2011 Smart Money Choices, Retirement Planning, Lynn Shepherd InstructorIt’s always a joy to share retirement planning tips with people who are serious about taking action. That was the case July 29th when the Columbus State Downtown Campus Conference Center was buzzing with hundreds of people who opted to spend a Friday learning about how to make wise financial choices.

Retirement planning was a hot topic, with 120 people registered for the two retirement planning classes I was teaching.

I feel fortunate to have been involved as an instructor for this program since 2004. At that time, it was called Women & Money.  The expanded program is called Smart Money Choices. I was honored that the State of Ohio invited me back to teach the Top Ten Retirement Tips.

SPECIAL NOTE: As most of the clients I serve are either within a year or two from  retirement or already retired, I’d like to share highlights of these tips as they apply to that group of individuals.

2011 Smart Money Choices, Columbus Retirement Planning Class1. Start Early. I’m not talking about starting early for  accumulating money. “Start Early” means planning now for the day the paycheck ends or life changes. If you are 2 years away from a planned retirement, start living on your expected retirement income now. If you are already retired, plan for the day when life changes. And it will. Taxes will go up. Medical expenses will go up. Investment returns will go up, down, and sideways. You may find yourself suddenly single. Or raising a grandchild. How will this impact your retirement income? What can you do now to reduce the future, inevitable risk of change?  Start planning now. It’s never too early.

2. Develop Realistic Goals.  It’s time for a reality check. What are your current expenses? Will your home be paid off when you retire? Chances are you can’t retire at 50 and have enough money to provide you with a sustainable income, without a paycheck, for 35 years. Supporting adult children or a lavish lifestyle once the paycheck stops is dangerous to your future financial health.

3. Expect to live beyond 100. Enough said.

4. Plan for 70% replacement of income. At a minimum. 70% of income used to be a good rule of thumb. However, your early retirement years are when you most often have both the freedom and health to travel, enjoy hobbies, and explore new opportunities.  You may actually spend 100% of your pre-retirement income. With inflation and health care costs looming, it is vital that you plan for future income to keep pace with inflation. 70% of your current income sounds like a lot now. But twenty years from now? Not so much.

5. Diversify. Conventional wisdom has taught us all to diversify through asset allocation. That is a good beginning, but I strongly believe you must also diversify based on risk and how an asset will be taxed. With the inevitable rise of tax rates (and elimination of deductions), strongly consider researching the benefits of a Roth conversion. With tax free growth and elimination of the RMD requirement, the Roth IRA is worth exploring. As we age, it is also necessary to reduce risk and preserve assets. Please note that diversification does not ensure a profit and does not protect against losses in declining markets.

6. Do Your Homework. But realize that information is not knowledge. And knowledge is not wisdom. Keep in mind that your individual circumstances mandate that you need a personally crafted plan, customized for your individual needs and goals. Do your homework not just about investing or estate planning, but to find an adviser who has the experience, ethics, and education to help guide you to make wise choices based on your circumstances. Find someone who will listen and act with your best interests in mind. Don’t let your past experience or conventional wisdom shut the door on certain investments which may be extremely valuable to your income plan. Keep an open mind and learn the naked truth about annuities. You might be surprised.

7. Know IRA Contribution/Conversion Limits. If you are over the age of 50 and have earned income, you have the advantage of “catch up” provisions. Instead of contributing $5,000 to an IRA, you can contribute $6,000. In a 401k,  the contribution limit rises from $16,500 to $22,000.  (See IRS Rules to learn more.) Once you retire, you cannot contribute to an IRA or a qualified plan such as a 401k or 403b. But you still have options. Now anyone can do a Roth conversion. No income limitations. No rule that spouses have to file joint returns. This is a huge planning opportunity IF done right. NOTE: As an adviser who specializes in retirement distribution planning, I see costly mistakes being made that could have been avoided. Please consult with a specialist before making a decision based on what you read.

8. Rollover Retirement Funds When Changing Employers. Maybe. Most often rolling over your retirement funds to a personal IRA provides a wide array of investment choices and options that you may not have in your retirement plan. One of the most overlooked benefits of transferring assets into your own IRA is the ability to fully control your beneficiary designations. This is particularly important in the event of a second marriage. ERISA rules, along with your Plan’s documents, controls your qualified plan.  As an example, you must be very careful when naming children as beneficiaries in a 401k plan if you are married or remarry. An IRA may provide you with the power of beneficiary choice that a qualified plan does not.

9. Adjust Your Portfolio. The accumulation stage of saving for retirement is entirely different than the distribution phase.  Adjust your portfolio to reduce risk and provide a sustainable income and lifestyle. Pay attention to changes in the tax rules. Reduce your equity exposure as you age.  Determine your need for stable income. That floor can include your pension and social security income. The monthly income you need to depend on to pay your living expenses should not be subject to market fluctuation.

10. Call Social Security Administration to Determine Benefits. You may be surprised to learn that there is a strategy in claiming social Security benefits which can greatly enhance income for both you and your spouse. Widowed? Divorced? You can file on your spousal record.

The free 2011 Smart Money Choices financial planning program presented by the Ohio State Treasurer’s Office offers a number of courses other than Retirement Planning. Included are classes in Budgeting, Credit & Debt Management, Consumer Fraud, Estate Planning, Insurance, Investments, Kids & Money, and Social Security.

The next Retirement Planning classes I’ll be teaching will be held in the Youngstown, Ohio area on August 26, 2011. Classes will be held at the Holiday Inn Conference Center in Boardman. If you know of anyone in that area, please let them know about an exceptional opportunity to get objective information from a panel of professionals.

To register, you can call 1-800-228- 1102, Option #1 or visit www.ohiotreasurer.gov.

Contact Lynn with retirement questions.