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Leslie Daff, JD, MBA - Orange County Estate Planning Lawyer

Friday, March 30, 2012

Tax & Estate Planning Tip #12: Seven Tips for a Worry-Free Retirement

In our practice we often work with young professionals and parents with minor children, but many of our clients are over the age of 50 and are thinking more about retirement or are already retired.  Following are some tips for a worry-free retirement:

1.  Maximize the quality of your life.  Your health is your greatest wealth; so continue to eat right, exercise, and stay engaged by doing volunteer or part-time work.   Frequent contact with family and friends is what makes most retirees happy, while others value travel and new experiences. We have noticed our clients who seem to live the longest, happiest lives, and who stay mentally sharp into their 90s are walkers - they walk a half hour or more a day - virtually every day. 

2.  Time when you draw Social Security benefits.  Social Security provides an inflation-adjusted annuity for life.  Many start to draw a reduced annuity at 62 and later regret it.  Unless you have a shorter-than-normal life expectancy, usually the better strategy is to wait until 70.  If you are married, draw the lower-earning spouse’s benefit at 66 and the higher-earning spouse’s benefit at 70.

3.  Watch your spending.  You should limit your withdrawals from your investment portfolio to about 4% per year if you want the portfolio to last your lifetime.  Adjust your standard of living so your Social Security, pension, and 4% investment withdrawals cover your spending. 

4.  Don’t change your investment strategy.  If you switch to a conservative portfolio, inflation will chip away at your standard of living.  Investors with a longer than five-year investment horizon (time before you expect to die, not retire) should continue to allocate about 60% of their investable assets to stocks and about 40% to fixed-income investments. 

5.  Look into buying long-term care insurance.  Nothing zaps a family’s resources and legacy more rapidly than the cost of end-of-life medical and long-term care.   What is your family’s history with longevity and dementia?  Retirees should look into tax-favored long-term care insurance before they have a medical event which makes it unavailable. 

6.  Get your estate in order.  Experience the peace of mind of knowing you are not leaving behind a mess for your loved ones.  A well-done estate plan generally includes a revocable living trust, pour-over will, financial power of attorney, advance health care directive, and HIPAA authorization.  The plan names decision makers who will manage your affairs when you are incapacitated and distribute your assets after you die. 

7.  Get the input of others before making important decisions.  Sometimes it is not best to be a do-it-yourselfer.  Family and friends can help with most decisions, but for some decisions you may need the advice of experts, such as physicians, attorneys, accountants, and financial planners. 

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