It’s the third day of a NEW YEAR (2022) and over the past week or so I’ve wished a lot of people “good health and good fortune in the coming year.” While I have to leave the health part up to Dr. Fauci and his friends (whose predictions seem to be less guaranteed than any other bet you can make these days), I do know an expert who can help you with the fortune part.

In part two of our series, “Financial Planning for Your Retirement: How to Quit the Rat Race but Keep the Cheese,” I shared your questions about investing after retirement with Fred Dawson ChFC, CLU, Wealth Manager and President of Bassett, Dawson and Foy, Inc. in Wilmington, Delaware (see Part One here). With more than 30 years of comprehensive wealth management experience, Fred is dedicated to being a trusted advisor, especially to successful women.

Wondering how to keep your cheese and maybe even make it grow during the coming year? Read on …

NYD: After I’ve saved for retirement, how do I spend that money? Do I need to make a budget to know exactly what I will spend? Does the money go into my bank account?

FD: Even though a budget can be a chore, it certainly gives you peace of mind knowing that you have recognized all the anticipated expenses and you’re going to enjoy being retired, not worrying about money! You carefully spend that money on things you NEED first. You then have the “luxury” of considering purchasing “wants.” If you do not “control” your money, your money will end up “controlling you!” If you know you’ve met all your monthly expenses and have some left over, you can consider saving/investing more for future goals (special vacations, trips, gifts, supporting your favorite charity, etc.). My concern is that if you do not monitor your money carefully, any excess might get “frittered away.”

(Start budgeting and planning. Download your “Monthly Expense Sheet” here)

NYD: How do I know how to invest my retirement savings?

A good man always knows his limitations.

Dirty Harry

FD: Like my favorite movie actor’s character “Dirty Harry” (Clint Eastwood) said profoundly, “A good man always knows his limitations.” Investing money is not for the unexperienced, untrained, faint of heart person. There are so many things to invest in, with many things that could go wrong! Some are guaranteed with guarantees that are usually quite low, and some have no guarantees whatsoever but offer good returns (of course with higher risk)! Yes, you could even lose your principal very easily by investing without complete due diligence in understanding the good, the bad and the ugly! (Thanks again, Harry!)

I utilize a questionnaire not only to assess various risk parameters, but it offers an amazing opportunity to discuss “what is risk?” I find that people nearing retirement are not looking for the “thrill of victory nor the agony of defeat.” A professional financial advisor that focuses on your best interests should be part of your retirement team. There are many things that a competent financial advisor needs to know before any recommendations are made. This is definitely not the time to “go it alone!”

Of course, it is important to ask any advisor you are considering how they get paid, how much and how often! Also keep in mind that the “low-cost provider” may not be the best choice if their lone attribute is “we’re cheap!” (YIKES!) Last point, if you are sick, you go see a doctor. Most of us don’t try to diagnose and treat our own health conditions. Your financial health is just as important, don’t you think?

NYD: Can you explain annuities – what to know and watch out for?

FD: Annuities can be an excellent consideration, but like “all things in moderation,” I would not put all my eggs in any one basket. Most annuities (lump sums) are not liquid in the earlier years as the insurance company will trigger the “deferred contingent sales charge” if you remove more than the allotted monthly amount. Fixed annuities merely turn a lump sum into an income stream (aka pension) so that the lump sum is never available, just the monthly income. Some annuities have the ability to invest in stock and bond portfolios while offering you the ability to “capture” some of the upside of the market, but when the market goes down, the annuity guarantees that you will earn “0”….not say, lose -10% (or more?) should the market tumble from time to time. Those are called Indexed Annuities.

Selecting the right payout is also very important. For example, if you are not concerned about leaving income or assets to anyone else, then you can take the highest monthly payout for your life only. If you have a spouse and want to leave income for them, then you would select another option that would payout less, but would continue to pay some amount you select to your spouse.

The more I learn about annuities the more I realize they are very complex financial instruments. Just like there are carpenters out there that carry around a hammer as they see that everything is a “nail.” Some advisors are merely insurance salesman and the only thing they have to offer is life insurance products like annuities and are not licensed to even speak about other investment vehicles. One size does not fit all! Harry didn’t say that, I did!

NYD: What about taxes in retirement? Any tips?

FD: Everyone hates taxes except our government! Another member of your team could be your accountant/tax preparer. After a careful examination of your income sources and assets, your accountant would be better consulted on those issues. Even though one of our past presidents said he was going to make the tax system “fairer and simpler” it didn’t happen.

In some recent zoom meeting about pending tax legislation, it’s only going to get more complicated and with increasing debt, Uncle Sam will be looking for more ways to get into your pockets. Uncle wants everyone to pay their fair share, only nobody has shown me what defines fair. I’m reminded almost daily “it’s not what you make that is so important, it’s what you get to keep!”

NYD: Where can your money make money? At a certain age, risk versus reward needs to be considered. I believe we are now taxed 50% on our Social Security – will they be able to tax the other half? What do you think of diversifying banked money into silver, gold, etc?

FD: When a married couple files a joint return, if they exceed $32,000 modified adjusted gross income (MAGI), then 50% of Social Security will be included in your taxable income. If you exceed $44,000 MAGI then 85% of your Social Security will be included in your taxable income. It’s different if you are single. Will they be able to tax the other half is anyone’s guess. We are taxed at the “pleasure” of the IRS.

Most people need some amount of prudent risk in their portfolios. I’m not a big proponent of investing in silver and gold as they are not good long-term investments. They will sometimes respond favorably to inflation or a crisis somewhere in the world, and spike accordingly and usually briefly. What some folks ignore is if you invest in gold, how do you spend it? Do you take your gold bars to the store with hack saw? Or do you take your gold coins to the “automat?” It sounds good but not very practical.

I believe there are opportunities to invest in the stock market as long as you are not attempting to do it yourself! There are quality mutual funds and private portfolio money managers out there that should be considered as they each have strategies, philosophies, disciplines that the “do it yourselfer” usually does not have. That said, the “do it yourselfer” will get lucky occasionally. So then you need to ask yourself; do you feel lucky or smart?