DeVol Financial Newsletter
 
Winter 2013   617-964-6404 | www.devolfinancial.com
 

Tapping into Your Egg Nest
Three Approaches You Should Know

So you've finally made it to the point where you want to stop working, either fully or partially, and you want to tap into the money you’ve saved all your life for retirement. There are basically three approaches you can take and, of course, variations on each.

1) The bucket approach. This has been discussed in our Spring 2012 newsletter

2) The “essential versus discretionary spending” approach. This will be discussed in an upcoming newsletter.

3) The systematic withdrawal approach. Let’s discuss this now.

Here you find an appropriate percentage of your portfolio and withdraw an amount based on that percentage each year. For example, there is research which has shown that an appropriately balanced portfolio can withstand a withdrawal of 4% over any market cycle. But, let’s use 5% as an example. There are some decisions to make:

1) You can take 5% of an account at the beginning of the year, and make that number your “salary,” and take that same amount each year. There are no increases for inflation. The downside to this is, of course, what about inflation? If you need $60,000 this year to live, you will need $61,800 next year to maintain the same lifestyle if inflation is 3%, and $80,000 in 10 years and $108,000 in 20 years.

2) You can take 5% of an account at the beginning of the first year and adjust that withdrawal amount each succeeding year for inflation. This is the model tested in the research recommending 4%.

3) You can take 5% of the portfolio each year, in which case the amount of the withdrawal will vary with the value of the portfolio. The downside here, of course, is that most of your expenses don’t vary with the stock market. If the market is down 20%, are you prepared to spend 20% less? on healthcare?

So, you might say that approach #2 is the best, when combined with the 4%. However there is a huge downside to #2. While you can rest easy that your portfolio will last, the chances are that you will die with significant spare funds and will have, therefore, short-changed your lifestyle all those years. You could have been spending $80,000 per year, but only spent $70,000. If leaving an estate is a high priority, this may be appropriate, but what if it is not? You can arrive at the airport 4 hours before your flight and be certain that you will not miss your flight. But, who wants to retire in an airport?

Contact us to find out which option might be best for you.

 
     
  A Word About Social Security & Medicare

Social Security statements are now available online. After suspending the mailing of annual statements to people under 60 to save money, the Social Security Administration has worked out the security details necessary to make the statements accessible online. To access your statement, just go to www.socialsecurity.gov/mystatement and open an account by answering a series of questions designed to confirm your identity. After your account has been established, save and store your username and password so you will be able to access your statement in the future.

Once your account is set up, click on "Print/Save Your Full Statement." You will see the familiar format which shows your benefit estimates on page 2, and your earnings record on page 3. First check your earnings record to make sure it is accurate. If not, call the number shown at the bottom of page 3. Then you can read over the rest of the statement to learn more about Social Security and Medicare.

Finally, consider contacting DeVol Financial for a Social Security planning session. Knowing your benefit estimates is just the first step toward understanding how Social Security fits into your overall retirement income plan. Our calculators can help you determine when to start your retirement benefit, how to take advantage of spousal or divorced-spouse benefits, how your benefits may be affected if you continue to work, and other questions you may have.


Do I need to do anything about Medicare when I’m 65, if I’m still working?

YES!!!! Click here for more details.


 
 
 
  Thomas Phelps DeVol is the founder of DeVol Insurance & Financial Services. His focus is on retirement income planning. He enjoys listening to his clients’ ideas about their plans for retirement and helping them transform those ideas into an attainable plan for the future. His persistence and diligence are the keys to his success — and that of his clients.

Tom has three children and lives with his wife, Connie, and their two younger children in Newton, Massachusetts. He enjoys gardening, tennis, biking, and opera.

Tom can be reached at 617-964-6404 or via email.

 

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