What’s Ahead for You in Retirement?
by Jerry Grimes
Retirement is like crossing a bridge that leads you from the safety and familiarity of your work routine into a strange, new, confusing place. Because you can’t see everything on the other side, you may feel anxious and insecure about what should be the best years of your life.
Although each situation is unique, three significant components affect every retiree: investment strategy, Medicare, and estate planning. One of the best ways to ensure a smooth transition throughout this journey is to seek solid direction that is sound, effective, and proven. You can expect to cross the retirement bridge empowered and confident with advice from local experts listed below:
Developing Your Investment Strategy
Brandon Powell, Financial Advisor with Founders Credit Union in Lexington, says the primary concern regarding retirement is,
“Do I have enough money?” Every retirement plan begins with a simple but thorough look at projected expenses and income. For most people, the point where they can comfortably cover expenses is when they are ready to retire, and that can vary a lot because of different lifestyle choices, spending habits, longevity, and so on.
“Clients often wonder about the “magic number,” Powell said. He added that there is no one-size-fits-all answer for when to retire. Some expenses like car payments, mortgages, utilities, and taxes are relatively easy to estimate. According to Powell, healthcare costs and long-term care are not as easy to project, and many people don’t plan for them adequately. “Without proper planning for health-related expenses, even a well-prepared retiree can see their savings quickly depleted,” he shared. He added that investment strategies can help mitigate risk and manage unnecessary expenses such as taxes to protect your retirement nest egg. “Several strategies are available here, including systematic withdrawals, annuities, or other income-generating investments that balance risk and tax efficiency,” Powell said.
Another tip from the experts: Don’t allow yourself to panic about retirement savings, even if you’re late for the party. “It’s not too late to start saving for retirement in your 50s, but immediate action is essential,” Powell said. He recommends these four steps:
1. Maximize contributions to retirement accounts, especially with catch-up provisions, allowing you to save additional money.
2. Review your budget and cut unnecessary expenses to boost savings.
3. Consider working longer or delaying Social Security to increase your benefits.
4. Focus on investing wisely, balancing risk and growth to maximize your savings.
5. Prioritize debt reduction and planning for healthcare expenses.
In a sense, everyone has been saving for retirement for years through the payroll deduction of Social Security taxes. A government study says Social Security benefits will comprise about half of retirement income for most Americans. So, if you haven’t already done so, open an account at SSA.Gov and see how much of your money Uncle Sam will provide. Remember that wages, withdrawals from retirement accounts, pensions, and investment earnings can make your Social Security benefits taxable by 50-85%, depending on your age and other factors.
There is some good news, though, for all South Carolinians. Our retirement-friendly state exempts Social Security benefits from state income tax. Plus, once South Carolina retirees reach age 65 they can deduct up to $15,000 of their retirement income (such as from a 401(k), IRA, or pension) annually.
Understanding Medicare
According to Jennifer Mauldin, owner of Mauldin Insurance Group, the most common fallacy regarding Medicare is that it’s free. While it’s true that most people do not have to pay a monthly premium for Medicare Part A, out-of-pocket costs for the basic plan can mount up, and it doesn’t offer the coverage most people will need.
The Part A annual deductible is $1,632 this year, and many procedures require co-insurance payments. In addition, people who haven’t paid into the system for at least 40 quarters must pay between $278 and $506 per month for basic Medicare. Mauldin said that Medigap or Medicare Advantage supplemental plans have additional monthly premiums but will help most people get more coverage. These supplemental policies pay for deductibles, coinsurance, and drug costs.
You will want to avoid this Medicare pitfall: Failing to sign up around your 65th birthday. The consequences could trigger late enrollment penalties and delayed coverage. “Even if you’re still working and are covered by your employer’s insurance plan, it’s essential to understand when you should enroll,” Mauldin said.
A false assumption about Medicare is that people think it will pay for the often-exorbitant costs of a nursing home or other long-term care facility. While Medicaid, a program for extremely low-income individuals, does cover these costs, Mauldin notes that most people will not readily qualify for it.
Focus On Estate Planning
Estate planning isn’t just for the wealthy; it’s for anyone who wants to ensure their assets go to the right people in the most efficient way possible. James McCutchen, McCutchen McClean LLC law firm partner, says everyone can take some simple but strategic estate planning steps.
For example, everyone should have a will, no matter the size of their estate. Once correctly drawn up and filed with the probate court in your county, a will can help your family avoid the lengthy and costly probate process by efficiently specifying the distribution of your assets to your heirs.
Dying without a will could spell financial disaster for your surviving husband or wife. “In South Carolina, if an individual without a will passes, half of their estate would generally go to their spouse, and the other half would go to their children. Although this may seem fair or equitable, typically, most spouses leave their entire estate to each other and do not leave any assets to their children until after both parents or spouses pass away,” McCutchen said.
Failing to keep your beneficiary designations current is another major pitfall to avoid. Passing income to a beneficiary takes precedence over distribution through a will. There are several unwanted outcomes with no beneficiary on your policies and accounts (or an outdated one). So, avoid the pitfall by routinely reviewing every insurance policy, 401k, IRA, brokerage account, and bank account. “Should you have concerns about the individual receiving the payout as your beneficiary, I recommend listing a restrictive trust as the beneficiary,” McCutchen said.
Another tip: Consider titling assets like your home, vehicles, boats, or RVs as “joint tenants with rights of survivorship,” which allows them to pass directly to a co-owner without going through probate. McCutchen said everyone should also think about who they want to be in control of healthcare and financial decisions if they become incapacitated due to an illness or an accident. This is good advice for people of all ages, not just retirees. “I recommend every individual, regardless of assets, have a financial and health care power of attorney in place,” he shared. “Since the laws have changed in South Carolina, these cases have become very expensive, as family members are required to post bond, pay for their attorneys, the attorney for their loved one, and the guardian ad litem appointed by the Court.”
McCutchen said a revocable trust can be a great estate planning tool. It allows you to transfer assets upon death to your beneficiaries, avoiding probate. Trusts are private and can hold assets to delay distribution to minors and others who should not have control of the funds immediately.
“This is very common for minors who are unable to manage finances or beneficiaries who you fear will spend their inheritance inappropriately and quickly upon your death,” McCutchen said.
A pro tip: Trusts and wills both require that you name someone to administrate them. If you don’t have a relative in mind for that, McCutchen shared that you can often work with your bank or a corporation in the retirement planning space for an executor or trustee as a paid service.
Explore Spousal Benefits
Social Security can be confusing, especially when it comes to spousal benefits. Here’s a simple breakdown to help you understand how they work: If your Social Security benefit is lower than your spouse’s, you may qualify for a Spousal Benefit. This benefit allows you to receive up to half of your spouse’s monthly amount if it’s more than what you would get on your own. However, according to the Social Security Administration, you must wait until full retirement age to apply for a Spousal Benefit. Example: Mary and John are married. Mary qualifies for $1,500 monthly from Social Security and John will get $4,000 monthly. At full retirement age, Mary can apply for Spousal Benefit. Instead of $1,500, she will receive $2,000 monthly—half of John’s benefit. That’s $500 more each month for Mary. Even divorced or widowed spouses can qualify for spousal benefits in some cases. If you were married for at least 10 years and haven’t remarried, you can claim spousal benefits based on your ex-spouse’s earnings. If your ex-spouse passes away, you may also qualify for survivor benefits, which can be up to half of their Social Security amount. Example: Carla divorced Timothy after being married for over 10 years. She started collecting her Social Security at age 62, receiving $1,000 monthly. Timothy began taking his Social Security at age 65 and received $3,000 monthly. After Timothy passed away, Carla applied for spousal benefits as a surviving spouse. Her monthly amount increased by $500, giving her $1,500. Even if Timothy didn’t pass away, if Carla was divorced for at least 10 years and has not remarried, she could claim Spousal Benefits based on Timothy’s earnings. Spousal benefits don’t apply to people who receive Social Security for disability (rather than retirement). Disability payments are calculated differently, so there’s no increase for a spouse. Armed with an investment strategy, a little knowledge about government programs such as Medicare and Social Security, and a primary estate plan, you can fearlessly join the ranks of those who no longer answer to an alarm clock every morning and can continue to live your best life. We hope these tips make the bridge to retirement much more navigable. According to the local experts, any unknowns you face can be addressed through proper planning.
Brandon Powell, Financial Advisor
Founders Credit Union
WealthManagementatFounders.com | 803-828-7050
Jennifer Mauldin, Owner
Mauldin Insurance Group
MauldinInsurancegroup.com | 843-509-2462
James McCutchen, Partner
McCutchen McLean LLC
McCutchenMcLean.com | 803-785-4529
United States Social Security Administration
SSA.gov | 800-772-1213
