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Planning for the “R” word

Scott Sparks //July 5, 2011//

Planning for the “R” word

Scott Sparks //July 5, 2011//


Consumers are deluged on an ongoing basis with information about saving for their retirement. Frequently, the focus is on creating the largest nest egg possible. But people should also start thinking about what they want to do with that money in retirement. Getting to retirement just isn’t enough. It’s about getting through retirement. And that requires a strategy that is designed to manage wealth, identify and address risks, and provides a predictable and steady income for life.

Now is an ideal time to take a hard look at where you are in your retirement preparedness and evaluate what you might need to do so that your retirement income can be a better match for the retirement lifestyle you envision. It is generally accepted that most Americans are likely to live 20 to 40 years or more into their retirement years. Planning early is the most prudent way to help ensure your nest egg will last.

So, how do you do that? Here are several steps to take into account when planning for your retirement:

Determine What Retirement and Financial Independence Look Like to You

The first step toward successful retirement planning is understanding what retirement looks like to you. Do you want to travel? Buy a new home? Based on how you envision your retirement, you can determine the best way to invest and protect your assets now to support your future goals, and estimate future expenses.

Being retired doesn’t mean that your expenses go down. In fact, retirees may need an even larger income stream when taking potential medical expenses into account. A sound retirement plan should provide a reliable income stream throughout your life, regardless of how long you live. Consider the following process when estimating your future needs:

• Take your current income and subtract expenses that will go away in retirement (e.g., contributions to a 401k plan).
• Add anticipated additional expenses (e.g., healthcare costs) and make adjustments for inflation and taxes which can reduce spendable income. Provide yourself with a safety net by over-estimating these expenses rather than risking having too little.
• Revisit regularly to adjust as necessary and keep the plan on track.

Identify Your Sources of Income

Once you’ve determined how you’d like to spend your retirement, the next step is to consider how you will fund it and when it will occur. Ideally, your retirement income will come from many sources, including social security, pension plans, IRAs, insurance products, stock options and more, while also considering the tax treatment of the various buckets that you have to draw on as well. Remember, a mix of investments and insurance is needed in order to maintain financial security throughout your lifetime (pre and post-retirement).

Realizing that retirement planning is complex, a trusted financial professional can serve as an excellent partner in developing a retirement plan that ensures you reap the benefits of your accumulated assets. The financial professional can serve as “quarterback,” working with your team of financial and legal advisors – such as your accountant and estate-planning attorney – to help you continue to build wealth, identify risks and stay on track to retire as planned.

Appropriately Manage Risk and Determine the Legacy you Want to Leave Behind

Every person will encounter risks that can challenge financial security, such as job loss or a medical issue. If unmanaged, those risks can have lasting financial consequences. This sentiment is true in both retirement planning and during actual retirement. Moreover, not having an adequate risk management plan in place now can have an effect on the financial benefits you are able to leave behind to your loved ones or charity in the future.

Permanent life insurance is one way to combat risks associated with retirement and the legacy you leave behind. For example, a permanent life insurance policy can be used to fund a legacy for your heirs, allowing you to draw comfortably from your remaining savings. Permanent life insurance cash value can also supplement retirement income if needed.

Long-term care risk is the risk of incurring potentially unmanageable expenses with a prolonged illness or need for long-term care. Long-term care planning can help ensure you do not prematurely deplete the assets you have saved for retirement, and burden your loved ones with unwanted medical bills needed for your care.

Disability insurance is another strong consideration. According to data from the Society of Actuaries, people in their working years run a greater risk of being disabled for 90 days or more than they do of dying. How would you fund your retirement plan should you lose your monthly paycheck? Disability insurance can help keep you on track.

A solution to consider for managing longevity risk is an annuity, as it guarantees a regular stream of income. Annuities, whose guarantees are backed by the claim paying ability of the issuer, can be shaped and sized according to each individual’s needs, and offer options on when to begin receiving the income – either at a future date or immediately.

A strong retirement plan is within reach. By ensuring a financially secure retirement now, you’ll help put yourself in a position to focus your post-career life on the things that are most important to you… whatever they may be.
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This article was prepared by Northwestern Mutual with the cooperation of Scott Sparks CLU®, ChFC®. Sparks is a wealth management advisor with Northwestern Mutual Wealth Management Company (WMC), Milwaukee WI at Northwestern Mutual – Denver, a network office. Northwestern Mutual is the marketing name for the sales and distribution arm of The Northstern Mutual Life Insurance Company, Milwaukee, WI (NM). WMC is a subsidiary of NM and limited purpose federal savings bank. Northwestern Long Term Care Insurance Company, Milwaukee, WI, is a subsidiary of NM. Securities are offered through Northwestern Mutual Investment Services, LLC, a subsidiary of NM, broker-dealer and member FINRA and SIPC.