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RRFR_S3E6

S3E6: What Happens When Your Purpose Retires Before You Do?

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Many people spend decades preparing financially for retirement, but far fewer prepare for the emotional transition that comes when their career ends. In this episode of Road Rules for Retirement, Mark Fried explores what happens after the paycheck stops and why the psychological shift into retirement can be just as important as the financial planning that leads up to it.

Drawing on real experiences from his clients, Mark explains how identity, routine, and purpose are often closely tied to a career. When that structure disappears, retirees can feel uncertain about what comes next—even if their financial plan is solid. This episode discusses why retirement fulfillment depends on more than investment returns and how retirees can intentionally rebuild meaning, relationships, and daily rhythm.

Mark also introduces the idea that successful retirement requires three forms of capital: financial capital, social capital, and purpose capital. By aligning financial decisions with lifestyle goals and personal meaning, retirees can create a retirement that is not only financially secure but personally rewarding.

KEY DISCUSSION POINTS
• Why many retirees feel emotionally unprepared even when their financial plan is strong
• How losing a professional identity can create unexpected uncertainty in retirement
• The concept of “role loss” and why psychologists see it as a common retirement challenge
• Why retirement satisfaction depends on more than financial capital
• The importance of building social capital through relationships and community
• How purpose capital helps retirees maintain motivation and fulfillment
• Why replacing routine with a flexible rhythm can improve daily life after retirement
• The role of volunteering, mentoring, and personal passions in creating meaning
• How financial planning should support lifestyle goals and experiences, not just preservation of wealth
• Why it is important to begin planning your purpose and lifestyle before retirement actually begins

Road Rules for Retirement is for pre-retirees and retirees who want fiduciary guidance on retirement income, taxes, Social Security, and long-term planning—particularly those living in Bucks County, the Philadelphia area, and New Jersey.

Mark Fried is a fiduciary financial advisor in Newtown, PA, serving retirees and pre-retirees throughout Bucks County, the Philadelphia area, and New Jersey.

Retirement Plans in Action

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When speaking to groups about retirement and financial planning, I often use the phase hope for the best and plan for the worst. This is most appropriate for those who are planning on retiring in the next few years or are in retirement right now.

When creating an investment strategy for your retirement there are three key investment characteristics to keep in mind: income, safety (risk) and potential growth. While you need to have all three as part of your investment strategy, depending on your financial stage of life you need to focus on one over the others.

Another challenge in creating the right strategy for where you are in life has to do more with ignoring how the investment winds are blowing at the time and focusing in on your personal and financial goals. During strong market moves to the upside, we will often hear that we are being too conservative because we believe it is important to have a certain amount of your assets in lower risk investments to provide balance and income when you need it.

During market pullbacks, like the one we are experiencing now, we will hear exactly the opposite sentiment. Dump my growth investments and move everything into cash or something similar.

This is where a strong plan that hopes for the best and plans for the worst is essential to being financially secure. We use many different types of investment strategies customized for each of our clients’ situations. Different strategies for different needs and different markets cycles.

Certain types of annuities, bond ladders and cash reserves become more important in down markets which is why we include these in our financial plans along with other types of stock and bond strategies which do well in up or flat markets.   The key is not to get caught up in the current market environment when planning your investment strategy because we believe that there are very few if any money managers that can time the market up or down.

This is why when the market is moving up and you are nearing retirement it makes little sense to put all your investments into the market. Just like it makes little sense to abandon the market completely as it pulls back.

Market investments provide long term growth which is important for retirees because retirement can span 20 to 30 years. Annuities, bond ladders, cash and similar investments provide liquidity and safety for times like these.

There is an old saying, everything in moderation. It is true for the food we eat, the fun we enjoy and the investments we use to secure our financial future.

Annual Returns Tell Investors Very Little

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Below is a synopsis of this investment report:

  • Using a single year to measure investment returns is practically useless to investors, money managers, and everyone else in the investment industry.
  • Investors must accept down years from time to time, just as they already accept down months, weeks, days, hours, and even minutes.
  • Trying to either beat the market and/or avoid an occasional loss every year is a dangerous and unattainable goal that no human could possibly accomplish in a lifetime.

 

For full access to the investment report titled “Annual Returns Tell Investors Very Little”, please contact us.

Six Tips To Tell Your Grandchildren About Retirement Planning

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Below is a synopsis of this investment report:

  • Retirement planning has become far more complicated for the younger generation versus when current retirees first got started.
  • Follow my “Six Simple Rules for Retirement” that all Millennials should follow from the day they begin their careers.
  • Disciplined investing can build a nice nest egg over time, but true financial freedom only comes when one accumulates money without fear of losing it.

 

For full access to the investment report titled “Six Tips To Tell Your Grandchildren About Retirement Planning”, please contact us.

Know Your Number

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Know your numberWhen saving for retirement, how critical is it to know your number?

Fidelity, ING and many other Wall Street based financial institutions stress knowing your number. But is that the right way to go about planning for retirement?

In a recent Harvard Business Review article, Nobel Prize winner Robert C. Merton argues that this is exactly the wrong approach to retirement planning. Why?

Decision making, especially decisions about our money, are full of behavioral bias. With the shift from an income-focused retirement planning approach, like pensions and defined benefit plan use, to a rate-of-return-focused retirement planning approach asking questions such as “how much can I make in my 401(k) or what is my number?”, savers are pushed to take on more and more risk, which means more exposure to market loss. The result can be catastrophic if your timing is off just a little bit.

I agree with Mr. Merton that our focus should shift back to an income-based retirement planning approach. Instead of striving to take on more and more risk, a retirement plan should determine how to generate sufficient risk-free income to support your lifestyle during retirement, because the ultimate goal of your retirement plan is to provide income regardless of how much capital you have saved for your retirement.

Maximizing income from your investments is a very different investment approach, requiring very different investment strategies than maximizing rate of return.

At TFG Wealth Management, we specialize in developing and implementing retirement income plans. But unlike the Wall Street crowd that is limited to market-based solutions or the typical annuity salesman that wants to put all your money into an annuity, we use investment options from all sources, banks, insurance companies and the market.

So when I say know your number, it’s not about how big your retirement account is.  Rather, it’s about how much income you can generate from your retirement savings.

Interested in discussing ways to maximize your retirement income?  Give our office a call at 215-968-1755.

 

What Does a Floating BMW Have To Do With Retirement Planning?

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Car on flooded roadA few weeks ago, on a Wednesday, we had a terrible storm that dumped over 5 inches of rain in the Philadelphia area.  During that storm, I was driving through Pennsauken on route 130 South in my new BMW, on my way to downtown Philadelphia.

At a dip in the road, there was some water accumulating.   Now, it was nothing I hadn’t driven through before.  Cars were passing cautiously through the water without any trouble.  So I decided to go through it.  Ten minutes later, sitting in my car which was now floating in over 3 feet of water, I was certainly regretting that decision.  What happened? And how does it relate to retirement planning?

As I drove through the water that day, I was hoping for the best and planning for the best.  All of my driving experience over the last 35+ years had led me to believe that I would be OK.

What had changed?

Well, three months earlier, I had purchased a new car.  This car had low profile tires, which meant I was much much lower to the ground.  Combine this with the fact that Pennsauken keeps their sewers closed on Route 130, which causes storm water to quickly collect in low areas, and the results were pretty predictable.

Retirement is like getting a new car you have never driven before and then driving over a road you have never been on.  You move forward, relying on all of your experiences over the last 20 or 30 years and often times using the same strategies that may or may not have served you well during your working years.

If I had only taken the time to talk to someone who had owned a car with low profile tires or investigated how the car drove in various conditions, maybe I would have avoided totaling my car.  If I had spoken to someone who had driven down Route 130 in a driving rain, maybe I would have known to be very cautious about a little bit of water on the road in Pennsauken

Retirement is just like driving a new car down a strange road.  As a retirement planning and investment specialist, I have been down the retirement road many times under many different conditions.  I use strategies and techniques that will help you avoid being caught in 3 feet of water, floating down the highway.

It took over two weeks to finally convince my insurance company that the car was totaled.  I am now in the process of replacing my new car with a new car.  The good news though is that no one was hurt, which is the most important thing.

If you want to talk about how to avoid floating down the road on the way to retirement, please give our office a call at 215-968-1755.

Retirement Planning and Social Security

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It is no secret that the social security trust fund is spending more than it is collecting.  While there is no immediate crisis, it is important that investment advisors and financial planners consider the possible impact that this will have on your retirement now and in the future.

After reviewing a number of the many proposals or trial balloons put forth by the President and Congress, there are three that I think you and your advisor should be most worried about.  These include:
Retirement Planning

Increased taxes on your social security

Anyone on social security knows that the benefit is taxed up to 85% of your total benefit.  But we should all remember that when Social Security started, it was intended to be a tax-free benefit.  The money (your money) that you contributed to the social security trust fund was taxed on the way in, and now it is also taxed on the way out.

Financial planners and their clients should consider how easy it is for Congress to adjust the tax schedule – and instead of just  85% of your benefit being taxed, all of your benefit would be taxed.

Reduced Cost of Living Adjustment (COLA)

The COLA is the percentage increase of your social security benefit on an annual basis to keep up with inflation.  Your COLA is calculated using something called the CPI consumer price index.  There is a lot of talk about changing how the CPI is calculated, which would reduce or eliminate the COLA increase.  Some of you might remember in 2008 and 2009 when there was a 0% increase in your social security benefit.  It happened once and it can certainly happen again.

Increased charge for Medicare

The cost of Medicare is deducted directly from your social security check.  This deduction has steadily increased over the years.  A modified version of a means test has also been implemented.  This means that the more you make, the more Medicare will cost you.

It is expected that the number of families affected by this increased premium will double over the next 5 years.  The increased premiums range from $209 to $334 per month.   Who could have imagined that we would be talking about the manipulation of the social security system in order to reduce your benefit?

 

What can you do about it?

Well from a planning perspective, I believe that it is no longer wise to include the COLA adjustment or use the 85% tax rate when calculating your retirement benefit.  At TFG Wealth Management, we have changed our planning strategy to look at what would happen if there was no COLA and 100% of your social security benefit was taxed.

This makes it even more important to choose the right strategy for collecting social security.  There are over 700 different strategies for collecting your social security benefit.  In order to determine which one is right for you, we use a sophisticated proprietary computer program that analyzes all possible strategies for your situation.  After we have identified the top three, it is then time to take into consideration other issues like longevity, how much you need to live on, what tax rate you will pay during retirement, how much of your income will be generated through taxable accounts like an IRA or 401(k) and how much will be generated by tax-free accounts.  Combining the science of the computer program and these other factors, we help our clients determine the best strategy for their circumstances.

If you are interested in learning more about your social security options, please give me a call at 215-968-1755 or contact me by filling out the contact form on this site and I will get back to you.

5 Retirement Income Issues

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Planning your retirement income is a very difficult and challenging task. You can’t afford to mess it up. You need to do it right the first time.

Here are five factors to keep in mind when creating your retirement income plan. Each can endanger your finances during your retirement.

5 Retirement Income Issues1. You might live a long time
We all know that people are living longer, but what does that mean to you?

If you are 65 years old and single, you can expect to live to 86, according to the Internal Revenue Service. You have a fairly good chance of living even longer. This means that you need to anticipate making your money last a long time. Small mistakes early on can compound into large mistakes over many years.

2. Expect to spend a lot of money on healthcare
Every year, Fidelity Investments projects how much a 65-year-old married couple should expect to spend on their healthcare during their retirement years. They assume that each person is on Medicare, but they also assume that no long-term care is needed.

Even though Medicare covers a ton of medical bills, the average couple spends $240,000 on healthcare during retirement. That’s right, a cool quarter of a million dollars. Over 25 years of retirement, that’s about $10,000 per year. If you need long-term care, it’s a lot worse than that. So make sure that you overestimate how much money you need for healthcare.

3. Watch out for inflation
For the past several years, inflation is almost nonexistent, but don’t expect that to last much longer. Just one trip to the gas station tells us that inflation is back. Remember the late 1970s and early 1980s, when a fixed-income was so disastrous? With prices going up every year, a fixed income buys less and less.

At just 6% inflation, prices double every 12 years. If you spend close to 25 years in retirement you can expect to see prices double twice. That means you need four times the income to buy the same stuff at the end of your retirement compared to the beginning of your retirement. Of course, a 6% annualized rate of inflation is very high. It isn’t likely that such alarming price appreciation continues for decades. But make sure that you factor inflation into your plan.

4. Taxes follow you into retirement, too
While you worked, you probably heard the wisdom about saving money today while you are in a higher tax bracket. The reason: When you take it out later during retirement, you are in a lower tax bracket. That isn’t always the case nowadays.

Many retirees find themselves paying more tax today than they did when they were working because they actually did a good job saving for their retirement.

Imagine you are getting ready to retire. As you shift from working to retirement, do you want to move into a lower standard of living or the same? If you want the same standard of living, your income needs to be about the same (or greater to account for health costs and inflation).

Also, with no kids in the house and the house paid for, your deductions are all gone. So you have about the same income, with no deductions. That’s not good for your tax bill.

Compound that with required minimum distributions from fully taxable retirement accounts – at age 70½ you must start withdrawing money. Then you have an equation that works really well for the Internal Revenue Service and not so well for you. Taxes are a real threat to a retiree’s standard of living.

5. Changing with the times
When you were working, you probably had a retirement plan that provided a menu of mutual funds to invest in. It was easy. You just picked the best performers and didn’t worry about it. Retirement plans are designed for growth and accumulation. You use them to build up your nest egg so you can comfortably retire someday.

The problem is that when you retire, your financial tools are no longer appropriate for the most of your portfolio. Those same mutual funds might be too risky to hold during retirement, for example. You need to learn about different financial tools such as Roth individual retirement accounts, rollovers, conversions, dividend stocks, exchange-traded funds and money market funds that focus on both wealth preservation and income.

Dealing with a long retirement, healthcare costs, taxes, inflation and learning how to invest all over again is a daunting task. TFG Wealth Management provides our clients with the strategies they need to realize their financial goals in challenging times.

If you would like to discuss issues affecting your retirement, please give me a call at 215-968-1755 or contact me by filling out the contact form on this site and I will get back to you.

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Investment advice offered through Merit Financial Group, LLC, an SEC-registered investment adviser. Access to Merit is only available to clients pursuant to an Investment Advisory Agreement and acceptance of Merit’s Brochure. All investing is subject to risk, including the possible loss of your entire investment.
Copyright Mark Fried, // Site Built & Managed by MariaVida Creative

About Road Rules for Retirement

In Road Rules for Retirement, Mark Fried shares the many challenges you will face getting to and through retirement. He reveals the many risks you must know about and account for to make sure you never outlive your money.

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