Retirement Planning in Minnesota When is the Right Time to Start Planning For Retirement?

Let’s face it, most people in their 30’s and 40’s are preoccupied with buying homes, raising children, and enhancing their lifestyles. Retirement is 20 or 30 years away so there is plenty of time to plan and save in their 50s and early 60s.

If these same people are lucky, they work for a company that sponsors a 401k plan with matching contributions. Plus, they are contributing to Social Security, which they hope will still be there when they retire. So they may not have a retirement plan, but they are already saving for retirement. This does not mean they should not be planning for retirement in Minnesota. 

There is vital information in the planning process that may impact your goals of a secure, comfortable retirement. For example:

• When will you and your spouse retire?
• What are your plans after you are both retired?
• What will it cost to fund your comfortable retirement lifestyle?
• How will you fund medical expenses late in life?
• How much should you be saving now to achieve your goals?
• Will you be able to live the way you want to live after retirement?   

Your retirement plan should provide answers to these all-important questions.

Would you jump in your car and take off on a cross-country road trip without a navigational aid provided by your car, cell phone, or a map?

Probably not! You would plan the trip so you can visit all of the sites of interest and have a place to stay each night. You may also want to visit friends and family who are in various states. The role of the map is to get you where you want to go in the most efficient way possible. 

The same can be said for your retirement plan. It should serve as a roadmap that helps you stay on track as you pursue your goals after you retire and for the rest of the lives of you and your spouse.

You might also ask, “what happens if I fail to plan for my retirement?” You may not be able to retire when you want to. You may not be able to live the way you want to. You may have an uncertain financial future late in life when you have the fewest number of options. 

A failure to plan creates a number of risks that can be avoided if you have a realistic plan and the discipline to stick to it.

During your working years, your goal is to accumulate as much money as possible in a tax-deferred plan like a 401k. If you are lucky, it has an automatic rate of return when your employee makes a matching contribution. 

So step one is to maximize your contributions to this retirement plan during your working years.  Not only are you saving for your retirement, but you may also be able to reduce your tax liabilities with pre-tax contributions, which can be used to offset your gross income.  The sooner you start saving in a 401k the more money you will have in your retirement account on the day you retire.

Step two is to roll it into a self-directed IRA once you retire. When rolling your 401k into a self-directed IRA, gives you greater flexibility in the types of investments you want to hold in the account. It also gives you the opportunity to hold investments that align with your interests and passions.  

Social Security is a paradox. On the one hand, you have paid into it for the duration of your working years. On the other hand, the pundits say the system will be bankrupt by 2035. Politicians have kicked this particular can down the road for decades and there is a good chance they will continue to move back the participation dates, in particular since people will be living longer, and spending more years in retirement.

401k and Social Security should produce enough income for most couples who have both paid into the respective systems. It is easier if they are debt free, own their homes, and live within their budgets. 

The third leg of retirement savings and income can be personal and joint accounts that are funded with after-tax dollars and produce taxable income and capital gains.

It is fair to say, transitioning from working years to retirement years will have a profound impact on the rest of your life. Get it right and you live happily ever after. Get it wrong and you are faced with what could be considered three fairly onerous alternatives:

• Defer your retirement until a later date
• Take on a part-time job
• Reduce your standard of living

What is the transition period that is impacted by your retirement planning in Minnesota? Depending on who you talk to it could be the three to five years before and after your scheduled retirement date.

Why is this period so important when you plan for retirement? One major reason is your assets should be peaking in value based on savings, market appreciation, and reinvested income.  Simply stated you have more to lose during this period. 

Let’s assume you are going to retire on 12/31/22, 60% of your assets are invested in the stock market, and the market is down 30%.  You will have 18% fewer assets than you thought you would have. For this reason, your retirement plan should include a provision for reducing your exposure to financial risk during this vital planning period.

No one knows how long they are going to live. This means your retirement plan has to make some broad assumptions that are based on:

• Current age (you and your spouse)
• Genetics that run in your families
• General good health
• A healthy lifestyle
• Medical science (cures for diseases with higher mortality rates)

Much like insurance companies have mortality tables that impact large cross sections of the population, your retirement plan also has to be based on some fairly broad assumptions.

The key to retirement planning success is never running out of money during the lives of both spouses. There are always enough assets and income to produce a comfortable, secure retirement.

The key is a retirement plan that assumes you, your spouse or both will be living to age 100. If you retire at age 65, your retirement assets will have to produce income for 35 years. And, the latter years may be the most expensive years if one or both spouses are in Assisted Living, Skill Nursing, or Memory Care.

When it comes to retirement planning in Minnesota, longevity is a very big deal. 

The first red flag is the status of the Social Security system when it is your time to retire in Minnesota. Your retirement plan may assume you will receive a certain amount of money on a specific date. There should be some flexibility in these assumptions. 

Next, your retirement plan should take your longevity into account. This can be another red flag when you retire in Minnesota. Does your plan prepare you for one or both spouses living well past 100. Don’t scoff, it could happen. Medical science is close to being able to slow down the aging process.

The third possible red flag is a retirement plan that is not based on realistic expectations. You may assume you will have a winter home in the desert, frequent trips to Europe, and financial gifts to children, grandchildren, and charities. On the other hand, will your retirement plan support your largesse?  

Your top two considerations when you select a Minnesota financial advisor is to be as sure as you can that you are selecting a retirement planning expert you can trust. 

How do you measure the expertise of financial advisors? Ask for documentation that describes their:

• Education and degrees
• Years of experience
• Certifications
• Memberships with continuing education requirements
• References

In particular you want financial advisors who can document their years of experience providing retirement planning advice and services to residents of Minnesota.

How do you measure the trustworthiness of financial advisors and their willingness to put your financial interests first? Ask for documentation that describes their:

• Compliance record at FINRA
• Fiduciary status 
• Method of compensation
• Memberships in organizations that have ethics requirements
• Willingness to provide documentation

Once you have found a trustworthy financial professional you can rely on his or her knowledge to develop the retirement plan that will impact how you live during your retirement years.

The greater the knowledge of the financial advisor the higher the quality of the advisor’s advice and services. The end result is a functional retirement plan that will enable you to retire when you want to and live the way you want to for the rest of your lives.

Retirement planning is not an optional service. It is a critically important service because it impacts the years or decades after you have stopped working. There is no substitute for quality advice you can trust. Talk with the ViaWealth team about your retirement planning needs.