Retirement Planning

For participants in our 457(b) retirement plans, retirement planning for you and your spouse is free. While we recommend going through the entire planning process, you can pick and choose from the services below. In the following post, we cover the following: 

1. What is a Retirement Plan? 

2. Our Process 

3. Why should I Do a Retirement Plan? 

4. Areas of Retirement Planning 

Our process: 

1. Gather Information 

   Once we have established the scope of the engagement and identified the client's needs, we gather all the necessary information to do our services. This is the first of two meetings. For comprehensive retirement planning, this starts with your goals and aspirations. A plan never works without a why. Once we have the why, the financial fact-finding begins. We seek to understand every part of your financial picture including but not limited to pension, retirement accounts, HSA, debt, income, expenses, insurance, benefits, beneficiaries, assets, and social security.  

2. Create the Plan 

   Now that the scope has been established, goals have been set, and we understand the full picture, it is time to create the plan. This is the second of two appointments. The plan is a roadmap of how to get from your current situation to your desired situation. It starts by gauging your financial strength and focuses on the areas that need improvement. This is where the action items come in. Action items are the homework for the client to work on between today and the first check-in meeting.  

3. Implementation 

   The retirement planning engagement is continuous. We reach out to schedule at least 2 yearly meetings to reassess the plan and pivot for changes. Life changes, and so does your plan. At each meeting, we gauge your progress and chances of success. Nothing feels better than coming out of a check-in meeting knowing you’re closer to financial success than you were before the plan.  

What is a retirement plan? 

Retirement planning is the process of understanding how to get from your current financial situation to your desired endpoint. The retirement plan is the written roadmap to navigate this journey. Whether it’s taking trips or ensuring you have enough money to retire, it all needs a plan.  

Why should I do a retirement plan?  

Whether you haven’t started saving for retirement, just started, are nearing retirement, or successfully retired, a retirement plan is necessary. In life, reaching goals requires planning, and subsequently following through with that plan. You cannot reach an unknown goal. Having a loose goal and plan is better, but success is uncertain. Meticulous planning and implementation takes away the guesswork and increases the chances of success.  

Now that we’ve established the importance of goal setting, why is this important in the context of retirement planning? Take the following example: 

John is 22 years old and starting with the police department. He plans to retire in 40 years. He decides that he would like $1,500,000 in his 457(b) retirement plan by the time he retires. Consider the following two methods of funding his retirement: 

1. John does not consult with a professional. He decides to put in $200 to get his department’s full $50 match. He does not update his deferral amount over the 40 years and invests in the default investment (2065 target1 date fund). 

2. John consults with a professional. With help from the professional, he invests his money in various asset classes and contributes $236 per pay ($286 with match). 

Results: 

1. John achieves an investment return of 7%. By the time he retires, he has accumulated $1,312,406.  

2. John achieves an investment return of 8%. By the time he retires, he has accumulated $1,501,393.2 

In both situations, John did well. He was disciplined and worked towards a goal. However, consulting with a professional, he was able to make a more exact estimate.  Thus, he was more successful in hitting his goal.  

This is just his retirement. Planning touches all areas from pensions to college savings plans. When added together, the results of planning become significant. Let’s dive deeper into the other areas of planning. 

Areas of Planning 

While these areas of planning are specifically tailored to government employees, they apply to everyone. The main difference is in the specific benefits such as your pension. 

1. Retirement Planning 

   While retirement planning is the encompassing term for the process, it also specifically refers to saving for retirement. Saving for retirement occurs through various tax-advantaged vehicles. These include 457(b), 401(k), 403(b), 401(a), IRA, SIMPLE IRA, SEP IRA, etc. Savings in any of these can be pre-tax or Roth. The main goal of retirement planning is to figure out the funds required to cover living expenses through retirement. Then, we use this to pinpoint the amount of monthly savings needed to reach that amount. A complicated retirement needs analysis should be performed to determine the retirement funds needed.  

   Once the retirement needs analysis has been performed and savings goals are identified, the investment strategy is employed. A good investment strategy addresses the following: 

   1. Risk tolerance 

   2. Diversification3 

   3. Time horizon 

   4. Financial circumstances 

   Once the savings amount and investment plan have been implemented, it is imperative to constantly update and monitor the investment allocations, savings amount, and retirement needs.  

   2. Tax Planning4 

   The investments from above should be deployed in a tax-efficient manner. It is important to consider the risk of what tax rates could be in retirement, while also minimizing taxes in the near term. With the use of our tax planning software, we can scan a recent return and gain invaluable insights. We use this in combination with the planning process to identify deductions and credits you may be eligible for.  

   3. Insurance Planning 

   Life Insurance

   Life insurance covers lost income, debt obligations, and funeral expenses of the deceased. While many of our participants have life insurance through their employer, it is important to make sure that the risk exposure is covered. Whether the coverage is through us or not, we evaluate current insurance, estimate life insurance needs, and give a recommendation as to how much insurance is needed.  

   Long-term care 

   Over 70% of people end up needing some sort of long-term care in their lifetimes; however, only around 5% of people are covered. Long-term care is meant to cover the costs of care in retirement years and safeguard the assets you have worked to accumulate. A common misconception is that Medicare or Medicaid pays for long-term care. While this is partially true, you are forced to drain all your assets, and potentially lose your home, to get them to pay. We assess the need and recommend the amount of coverage you should carry.  

   Disability 

   Disability insurance is meant to cover costs when one cannot work due to physical or mental impairment. There are both long-term and short-term disability. Again, it is common for many of our participants to have this coverage through their employer. However, we make sure the risk exposure is covered.  

   Health  

   Health insurance covers health-related expenses. Again, almost everyone has coverage with their employer. Health insurance concerns are particularly important after retirement. While it is not our specialty, we are happy to offer support and consulting in this area.  

   4. Estate Planning – While we are unable to draft these important documents, we advise clients on the contents and types of documents they should have.  

   Wills 

   Wills determine where one's property goes after death. It is important to constantly reevaluate and modify your will.  

   Trusts 

   Trusts are accounts that a trustee manages for the benefit of the beneficiary. They are an important tool in the estate planning process and accomplish both tax and non-tax objectives. Through the process above, we evaluate the need for trusts. 

   Incapacity 

   Incapacity planning includes guardianship, power of attorney, and living wills. These documents provide clarity in life’s stressful moments.  

2. Education Planning 

   We help clients manage student loan debt, open college savings5 accounts, and take advantage of educational tax credits. Millions of dollars in credits and deductions are left on the table each year.  

3. Cash Flow Planning  

   Before retirement, the main concern is setting enough aside for retirement without compromising current living expenses. We work to understand where the flows of retirement funds could come from such as pensions, social security, and retirement accounts. Once this is understood, we look to the retirement years and attempt to generate enough cash flow to cover retirement expenses.  

   Debt Management 

   From mortgages to credit cards, debt is a tool that requires close management. We help clients strategically pay down debt to minimize the interest paid and come out on top.  

4. Miscellaneous  

   1. Charitable planning 

   2. Emergency planning 

   3. Business succession planning 

Conclusion 

Planning for retirement can be daunting. At MDCS, we have been addressing the retirement planning needs of public safety since 2008. With our help, you can get organized and on the path to retirement.  

Securities and Advisory services offered through GWN Securities, Inc., Member FINRA/SIPC, a Registered Investment Advisor. 11440 N. Jog Road, Palm Beach Gardens, FL 33418. (561) 472-2700. Midwest Deferred Comp Specialists, LLC and GWN Securities, Inc. are separate companies.