about the regulations, seek guidance from an advisor.

3. Manage your health care costs.

Choose the Medicare coverages best suited for your situation, and be sure to understand all the premium costs. Be aware that both Medicare Part B and Part D premiums are based on your Adjusted Gross Income (AGI), something you can manage with thoughtful, proactive planning.

4. Get estate planning out of the way.

Nobody likes to talk about it, but your loved ones will be glad you did.

The estate planning process is usually simpler than you think. Looping in a financial advisor can not only help facilitate a family conversation, but also help with saving your loved ones from unnecessary expenses, taxes and stress.

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THE MIDDLE BOOMER Pam Pam, a marketing director born in 1956, wants to retire within the next five years and do the traveling she’s always dreamed of. She’s divorced, never remarried, and lives entirely on her own means. While Pam’s been a diligent saver, and invests with the help of an excellent broker, she’s not quite sure how to transform those investments into taxefficient income as she approaches retirement.

THE MIDDLE BOOMER’S KEY QUESTIONS: • What’s the best year for me to begin retirement?

• How should I transition my asset allocation in the crucial five years before retirement?

• What’s the most tax-efficient way to withdraw my money?

• Should I delay filing for Social Security past full retirement age to gain an increased benefit?

TIPS FOR THE MIDDLE BOOMER: 1.

Build a timeline for the next five years.

There are so many crucial timing decisions, from Social Security, Medicare and/or private health insurance, to perhaps the biggest decision of all, the choice of exactly when to begin retirement. This may be the most critical period for determining you retirement success. You’ll want to be sure you’re being mindful of specific planning benchmarks.

2. Have a financial planner, not just an investment advisor.

Over the coming years, transitioning your assets for reliable, tax-efficient retirement income may be even more important than picking the right stocks and bonds.

3. Allocate your investments into three categories.

• The short-term category holds cash and cash instruments for money you’ll need for the next five years.

• The mid-term category is for needs 6-15 years ahead, and is usually comprised of a balanced mix of investments that seek growth with manageable volatility.

• The long-term category is for money you don’t foresee needing for 15+ years, and may include more aggressive, potentially volatile asset classes.

4. And also allocate by tax treatment .

For more details on transitioning your assets into retirement, see our guidebook: Transform Your Savings into Retirement Income.

In addition, you need to consider how your investments are split between the three kinds of tax treatments: • Taxable, such as an ordinary bank or brokerage account.

• Tax-deferred, such as a Traditional IRA or 401(k).

• Tax-advantaged, such as a Roth IRA or Health Savings Account.

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THE LATE BOOMERS Mark & Susan Mike and Susan, born in 1959 and 1962 respectively, are both professionals—Mike is a veterinarian and Susan is an attorney. Retirement is still years away, but both understand the challenges ahead. Of particular concern: The huge costs of seeing through the educations of their two kids still working on their undergraduate degrees, and Susan’s ailing mother needing ever-increasing care.

THE LATE BOOMER’S KEY QUESTIONS:

• How can we balance saving for retirement with taking care of family obligations?

• Is it best to pay for college outright or have our kids take out loans?

• Should we max out our tax-deferred retirement plans or build up more after-tax savings?

• At what age should we plan to retire?

TIPS FOR THE LATE BOOMER: 1. Be wise about elder care.

When it comes to caring for your parents, help them claim the benefits they’re eligible for first. If you then provide financial support, take care to do so in a tax-efficient manner. A quick example: Instead of gifting your mother $40,000 to help pay for her medical bills, consider paying the medical institution directly to avoid gift taxes. As you’re still saving for retirement, tax-savvy moves help you keep more of what’s yours.

2. Think long-term about education expenses.

Ideally, you’ve pre-planned for college expenses in a tax-efficient 529 plan, a Coverdell ESA or an UTMA/UGMA. If that’s not enough, it may be best to pay for just a portion and have your child take out loans to pay for the rest.

After all, for all the worry about student loans, your children have decades of earning ahead of them, and you do not.

3. Now’s the time to start serious financial planning.

Instead of trying to achieve an abstract number, concentrate on your financial plan and set annual benchmarks for savings goals. Be on the lookout for tax-efficient savings vehicles, especially Health Savings Accounts, which give you a tax deduction for contributions and allow tax-free withdrawals for qualified expenses.

4. You and your partner may want to stagger your retirement ages.

For more details on the stages for retirement planning, see our guidebook: Your Retirement Road Map: How to Navigate the 4 Critical Milestones.

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Going from two incomes to zero can be a big shock for some people.

If possible, you and your spouse might plan to space your retirement dates a year or more apart. Even better: Get a written plan that maps out how much you may receive in monthly income based on several retirement ages, asset allocations and market scenarios.

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WHERE YOU MAY NEED HELP

AS A BOOMER, YOU MAY NEED HELP WITH THE FOLLOWING: Overcoming the Great Recession How to deal with financial losses, emotional shell-shock resulting in fear of investing, or both.

Financial planning Most of us don’t know exactly how much retirement costs and how we’ll get there.

Basic investing It’s gotten a whole lot more complicated to manage a portfolio these days.

Tax liabilities Managing your taxes is the surest way to keep more of what’s yours, and the only way to do so is to know the rules and plan ahead. avigating mazes N Medicare, Social Security and long-term care insurance, for example, are three complicated processes that seem to get more confusing every day.

The unthinkable but inevitable Estate planning, so your assets go where you intend them to once you’re gone.

WHERE TO GO NEXT Talk to a financial advisor.

Or get a second opinion if you already have one.

!

Start now.

Because every Boomer is facing retirement, either imminently or within a few years.

Think of the positives, not just the scary stuff.

• Retirement can be incredibly rewarding, especially if you do it right.

• Both saving and spending are within your control.

• You have options—to potentially increase your savings, build your rate of return and save on taxes.

• You likely still have time for your money to grow, maybe even over a decade, depending on your time horizon.

Consider the team you’ll need on your side.

In order to achieve truly comprehensive financial advice, you’ll likely need to enlist the help of a financial planner, an investment specialist, a tax strategist and an estate planning attorney.

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TAKE THE STRESS OUT OF RETIREMENT PLANNING Depending on when you were born within the Baby Boom, your retirement could be just a few months or several years away. Regardless of exact timing, you’re probably feeling more pressure than ever to make the “right” financial decisions. We can help simplify your financial life so that you can feel less stress and make more confident decisions.

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At Wealth Enhancement Group, we specialize in the retirement planning process and are acutely aware of Baby Boomers’ many diverse needs.

We have special tools that can help you maximize your Social Security benefits, minimize your tax burden, estimate your retirement income and effectively diversify your portfolio to manage risk.

Call us today at 1-888-717-1682 to schedule your free, no-obligation meeting.

IN THIS NO-OBLIGATION INTRODUCTORY MEETING, WE WILL: Discuss where you are now and what you want to accomplish Identify opportunities for your portfolio and plan Provide proactive next steps to pursue your goals

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ALL THE SPECIALISTS YOU NEED, ALL IN ONE PLACE Life doesn’t get easier as you accumulate wealth. It gets more complicated. Bigger decisions. Higher stakes. Greater uncertainty. Why burden yourself with managing multiple financial relationships and tracking disparate accounts—or manage the stress of doing it all on your own? You need a plan that brings it all together and simplifies your financial life.

You need Wealth Enhancement Group. Our 3-step UniFi™ process helps ensure your financial life is organized, comprehensive and straightforward, enabling you to make more confident decisions and be relieved of the stress that comes with managing your wealth.

UniFi

TM

A 3-step process designed to simplify your financial life

Organize.

Collaborate.

Guide.

We collect your financial information and consolidate it into your UniFi Inventory™.

Our Roundtable™ team approach helps ensure your financial plan is covered from every angle.

We clarify your options and put your plan into action, supporting you every step of the way.

• • • • • •

Financial planning Retirement income planning Tax strategies Investment management Estate planning Insurance

Just call us today at 1-888-717-1682 to learn more.

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