By Greg Lohr, MBA and Ethan Lohr, CFP®
Celebrating a half birthday isn’t a common occurrence after childhood, but 59½ is the exception. On the road to retirement, reaching 59½ is an important milestone indicating when you can start withdrawing from your qualified retirement plans without an early-withdrawal penalty. It’s also the perfect opportunity to evaluate your retirement plan with the following 5 questions in mind.
1. When Should I Retire?
Deciding when to retire is a personal choice involving financial, lifestyle, health, and emotional considerations. The average age at which Americans say they plan to retire is 62. (1) Either by choice or circumstance, the right age for you may be earlier or later than the average.
As you consider your options, keep in mind that you can accumulate another year of savings for each year you delay retirement and earn additional returns on your investments. You’ll also shorten the length of time your assets will need to last.
2. Where Will I Live?
Housing is typically one of the largest expenses in retirement. According to the latest Consumer Expenditure Survey from the U.S. Bureau of Labor Statistics (BLS), the average household led by someone 65 or older spends over 36% of their total annual expenses in housing costs. (2) As you can see, a change in your housing costs will have a significant impact on your retirement expenses overall. Therefore, it’s essential to consider your housing options and how your housing costs will affect your retirement plan before making a move.
Many retirees choose to accelerate paying off their mortgage or downsize to lower their monthly expenses before they retire. Alternatively, some decide to sell their primary home and rent instead, freeing them from the responsibility of upkeep and maintenance and making it easy to relocate or travel for extended periods.
3. How Will I Pay for Healthcare?
After housing, healthcare is the second largest expense for retirees and typically increases with age. Medicare helps with the cost of healthcare for those age 65 or older, but it doesn’t cover all medical expenses or the cost of most long-term care.
Retiring before age 65 will create a health insurance coverage gap until you’re eligible for Medicare. Joining your spouse or partner’s employer-sponsored plan is a great option to fill the gap, if available. Otherwise, you can get COBRA coverage for 18 months by your former employer, or choose a Marketplace plan instead. The latter two options will have higher premiums than you’re used to, so keep that in mind.
It’s also a great time to plan for future long-term care costs. Long-term care expenses have the potential to devastate a retirement portfolio, but you can mitigate the risk with forethought and planning. Some options for addressing long-term care include traditional long-term care insurance, a life insurance policy or annuity with a long-term care rider, or self-funding.
4. When Should I Claim Social Security Benefits?
On average, Social Security pays retirees 40% of their pre-retirement income. (3) It forms the foundation of retirement income, and knowing how much to expect in Social Security benefits will help you anticipate how much income you’ll need to draw from your investment portfolio to support your lifestyle goals in retirement.
You can claim Social Security benefits anytime between the ages of 62 and 70, but the age you choose to start receiving benefits will directly affect your monthly benefit amount. Therefore, it’s important to review your benefit options on the Social Security Administration’s website before you begin a claim so you can optimize your lifetime benefit.
5. How Much Do I Plan to Spend?
Understanding your spending habits is good practice no matter your age, but it’s also a critical step in retirement planning. As you draw closer to retirement, you have a more solid grasp of your lifestyle goals and can better estimate your spending in retirement.
Examine your essential and discretionary expenses, and estimate how those expenses will change after you retire to determine your retirement spending plan. As mentioned previously, your housing and healthcare spending can potentially change significantly after retirement.
Comparing your retirement spending plan to your income estimate will highlight any potential gaps that your retirement assets will need to fill. Is your retirement portfolio up to the task of supporting you for 30 years?
We’re Here to Help
These final years before retirement are critical for making decisions that have far-reaching consequences. Allow our team at Lohr & Company to help you create a personalized retirement road map to address your concerns and lead you to a comfortable and sustainable retirement. Schedule a complimentary introductory meeting online or reach out to us at 434-260-6742.
About Greg
Greg Lohr founded Lohr & Company, a multi-generational financial advisory firm, in 1993 to help more people plan for a rewarding, well-deserved retirement. Before he entered the financial services industry, he worked as an electrical engineer. But after spending a few years as an engineer, he decided to follow his heart and return to school for an MBA in finance from the College of William & Mary. Although he originally entered the finance industry because he was excited about the personal opportunities, it was the satisfaction of seeing people at peace with their money that has kept him here for his entire career. He is passionate about building lifelong relationships with his clients and walking with them as they navigate financial decisions and milestones.
When he isn’t working, Greg enjoys spending time with his beautiful wife and their adult children. In addition to managing their family farms, Greg and his wife also manage a growing Airbnb venue. In the cold weather months, you can find Greg hunting whitetail deer in the breathtaking Virginia landscapes. To learn more about Greg, connect with him on LinkedIn.
About Ethan
Ethan Lohr always knew his dream was to follow in his father’s footsteps and carry out his same mission: to help more people find financial peace and security in retirement. Ethan started practicing for his future career quite early, at the age of 6, advising his sisters on their savings with the help of his trusty calculator. But it wasn’t until he graduated from James Madison University that he truly began developing his talent as a financial advisor at Lohr & Company. Ethan is a CERTIFIED FINANCIAL PLANNER™ professional.
Ethan is most fulfilled when he’s helping clients develop a sound plan and then executing that plan. He knows that pre-retirees often have many unanswered questions and may be feeling trepidation about retirement—and rightfully so. Retirement is one of life’s greatest transitions and Ethan knows how important it is to get everything right the first time. He works to ease his clients’ fears, provide them with confidence, and help them take the necessary actions to move forward.
When he isn’t serving clients, Ethan enjoys spending time with his wife and two sons. You can also find him practicing his swing on the golf course, exercising, and hunting with his dad. To learn more about Ethan, connect with him on LinkedIn.
Disclosures
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Advisor. Fixed insurance products and services offered through Lohr & Company, LLC or CES Insurance Agency.
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(1) https://www.cnbc.com/2021/09/15/this-is-age-when-americans-say-they-plan-to-retire.html
