Broker Check

What Legacy? I Plan to Bounce the Last Check!

May 08, 2023

People plan for retirement for different reasons and in different ways. For most, it is because we don’t want to work forever. For others, it may be that health issues will only allow us to work for a certain amount of time. And for some, an artificial retirement age set by our employer may limit our options, voluntarily or otherwise.

In conversations with new and existing clients, all of these reasons for thinking about retirement, among others, have come up.

Everyone’s reasons for retirement and ideas about what it should look like are unique. Some clients want to travel the world and visit exotic places, some want to visit family around the country, and others want to relax at home, maybe play golf, tennis, or pickleball.

Every client we speak to asks, “Do I have enough to support the lifestyle I want to live?”

In these conversations, which involve answering some simple questions, we can help devise a plan that helps put you on the road to pursuing your goals.

Another topic that inevitably comes up in our meetings is one of legacy. Specifically, we ask if our clients wish to leave any money to their favorite non-profit, alma mater, religious organization, or family members.

Most people we have that conversation with respond with a “Yes, I would like to leave some for the kids, or my church, etc. What’s the best way to do that?”

That allows for a conversation about charitable giving and Qualified Charitable Distributions from IRAs, using Donor Advised Funds, establishing Trusts, or simply employing a gifting strategy during your life or upon death. Several strategies can be employed to establish a legacy, and every situation is unique. Each strategy has benefits and limitations and may not fit your situation, so a deeper conversation is required.

Recently, however, I spoke with a new client about her goals and what type of legacy she wanted to leave. Her response caught me by surprise: “Legacy, no. My husband and I worked hard for this money. I plan to spend all of it, and I want the last check I write to bounce!”

I must admit that her statement made me laugh. While I wouldn’t advise anyone to plan on bouncing a check at any time, I understand the mindset of wanting to enjoy your money down to the last cent.

After all, that’s what it’s for; to facilitate your desired lifestyle while you can enjoy it; and you can’t take the money with you.

Having this mindset is fine as long as you complete some basic planning.

Very few of us know exactly how long we’ll live, but we can use basic assumptions on life expectancy to come up with a “target.” In the U.S., a 65-year-old male in good health can reasonably expect to live to 83. For a 65-year-old woman, the average life expectancy is 86.

Taking those averages as a baseline, we can create a plan to generate the income you expect to need during retirement. Important things to consider are:

Do you have outstanding debt? (mortgage, credit cards, auto loans, etc.) If you do, can you pay it off, or will your cash flow cover those expenses? According to AARP, housing and housing-related expenses are in the top three expenses for retirees. Many people consider moving or downsizing in retirement to help reduce expenses.

How is your health? How will you cover both expected and unexpected expenses? Most of us will have coverage through Medicare, Medicare Advantage, or private insurance for basic and expected care. But what about the likelihood of needing Long-term care?

According to the Administration on Aging, roughly 70% of people over age 65 will need long-term care at some point during their lifetime. The average length of care is 3.2 years, and Americans spend $475.1 billion annually on long-term care, with Medicare only covering about 42% of the cost.

Healthcare costs are the number one cause of bankruptcy in the U.S., and several options exist to help plan for and cover many of these expenses in advance and in a cost-effective manner.

Exploring your options for covering the expense of care for a chronic condition is worth considering.

What do you want to do in retirement? Do you plan to travel? Pursue hobbies or interests? Or will you sit on the front porch, sipping sweet tea and watching the squirrels?

According to a recent study done by Transamerica, the average retiree spends $11,077 per year on travel. Many people we talk to want to spend significantly more. Travel, entertainment, and hobbies can be expensive, and you should plan accordingly for them in retirement.

Housing and related expenses, healthcare, and entertainment (travel, hobbies, etc.) typically make up the largest recurring expenditures in retirement.

Once you know what those expenses might be or how much you’d like to spend, you can use the “rule of 25” to estimate how much you might need to support those expenses.

 For example, let’s say you estimate your monthly expenses in retirement will be $5000, which would be $60,000 annually.

To estimate the lump sum necessary to generate that annual income, you can multiply $60,000 by 25.  We use 25 because it roughly represents the average length of “time in retirement.” If you start your retirement at 65 and live 25 years, you’ll reach 90. This is slightly longer than the average life expectancy, giving us a good starting point.

$60,000 x 25 = $1,500,000

Using the widely accepted “safe” withdrawal rate for a diversified portfolio of 4%, you get an initial annual withdrawal of $60,000. From there, based on inflation and your needs each year, you can adjust the withdrawal amount and reasonably expect your portfolio to last through retirement.

It is important to remember that while this can give you a good starting point, it is just an estimate and doesn’t account for rising inflation, market volatility, or any unexpected or large expenses you may incur during retirement. This is one reason why working with an experienced professional is paramount.

Several solutions are available to help provide the income you will need in retirement; various options aim to maximize the potential for growth; some offer guaranteed income, and others can protect against loss. Some options combine some or all these characteristics in one offering. Not every solution is suitable for all investors. That’s another reason why talking with a knowledgeable professional who can explain the available choices and help you make a decision based on your experience, objectives, and risk tolerance is extremely important.

Having a CERTIFIED FINANCIAL PLANNER™ Professional to guide you through the planning process and help make necessary adjustments along the way can increase your chances of success. A comprehensive financial plan can help account for the unknowns and generate a more accurate and realistic picture of your needs based on your specific goals and any variables you’d like to account for. It can, and should be, a “living document” that is updated and adjusted at least annually to reflect changes in your life and circumstances.

Whether you plan to “bounce your last check” or would like to create a legacy, we can help you craft a personalized plan and investment strategy to accomplish your goals. If you have an existing plan that might need an update, we can also assist with that.

Please reach out to one of the Advisors at Gulfside Wealth so we can discuss your goals, current situation, and your vision of the future. Together we can put the pieces together to help ensure that your on the right path.


Important Information

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks, including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

All data is provided as of December 30, 2022.

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Past performance does not guarantee future results.

Asset allocation does not ensure a profit or protect against a loss.

Due to the volatility of the markets mentioned, opinions are subject to change without notice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the author only and do not necessarily reflect the views of LPL Financial. Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results.

No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Past performance is no guarantee of future results.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Please note that individual situations can vary, and therefore, this information should only be relied upon when coordinated with individual professional advice.)

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