While excitement builds during the retirement planning phase, you face many challenges. Careful planning can help ensure a smooth and secure transition into retirement. By partnering with a trusted retirement planning professional, you can feel confident that every ‘i’ is dotted and every ‘t’ is crossed.
Let’s look at just three of the many missteps a qualified financial advisor can help you avoid during this important decision-making time in life.
Exiting the Market After a Downturn
It’s natural to feel anxious during market volatility, especially as you approach retirement. Will my money last as long as I need it to, is a valid retirement fear. At Foundation Wealth Management, we encourage you not to operate on fear but instead gain the knowledge necessary to make educated decisions based on time-tested principles.
Pulling money out of the stock market after a downturn is an example of making a fear-based decision. In that moment, some feel it’s the smart thing to do to protect what remains.
It’s true the market falls—but historically, it comes back. Over the past 30 years, the average annual return of the stock market has been about 10%, reinforcing the power of patience and long-term thinking. Of course, this is speaking to the stock market as a whole, not individual stocks or funds. Diversification is a strategy many use to overcome the risks associated with holding on to large amounts of one stock or heavily investing in one industry.
When you hand over the investing responsibility to Foundation Wealth Management, you no longer have to stress about when to buy or sell, make portfolio adjustments, or monitor markets. Having a long-term strategy paired with a bit of patience is often the name of the game in retirement planning.
Skipping Long-Term Care Planning
Many people underestimate the potential need for long-term care, thinking “It won’t happen to me.” Discussing your ideal long-term care plan with your spouse and anyone you may expect to help care for you, such as adult children, is a great first step. Some would prefer to downsize, utilize hired help, or move into an assisted living community when the time comes. Others may have a greater desire to stay put with the hope their loved ones can help where necessary.
It’s no secret, there is a cost to healthcare in retirement and it’s often an expense that can quickly eat away at your hard-earned savings. Investing in long-term care insurance or earmarking funds specifically for long-term care in your investment portfolio are amongst the most common strategies for covering the expense. By planning appropriately, you can not only help offset the cost, but you reduce stress and avoid putting the financial burden on loved ones. It’s also important to remember that Medicare does not cover the cost of residing in an assisted living facility, as this is considered custodial care. However, Medicare may cover certain medical services received while in such a facility, like skilled nursing care or physical therapy, under specific conditions.
While how you plan to cover the cost is ultimately your decision, knowing the facts can help you see firsthand the importance of not skipping this step of retirement planning. Let’s look at assisted living, just one route you may take down the road. Locally, the median cost of assisted living in Pennsylvania is $5,550 per month and in Delaware $7,425 per month. These figures are from a U.S. News & World Report L.P. report that reviewed 872 assisted living communities in PA and 22 assisted living communities in DE.
Not Staying Up to Date on Tax Reform
Taxes play a significant role in determining how far retirement savings will go. If it’s not something you’ve paid much attention to in the past, now may be a great time for a mindset shift. While some tax laws are complex, many are simple and it’s just a matter of taking the time to read and understand. In many cases, added tax knowledge can benefit you as there are strategic ways to pay less in taxes, which puts more money back in your pocket.
We included taxes as a common misstep because tax laws frequently change. During retirement taxes are possibly more complicated, there are Required Minimum Distributions (RMDs), which are mandatory withdrawals from retirement accounts starting at age 73 in 2025, Roth conversions, estimated tax payments, and the tax implication of Social Security, just to name a few key ways taxes will impact your retirement.
Do you know that where you live will also affect your annual tax bill?
In the Northeast, Connecticut, Rhode Island, and Vermont are three states that tax Social Security once you hit a specific income threshold:
- Connecticut: Taxes Social Security benefits for individuals with an adjusted gross income (AGI) over $75,000 and couples over $100,000.
- Rhode Island: Exempts Social Security benefits from state income tax for most retirees, with taxation applying only to individuals with AGIs over $88,950 and couples over $111,200
- Vermont: Taxes Social Security benefits for individuals with an adjusted gross income (AGI) over $50,000 and couples over $65,000.
Other states in the Northeast including Pennsylvania, New Jersey, Delaware, Maryland, and Virginia do not tax Social Security income. Property taxes, sales tax, and other state and local taxes are all factors that can impact how much you’re paying in taxes each year that will vary depending on where you live.
Avoiding these three common retirement missteps—exiting the market after a downturn, skipping long-term care planning, and neglecting tax updates—can make a significant difference in the enjoyment of your retirement. By taking proactive steps now, you build a plan focused on ensuring your hard-earned savings will last as long as you need them to. With professional guidance, you can approach retirement with a well-rounded plan. Whether you’re five years from retirement or already enjoying it, let’s talk about what peace of mind looks like for you. Schedule a consultation today.
About Foundation Wealth Management
Foundation Wealth Management is a CPA-led organization, that provides financial planning services and tax planning support; services and outcomes vary based on each client’s circumstances. Our team includes qualified professionals, such as CPAs and CFP®s, who are integral to our service offerings. Our team includes 3 Certified Financial Planners: Burt Hutchinson, CPA, CFP®, Paul LaViola, CFP®, and Stephen McDade, CFP®.
As Fee-Only planners, we are compensated directly by clients rather than through commissions from brokerage or insurance products, which we believe helps align our services with client goals.
Sources:
- https://health.usnews.com/best-senior-living/assisted-living/pennsylvania
- https://health.usnews.com/best-senior-living/assisted-living/delaware
Disclosure Statement:
This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax, or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice. All investments are subject to risk, including the possible loss of principal.
Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, Past performance is not a guarantee of future results.
