You’ve probably heard it a few times by now – one more thing the COVID-19 pandemic has affected is the number of adults in the United States who have retired. According to a Pew Research Center analysis of the most recent official labor force data, 50.3% of U.S. adults 55 and older said they were out of the labor force due to retirement in the third quarter of 2021. By contrast, in the third quarter of 2019 (before the onset of the pandemic) 48.1% of those adults were retired. In the third quarter of 2021 66.9% of 65- to 74-year-olds were retired, compared with 64.0% in the same quarter of 2019.

Now, when you consider that “retire” means “to withdraw from one’s position or occupation” you might come to the conclusion that if you’re one of those people who are, or who are thinking about retiring, it just might be a good idea to figure out your financial situation first.

So, I asked many of our Not-Yet-Dead subscribers: “Have you planned for your retirement? And do you have any questions about preparing for your financial future?”

And the questions came in faster than you can say “do you offer senior discounts?”

So, on behalf of my fellow not-yet-dead retirees and retirees-to-be, I reached out to an expert. Fred Dawson ChFC, CLU, is a Wealth Manager and President of Bassett, Dawson and Foy, Inc. in Wilmington, Delaware. With more than 30 years of comprehensive wealth management experience, Fred is dedicated to being a trusted advisor, especially to successful women.

“My years of experience in advising successful women, many of whom I’ve interviewed for my books and articles, have revealed some extraordinary points of view, opinions, feelings and ideas about the financial well-being of women,” Fred said. “Women tend to think of everyone else first. What’s more, women have a natural propensity to outlive men. They may be faced with making some decisions they do not feel ready to face. Many find themselves suddenly faced with a myriad of decisions when they may be most vulnerable to well-intended, but uninformed advice.”

Fred graciously offered to answer your questions about Social Security, retirement planning, financial planning … and there were a LOT of them! For that reason, this will be the first of a two-part post on the subject. This week: “Planning for Your Retirement and Social Security Concerns.” Next week Fred answers your questions about “Investing after Retirement.”

Planning for your retirement

NYD: I know we’re all supposed to be financially aware and learn about family finances throughout our marriages, but face it, that’s not always the case. One spouse often takes care of it, and the other thinks she/he will get around to learning and doing more “someday.” So, what’s the bare minimum you need to know so that if your “bookkeeping spouse” dies first, you have the info you need to begin to assume this (dreaded!) responsibility? And armed with that info, who can you hire to mentor you until you are comfortable handling it on your own?

FD: Early on in my marriage to Louise, I made her a deal. I would bring home the paycheck and she would pay the bills as long as she would record all transactions by month. All went well until we decided we really needed to replace our car. I asked her to bring out the monthly records. I was quite impressed by the fact she recorded everything, even the $1.55 she spent at the WAWA. That said, I also noticed immediately that she never added it up. When asked why not, she responded “I didn’t want to know!” (LOL).

I would suggest that both spouses gather at the end of the month to pay the bills together.

I now have (this) on a computerized system that adds it up and after 43 years, she still does it dutifully and delivers it to me. After the same amount of time (43 years) helping people get control of their finances, I can see it is a very common problem. I would suggest that both spouses gather at the end of the month to pay the bills together. I have also included a copy of a monthly expense sheet (download here) that could be used as the basis of recording monthly expenses. The “unknown” always seems scarier than it really is. The key is getting organized and having a recording system by month so that nothing slips through the cracks.

One last thought; if you don’t control your money, your money will control you!

NYD: At what age should someone start thinking about retirement and planning for it financially?

FD: It’s important to develop a “savings mentality” even when you are young and just starting out. I rarely see it happen at younger ages as we are still busy trying to “keep up with The Jones” as we are putting children through college! I think most people get serious around age 50. If you are planning to retire one day, then PLAN to retire! A formal retirement plan along with guidance from your “financial team” (financial advisor, accountant, estate planning attorney) should be completed and reviewed at least annually to see if adjustments are needed. Sometimes you change your mind (It’s a man’s and a woman’s prerogative!), and we know that Uncle Sam changes the rules of the game frequently!

NYD: How do you know if you have enough money to retire? People are living longer these days and people are working longer, both because they anticipate living longer, and because they are feeling good and enjoy the activity.

FD: I strongly urge those who are considering retirement to prepare a monthly budget. Determine where ALL your money goes per month. (Determine) those things you pay annually (real estate taxes, insurance, etc.) (and) divide those numbers by 12 to come up with a monthly number. Things that are paid quarterly, divide by three for same reason. You now know (maybe for the first time in a long time) how much you actually need to live on per month. Congratulations!

Compare that answer to your monthly income sources (i.e., Social Security, pension, wages, rental income, etc.). If your “income equals your outgo” consider yourself lucky as most do not. I’ve even heard some people confess “at the end of my paycheck, I have too much month left over!”

Next, add up ALL the accounts that you may have (401(k), IRAs, CDs, savings, brokerage account statements, safety deposit box contents, etc.). When you total those accounts, assume an annual distribution rate of about 3% – 4%, then divide that by 12 for monthly added income. Of course, if these additional accounts are not generating 3%-4% currently, you may need to restructure them accordingly by considering investing in annuities and/or restructuring your other investments to generate more income with a conservatively managed stock and bond portfolio to accomplish that. It’s important to note that the new portfolio may not guarantee dividends or interest. Many annuities do guarantee income but can be generally illiquid (in a lump sum) should you need a lump of cash. Annuities can be very
complex financial instruments and vary greatly in their benefits. I also suggest that most people have a cushion of about 3-6 months of monthly expenses kept in a readily available interest- bearing account in case of emergencies or unplanned expenditures.

People are living longer and if they want to continue working full time or part time, that is an important consideration. That said, current health should also be considered realistically. If your health deteriorates later, you may erode your assets prematurely. Long term care insurance should be considered if you are in reasonably good health and can afford to purchase it.

An excellent financial advisor should be able to prepare a financial plan that could consider many of these points and add inflation to your income needs, as we know that inflation can seriously erode purchasing power of your savings and should not be ignored.

As this analysis can be daunting if you have limited financial experience, seeking out a properly credentialled and licensed financial advisor could be yet another excellent investment. I personally feel this is no time to “do it yourself” frankly as there are many moving parts and lots more questions to be addressed. This is only the beginning!

NYD: Should I play off a mortgage before retirement?

FD: Maybe! How’s that one! LOL! If you have a very low interest rate on the mortgage, probably not, especially if you have the income or asset base to continue paying the payment. The reasoning is that if your mortgage rate is 3.5% fixed for 30 years and you have an investment portfolio doing 6% on average per year, then the difference (2.5%) may still be making you more money. On the other hand, if the mortgage is just a nuisance, and you have the capital to pay it off without eroding your asset base significantly, then it should be considered.

Your tax preparer (CPA), should be consulted to make sure that other income sources and tax write offs or upcoming tax changes may negate or diminish those results. Keep in mind that if you have a mortgage and an available lump sum you may always have the ability to pay off the mortgage later. The reverse may not be an option. That is to say if you pay off the mortgage and then you need a lump sum for something, you may not qualify for another mortgage (at a higher rate?) or home equity line. Much of your money is locked up in your home. I personally like flexibility.

Answering your questions about Social Security

I had a joke for Generation Z about Social Security…

… But they’re probably not going to get it.

NYD: When is the best time to take money from social security? 62? 66? 70?

FD: If you do not need the income now and you are in good health with a family history of good health, my general answer is hold off as long as possible. Taking Social Security at 62 could mean that you’d get about 25% less than if you waited till your “full retirement age.” If you wait later than “full retirement age” until age 70, then you will receive about 30% more for the rest of your life!

Not only would you receive a higher monthly payout, but when annual (usually modest) increases are given, 1% (for example) of a bigger number at age 70 could be a big difference than someone starting at the much lower payout at 62. Yet another reason to know what your budget requires.

NYD: Our financial advisor told my husband to take his Social Security at 70 because there were direct advantages for me. He told me to take it at 66. I did the math on it and if I waited till 70, I would’ve made more per month, but I would’ve left $85,000 on the table and if I died before then… poof! Gone! Also, I’m concerned about what’s left considering the government is in trillions of dollars of debt. There are also some amazing annuities that we lucked into; however, some are laced with a lot of crazy fees that you have to be aware of.

FD: Loaded answer! It “depends.” And I’m not talking about adult diapers here! There are many tradeoffs that should be considered when faced with multiple opportunities to invest. If you can tell me exactly when you or your husband will die, I can tell you exactly what you need to do. Since nobody in almost 40 years has been able to tell me that accurately, we usually plan for most things “going wrong” then diversify/invest/insure accordingly.

If you plan for everything having a “happy ending” and disaster strikes, YIKES! Make sure you ask about and understand the fees. If you are getting value for your money, then you should be able to determine that easily. There are fees that you see, and there may be fees that you don’t see. Just be aware. Fees are not bad; it’s how your advisor gets rewarded for doing an excellent job for you.

Don’t get me started on our government’s debts as that does concern me and it should concern every American!