Sunday Morning Coffee

MarketWatch had an article the other day called 10 Overlooked Retirement Tips with the article's callout describing the as list essential.

1) Forget the number

The includes a quote from Wade Pfau about focusing on how much income your nestegg can produce as opposed to focusing on a dollar figure to accumulate. This seems to be saying that while saving $1 million or $4 million or some other figure would be great ultimately we all end up with some number and that is what we have to make work. You're probably not going to have a $100,000 lifestyle with $1 million in your account.

2) Don't rely on the 4% rule

The 4% rule gets a lot of coverage here but my take on it is whatever you got; 4%. Of course this means that the income taken will fluctuate which is difficult to manage but I believe increases the odds that the nestegg will last as long as it needs to. The main focus on this point in the article was that the withdrawal rate be realistic.

3) Think tax efficient income

This is about allocating between tax deferred accounts, taxable accounts and Roths such that you pay the least amount of tax. For example there is a difference between how dividends are taxed versus bond interest...for now anyway. My experience here is that people tend to view this differently as a function of their own sense of logic. The best thing I think most people could do is learn the ins and outs of this and then decide for themselves what seems the most logical. Learning the ins and outs could mean doing this on your own or talking to a CFP or other type of planner.

4) Social security is a household decision

The main takeaway on this one also cam from Pfau who said it is not a good idea for both spouses to start their benefit at the same time. Presumably both waiting until each benefit is maximized is ok but the article didn't address that point. One nugget that is getting more attention is the start and suspend feature which allows for the higher earning spouse to start the benefit so that the lower earning spouse can also start (assumes the lower earner takes 50% of the higher earner's benefit). Then the higher earner suspends their benefit which allows them to qualify for a larger payout depending on when they start back up again.

5) Asset allocation matters

This seemed to be a repeat of number three. I would add be careful to not get too conservative. Assuming 3% inflation, your expenses will go up about 50% in 15 years and retirement for more and more people will last longer than that. Yes things like health care are going up at more than 3% while the "official" rates of inflation have been lower than 3% lately.

6) "Through" not "to" retirement

Very similar to number five but a little vague in the article. Being too conservative will yield the same result as being too aggressive which is running out of money or having a much more modest lifestyle than probably hoped for.

7) Get multiple quotes

This about shopping for investment products and various forms of insurance. A lot of these products are very expensive.

8) Plan for a long life

The article points out that life expectancies for people who make it to 65 are going up and I have to think most people would want to avoid being 87, very fit and out of money. This of course ties in with some of the items above about proper asset allocation.

9) What's the point

This is about planning other aspects of retirement besides finances. What do you want to do or accomplish? What will your day to day be like in retirement? Are you and your spouse on the same page about these aspects of retirement?

10) Control those fears

This is about communication between spouses and what they fear about retirement. This could potentially cover a lot of ground depending on individual circumstances. For some this could include caring for parents financially, caring for adult children financially or both (the sandwich generation). There are obviously unlimited variables here which makes the key point here being effective communication.