By David Thatcher, CFP®
At Cypress Wealth Services, we specialize in helping our clients plan for a confident retirement, both before, during, and after the transition into their Golden Years. Our clients have experienced their own unique “first growth”. They were fortunate to have benefited from rapid growth in their financial lives to get them to where they are today. While all of our clients have their own individual objectives, many have now had a change of focus. In the past they may have taken risks in pursuit of rapid growth but now have a growing desire to protect what they have and harvest the fruits of their labor. We call this period The Second Growth.
During The Second Growth, you’ll face a lot of new decisions to make, many of which can have a big impact on your retirement spending and income. It’s important to make these decisions with confidence. Here, we’re covering three key milestones during The Second Growth.
One important milestone as you approach retirement is the day you turn 62. At that age, you become eligible to receive social security benefits for the first time. But before you start claiming social security, it’s important to review your benefits and options for claiming so that you can plan to maximize your lifetime benefit.
If you start claiming benefits at age 62, your benefits are about 26% lower than if you waited for full retirement age, and over 40% less than if you wait until you are 70 to claim. Not to mention, Medicare benefits aren’t available until you’re 65, so if you are thinking of retiring at 62, you’ll need to factor in healthcare costs.
It’s also important to consider how long you’ve worked and your lifetime average monthly earnings, which are used to calculate your benefit. In some cases, working a few extra years can have a big impact on your monthly social security benefit.
Finally, you’ll want to review your spousal benefits and spousal claiming strategies, especially if you are widowed or divorced. It may be beneficial to start claiming spousal benefits now and delay claiming your own benefits until later.
Social security is complicated, so it’s important to work with a financial professional that understands the options available and can help you determine the best strategy for you.
A second important milestone as you approach retirement is the day you turn 65. At this age, you will need to make important decisions regarding Medicare so that you don’t face fines or penalties later. Whether you plan to retire at 65 or keep working, you’ll need to sign up for Medicare and begin taking advantage of the free benefits.
Signing up for Medicare doesn’t mean that you need to give up your other insurance benefits, and you can combine your current coverage with Medicare benefits. It’s helpful to work with a financial advisor who can help you understand all of your options when it comes to Medicare.
Another important decision to make at age 65 is whether to start taking social security benefits. For many, 65 is full retirement age when it comes to social security. However, if you are able to delay claiming until you’re 70, you may receive 32% more in monthly payments for the rest of your life.
If you have other assets, you may be better off delaying social security to get a higher benefit later. It’s also critical to consider spousal social security benefits, especially if you are widowed or divorced.
Finally, at age 65, you’ll also want to consider your plan for long-term care, which Medicare doesn’t cover.
Lastly, a third important milestone from a financial planning perspective is the day you turn 70 and a half years old. If you have tax-qualified retirement accounts, you are required to start taking minimum distributions at this time. In fact, failure to take your required minimum distributions could cost you a 50% penalty!
Your required minimum distributions depend on your account balance and your life expectancy factor, which is provided by the IRS. Retirement accounts including Traditional IRAs, SEP and SIMPLE IRAs, and 401(k)s are subject to required minimum distributions.
What if you are older than 70 and a half and you forgot to take your RMDs? You’ll want to act quickly. You can fill out an IRS form and file a letter to ask that the penalties be waived.
If you don’t need the proceeds of your required minimum distributions, there are other options. You could reinvest the money or donate it to charity.
This milestone is also the time you'll want to make sure you are taking social security because your benefits will have reached their maximum monthly payment.
As you can see, The Second Growth can be a period of great enjoyment and a time of tremendous personal growth and fulfillment. However, this stage of life may also present many new and complex issues.
Moving from the accumulation phase to the distribution phase of your investments takes a specialized approach in risk management and income planning. Financial planning issues, such as when to take social security and planning properly for healthcare and long-term care, need to be addressed. Estate and tax considerations are unique during this phase as well. Mistakes made due to improper planning during this stage of life can be devastating.
If you are in this second growth stage of life, we would love to sit down with you and make sure that your finances are working for you. To schedule a complimentary financial consultation, or to get a second opinion on your current portfolio, contact one of our offices today.
About Cypress Wealth Services
Cypress Wealth Services, an independent RIA firm providing financial planning and investment management to high net worth individuals, families, business owners, and institutions. CWS is comprised of professionals with diverse backgrounds and extensive experience and qualifications. CWS is uniquely qualified to serve a broad range of client needs. Their experience and expertise act as a foundation for their client service process, The Second Growth, which focuses on efficiently protecting, growing, and transferring to their loved ones the wealth and legacy a person has already built. With offices in Palm Desert and Anchorage, the firm serves clients across the country. Learn more by visiting www.CypressWS.com.
