Face the Facts When Planning for Retirement

It is never too soon or too late to plan for retirement. However, consumers should be well-informed when making financial decisions and not underestimate how much money will be needed for retirement.

That’s the essence of the advice from John Mueller, a Brookfield chartered financial consultant and registered representative for New York-based AXA Advisors LLC.

Mueller has created an informational CD titled, "Helping Build Wealth and Protect Capital," which outlines seven facts he says everyone should know about retirement planning.

Mueller said the CD was intended to make consumers think about their futures.

"The whole retirement aspect is very complicated, and a lot of people are too busy living their lives and working every day to think about this," Mueller said.

Clients seek Mueller’s expertise on subjects including wealth management, estate planning, retirement planning, 401(k) accounts and pension plans. He works with small businesses, high net-worth individuals, professionals and retirees.

"Often times, people don’t take the time to consider things, and the earlier you start the better off you are," Mueller said.

The following are Mueller’s seven facts everyone should know about retirement planning:

1. You are being asked to assume more and more responsibility for your retirement savings than ever before.
2. There are three distinct phases of retirement planning that individuals need a well-defined plan to be prepared for:
   

   1. Pre-retirement – the phase when consumers work and accumulate money that will determine what their retirement years will be like.
   2. Retirement – retirement itself and when consumers will need to determine if the retirement savings will be enough for them.
   3. Post-retirement – the phase when all decisions made will affect whether individuals will be able to continue their lifestyles.

3. There are four problems with retirement savings that people often overlook:
   

   1. Consumers tend to underestimate how much income they will need in retirement. They do not account for the increased costs of health care, medical payment and taxes.
   2. Consumers forget how long the money they have might last.
   3. Consumers assume they will stay healthy. But if a person has limited funds, one serious illness could cost a lifetime of savings.
   4. Consumers save much less than they should.

4. The biggest fear for retirees today is outliving their assets. Consumers should realize that they need 80 percent or more of their pre-retirement income to continue their current lifestyle. So, a person who makes $100,000 per year before he or she retires will need $80,000 per year to sustain his or her lifestyle.
5. Over the long term, stocks outperformed all other long-term financial assets. However, it is important to know your temperment and income when dealing with the stock market.
6. There are six big threats that can erode financial security. Consumers need a strategy and need to protect themselves against these threats: inflation; health care; estate taxes; withdrawal penalties for taking too little or too much out of retirement savings; income taxes, which can become a person’s single largest expense in retirement; and local taxes.
7. Most retirees play it too safe with their retirement planning and do not take into account inflation and loss of purchasing power when making financial decisions. Retirees cannot afford to play it safe.

The most important fact listed above is the first one, Mueller said.

"People need to assume responsibility for their own retirement," he said. "They cannot think that Social Security or their 401(k) or pension plan is adequate. They really have to take the bull by the horns and realize they have to save."

Mueller says that the second-most important fact on his list is No. 3. People in their 40s and 50s don’t think about how long their money needs to last, he said.

"Retirement is like a Saturday," Mueller said. "On Saturday, people go shopping and entertain themselves more than they do during the week. When you are retired, all of the sudden you have these free moments and you want to travel, you want to go to the store and buy things."

When consumers reach retirement, they still must figure out the best way to continue the lifestyle they are used to while being able to transfer money to dependents and others in the most tax-effective way, Mueller said.

"Everybody’s situation is a little bit different," Mueller said. "Some may know that they are going to inherit some dollars, but we are not all like that. It is a matter of finding what is appropriate for you in your situation."