Retirement planning: Blueprint for your best years

Do you catch yourself asking, “I wonder at what age I can retire?”

At EP Wealth Advisors, we help you answer that question. And if the answer is “not soon enough” then we will provide retirement planning advice to help you get on track to retire.

Senior couple dancing

How to Plan for Retirement: Identifying the Gap

Day dreaming about retiring can be inspiring but thinking about retirement is not the same as planning for retirement. Every retirement plan has to balance three main goals:
1. Maximize your enjoyment of retirement
2. Manage the risk of outliving your income
3. Manage the risk of unexpected life events and investment risk

A general rule of thumb is that you’ll need 60-90% of your pre-retirement income, but that can change for every person so we suggest making a list of your personal expenses and evaluating what you will still need in retirement. Many expenses change in retirement, like health care, long term care, travel, etc. Did you know that according to the Genworth 2015 Cost of Care Survey, 70% of people will need long term care. These estimates may give us an idea of the annual income needed in retirement.From there, evaluate retirement income streams like Social Security and pensions. For those considering an early retirement, note that those additional years of freedom may mean fewer years of income, contributions to Social Security and pensions, and you may not have access to the same healthcare. Unless you are lucky enough to be eligible for retiree healthcare through your employer, or purchase private healthcare, Medicare will not be available until you’re 65 years old.

The difference between your annual income needed and your retirement income streams is your gap, and that’s what needs to be solved with your savings and investments, including real estate.

Retirement Planning Strategies

When talking about your personal savings, this includes funds that you have in retirement accounts like IRAs, 401(k) plans, 457(b) plans, and 403(b) plans, as well as any investments you hold outside of retirement accounts. In order to help you retire, our financial planners have more than a few financial planning strategies. Below are a few of the more common strategies to help plan for retirement

Investment Management
When it comes to putting together a plan to convert your personal savings into a source of retirement income that fits your needs, there are several factors to consider:

First and foremost, the challenge is to implement an investment strategy that provides for the annual income you will need, while balancing that need for regular income with other considerations, such as liquidity, your risk tolerance, and understanding what your income needs in order to realize your retirement goals. Asset allocation–deciding how much you’ll put into various types of investments–will be an important part of your strategy.

Your withdrawal rate is the portion of your portfolio that you liquidate each year for income. The question that you’ll need to answer is how much you can withdraw each year without exhausting your savings.

At EP Wealth Advisors, we help you determine an appropriate asset allocation, select your investments, and create a withdrawal strategy.

Tax Planning
You may have assets in accounts that are tax-deferred (for example, traditional IRAs) and potentially tax free (for example, Roth IRAs), as well as taxable accounts. The decision over the order in which you should make withdrawals depends on your individual circumstances, including your asset allocation, and any tax consequences, withdrawal fees, surrender charges, or other costs potentially associated with each specific option.

There is, though, one aspect of retirement withdrawals that isn’t optional. By April 1st of the year following the year you turn 70½, you must start taking required minimum distributions, from traditional IRAs (but not Roth IRAs), 401(k)s and 403(b)s unless you continue to work for the same employer that’s sponsoring the plan, in which case you can generally defer taking required withdrawals until the year you retire, even if it’s after age 70½ . The penalty for getting this wrong can be severe: if you withdraw less than your required minimum distribution, you may be assessed a penalty. Required minimum distributions can affect your income and need to be considered when planning to withdraw from savings.

To help our clients at EP Wealth Advisors, we’ll prepare unofficial tax projections that should be reviewed with a tax professional, and create a retirement account withdrawal strategy that can assist you in meeting your required minimum distribution. We are also happy to work alongside your tax professionals to assist him/her and support the strategy they have developed on your behalf.

Social Security Optimization
Today, 94% of U.S. workers are covered by Social Security [Source: SSA, “2015 Fact Sheet”]. The amount of Social Security retirement benefit that you’re entitled to is based on the number of years you’ve been working and the amount you’ve earned. Your benefit is calculated using a formula that takes into account your 35 highest earning years. The best way to know how much you can expect in benefits is by signing up for a “my Social Security account” on the Social Security website to view your Social Security statement online. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor’s, and disability benefits, and other information about Social Security. If you don’t sign up for an account, you’ll receive a statement in the mail every five years, from age 25 to age 60, and then annually thereafter.

The earliest that you can begin to receive Social Security retirement benefits is age 62. If you decide to begin receiving benefits before normal retirement age (which ranges from 66 to 67, depending on the year you were born), there’s a drawback: each monthly benefit check will be 25% to 30% less than it would have been if you had waited until full retirement age. Conversely, you get a higher monthly payout by delaying benefits past your normal retirement age, up to age 70. Also worth noting–the federal government periodically adjusts Social Security benefits for inflation. The bottom line, though? For most people, Social Security alone isn’t going to provide enough income in retirement.

Consider this: according to the Quick Calculator on Social Security’s website, an individual born in 1952 who currently earns $100,000 annually can expect to receive approximately $27,000 annually in Social Security retirement benefits beginning at full retirement age, which in this case would be age 66. Of course, your actual benefits will depend on your work history, earnings, and retirement age. [Source: Social Security Quick Calculator, accessed November 12, 2015]

At EP Wealth Advisors, we run a Social Security Analysis to determine when is the best time to claim your benefits based on your personal situation. If you’re a small business owner, visit the small business financial planning page for more information.

Pension Planning
If you’re entitled to receive a traditional pension from an employer-sponsored pension plan, you’re lucky. Fewer Americans are covered by such plans every year.

If you haven’t already selected a payout option, you’ll want to carefully consider your choices. Generally, your retirement benefit is an annuity, payable over your lifetime, beginning at the plan’s normal retirement age (typically age 65). Many plans allow you to retire earlier, but will actuarially adjust your benefit to account for the fact that payments begin sooner, and will last for a longer period of time. If you’re married, your plan must generally pay your benefits as a qualified joint and survivor annuity (QSJA). A QJSA provides a monthly payment for as long as either you or your spouse is alive. The payments under a QJSA are generally smaller than under a single-life annuity because they continue until both you and your spouse have died. Your spouse’s QJSA survivor benefit is typically 50% of the amount you receive during your joint lives. Your plan may offer other options as well, including the possibility of taking a lump-sum distribution. The option that’s right for you depends on your individual situation, including your (and your spouse’s) age, health, and other financial resources. At EP Wealth Advisors, we’ll help you understand your options

Additional Income – Real Estate Investments
There are other sources of retirement income that should be included in planning. If you have built up substantial home equity, it’s possible that you could tap that equity as a source of retirement income, either by selling the home (and possibly downsizing) or by borrowing against the value of the home (a course that should be explored with caution).

If you’re fortunate enough to own real estate investments, it’s important to know what your CAP rate is, which determines the percent of your investment returned as net operating income every year. At EP Wealth Advisors, we do offer our clients Real Estate Investment Analysis to help evaluate the quality of the investment and the alternative options.

Additional Income – Life Insurance and Annuities
An existing permanent life insurance policy that has cash value can sometimes be a source of retirement income, although policy loans and withdrawals can reduce the cash value, reduce or eliminate the death benefit of the policy, and have negative tax consequences—so proceed with caution.

Insurance Analysis – Medicare
For most people, Medicare coverage starts at 65. But it works slightly differently than regular health insurance. There is regular Medicare, plus privately run Medicare Advantage Plans, Medigap/Medsup plans and Medicare Part D prescription plans.

Insurance Analysis – Long-Term Care
Because Medicare doesn’t cover long-term care, it’s also important to consider the potential impact of a prolonged stay in a nursing home. Long-term care refers to the ongoing services and support needed by people suffering from chronic health conditions or disabilities.

It’s hard to face the fact that our health might decline, but statistics suggest that approximately 40% of us–that’s two out of every five people here today–will need long-term care during our lifetimes at some point after we reach age 65.

Currently the nationwide average annual cost of nursing home care is $74,820 [Source: US Department of Health and Human Services,, November 12, 2015], but in some states, it’s much higher. And in the future, long-term care will likely cost even more. If costs rise at an average rate of 3% every year (and that’s a pretty conservative estimate) in 20 years, one year in a nursing home could cost approximately $135,133. Paying out-of-pocket is truly a gamble unless you’re wealthy.

Many people assume that Medicaid will pay for long-term care costs. You may be able to rely on Medicaid, but there’s a catch. To qualify for Medicaid, your assets and income must be low enough to allow you to qualify. You will have to use up most of your savings before you even qualify for Medicaid, and aside from a small personal needs allowance, you will have to use all of your retirement income, including Social Security and any pension payments to pay for your care before Medicaid pays anything.

Another option is to consider long-term care insurance, which may provide a source of funds for long-term care expenses but doesn’t ensure that you won’t have to pay for some of the long-term care costs out-of-pocket. And the premium for this insurance will need to be factored into your retirement income needs.

Our Retirement Planning Process – The Steps to Peace of Mind

Creating a retirement plan personalized to you and your goals is the purpose of retirement planning at EP Wealth Advisors. We call this plan your Peace of Mind Plan, and it has a 4-step process to match.

In our discovery phase, we have two goals: one is to understand what a happy retirement looks like to you and the other to understand where you’re at with your finances. Your EP Wealth Advisor will share a Document Checklist to begin gathering the documents to help create your Peace of Mind Plan. The list may include documents to assist with: tax planning strategies, estate planning, risk management/asset protection, and insurance planning, real estate analysis, business planning and more.

Also, you will receive your personal financial website log in and password to help with collecting information. This website has updates on your net worth daily, including spending, investing, and even an online document storage vault to safeguard your important documents.

Your EP Wealth Advisor Team will present your Retirement Plan, which will include a cash flow projections and stress testing of your plan under 1,000 trials called a Monte Carlo Analysis. As a take away, you’ll receive prioritized steps intended to help you achieve your retirement goals, as well as a personalized portfolio based on your needs, risk tolerance and goals.

Your EP Wealth Advisor will start following up on the prioritized steps from your Peace of Mind Plan. This may include: Meeting your CPA regarding your tax plan, working with your estate attorney or insurance provider to assist you in protecting your loved ones.

Your EP Wealth Portfolio Manager will invest the appropriate assets into a diversified portfolio.

You’ll meet regularly with your EP Wealth Advisor to review your Peace of Mind Plan. Updates will be made to your Peace of Mind Plan based on changes in your life.

You’ll receive quarterly performance reports. You’ll also have access to: client events, educational webinars, and newsletters.

For More Information on Retirement Planning

Whatever retirement means to you, we hope you enjoy the most of it. If planned thoroughly, you can have peace of mind from being organized and prepared to handle uncertainties of life. If you want additional help, please contact us today to speak with an EP Wealth Advisor.
Contact Us For More Information