Empty Nests and Pre-Retirement

The Value of Planning as Retirement Approaches

Years ago, retirees lived on Social Security and their pensions. Today, many people are living longer and hoping to enjoy their ‘golden years’, but don’t have those pensions to rely upon. This is why pre-retirement planning is key.

Additionally, we may not know when that last day on the job will occur. For some, it occurs abruptly and unexpectedly by way of disability or layoff. If you haven’t done the serious planning, you risk making hasty, ill-informed decisions that can have lasting consequences for years to come.

KEY ISSUES AND DECISIONS

Here are some important considerations:

• Investment asset allocation - How much risk you want to take with your investments? Once you stop working full-time, it may be harder to replace assets lost if markets have a downturn because your investment time horizon will be shorter. Asset allocation designed for a specific level of risk will have the appropriate diversification among asset classes, although not guaranteed, may help make market volatility less severe – especially when not every asset class has lost favor with investors.
• Income from investments – Many soon-to-be retirees expect that investment income will replace part of their paychecks. But since few stocks pay significant dividends, that can mean repositioning assets from stocks into bonds or cash. Fixed annuities provide guaranteed monthly payments that can help to fill budget gaps when paychecks stop. 
• Social Security benefits - The decision of when to begin Social Security retirement benefits is important, and usually can’t be changed once made. You may be eligible to begin receiving monthly income benefits as early as age 62. However, your benefits are reduced for each month that you collect benefits before your Normal Retirement Age (age 65 to 67, depending on your age). 
• Health benefits - This can be a major issue for people who retire prior to age 65, when Medicare and Medigap coverage typically begins. Many employers do not offer group health insurance to retirees. Even if they do, many retiring workers must pay their own premiums. At age 65, coverage under Medicare Part A (hospital) is automatic for most, and most retirees also elect to pay the modest premium required for Medicare Part B, which covers doctor bills and miscellaneous medical charges. It’s also important to evaluate private Medigap policies, which can help to cover Medicare copayments and deductibles.
• Retirement distributions - When a person retires, their retirement plan(s) may offer them several distribution options, some of which have tax implications and usually have deadlines.  
• Estate planning – It’s best to start this planning as early as possible. In recent years, there have been numerous changes in estate tax laws, and more are potentially on the horizon. That makes this a good time to review any existing estate plan you have, and also to take care of important details such as writing a will or creating trusts.