Smart tips to make your retirement savings last as long as you do.
There's a retired physician in the Twin Cities who has a definite idea about his retirement budget. He's going to spend as comfortably and liberally as he did all throughout his working life, and then, on his 100th birthday, he's going to throw himself a gala birthday party.
"Then, just after he writes the check for the big party, exhausting his last dime in the world, he's going to pass away, with his face right down in his birthday cake," said Nate Wenner, the man's financial adviser.
It's an admirable goal, to allot every dollar perfectly until death. But that's a tricky equation for most mortals, given the rising cost of health care and the possibility of living to 110.
The classic retiree budgeting formula is 4 percent. As in, take 4 percent of overall assets every year, plus 4 percent of that amount to account for inflation. So, for example, if you have a $1 million nest egg, you would have a $40,000 income on the first year of retirement, and $41,600 on the second year, and $43,264 on the third year, and so on.
Easy enough. But what happens when the kids need money to get through a rough patch? Or when you decide to put in that hot tub deck you always wanted? What then?
Don't wait until the going gets tough to call in a pro. It's best to plan for those contingencies well in advance. We've asked some local financial advisers, who specialize in retirement planning, to share their tips for stretching your savings.
1. Consider a fee-only financial adviser.
Not all financial advisers are created equal. There are "fee-only" advisors (who are only paid by their clients), commissioned salespeople (who get paid when they sell a certain financial product), and people who get paid from both pots. Its important to know which camp your financial adviser falls into. Remember: "brokerage affiliation" means "commission."
2. Look for the CFP designation.
There are many designations in the financial planning field, but one of the toughest to get is CFP, or Certified Financial Planner, which involves a 10-hour test, three years of financial planning experience and completion of a course of study at an approved university.
"By far, it's the designation that I'm most proud of," said Wenner, principal at Wipfli Hewins Investment Advisors in Edina. CFP pros are also bound by the CFP Code of Ethics, which means they have to disclose in writing all conflicts of interest and sources of income.
3. Keep your team in the loop.
Most likely, you'll have a fleet of people working on your financial health in retirement, from your financial planner to your tax preparer to your insurance agent. In order to move through retirement as deftly as possible, you need to keep your team of pros in the loop. Make copies of everything and make sure your tax preparer knows the big vision, and vice versa.
"It's ideal if you handle all your financial business in one office, so that the people working on your accounts have the most holistic view possible," says Tom Menzel, principal at Legacy Financial Advisors in Bloomington.
4. Take longevity into consideration.
It can be helpful if you have a reasonable expectation of how long you might be likely to live. Think about how old your parents were when they died and take longevity quizzes at www.realage.com and www.livingto100.com.
"If people aren't in good health, or even have a specific disease, I tell them they should really enjoy their time, and then we set up a budget to help them do just that," says Wenner.
5. Think long term.
The last five or 10 years of your life can be the least -- or the most -- expensive. If it's the latter, it can destroy a well-thought-out retirement budget. That's why financial planners strongly recommend long-term care insurance or annuities that offer a long-term care rider.
"An annuity is probably not going to be as generous as a long-term care policy, but it clearly beats the alternative of flying out into old age with nothing at all," said Deb Newman, principal at Newman Long Term Care in Richfield.
Nelson said that if you explore long-term care policies and find them too expensive, your children have a right to know that you've taken a pass on the insurance. "I think many children, if they have the means, would prefer to pay their parents' premium for long-term insurance than have them go without. It really is important," she added.
Alyssa Ford is a freelance writer.