Solving for Retirement: Social Security, Health Insurance, Taxes, and Investments
Planning for what we hope is a multi-decade retirement is something that deserves significant time and consideration. Here is where to start:
Social Security
Have a tailored Social Security plan for your retirement. An NBER study found that the median household headed by someone ages 45 to 62 gives up $182,370 in lifetime spending by not optimizing when they claim. For our clients, we use an analysis tool that requires your specific information and generates a plan tailored to you.
Health Insurance
Understanding the ins and outs of Medicare is vital. You need to consider all costs, not just the premiums, and ensure that you navigate the enrollment windows. Getting this wrong could lead to either unnecessary premiums or to lifelong penalties. However, retirement doesn’t always need to wait until Medicare starts. With some good financial planning and healthcare tax credits, an early retirement could be available.
Investments
Understand what you own and why. In most cases, we see that a moderate allocation between stocks and bonds is appropriate for pre-retirees and retirees. Which stocks and bonds you own is important. Ensure you have an advisor that can adequately explain the different types and which environments they make sense in. In the current environment we see a lot of growth-focused stock portfolios. Understand the risk inherent in growth stocks and consider value stocks, small-cap stocks, and international stocks too.
Fees and Taxes
These can erode your hard-earned wealth. Understand what your advisor costs, what the underlying securities cost, and if they are tax efficient. Financial products are not free. Annuities have fees, spreads, and commissions. Index funds have inefficiencies and expense ratios. Mutual funds can have 12b-1 fees and capital gains distributions. None of these are necessarily bad, but taxes and fees directly affect outcomes.
Source: NBER Working Paper 30675 (2022) — https://doi.org/10.3386/w30675
Advisory services offered by Latticework Investment Management, LLC. The information above is for educational and informational purposes only and should not be considered personalized financial, investment, tax, or legal advice.