HappySeniorHomeOwners Blog

1. Does My Mortgage Need to Be Paid off Before I Retire?

Looking at a person’s financial plan will determine the best course of action for their mortgage, says Austin L. Nold, CEO of the Austin, Texas-based financial planning investment firm Nold Bryant. Paying off the mortgage, sometimes, isn’t the best option, says Nold, “a large withdrawal could cause unnecessary taxes or an unnecessary drawdown on assets.”

If a client’s plan looks great either way, he thinks it comes down to personal choice. So, he shows them the short-and-long-term financial impact. “One consideration people need to have in the current inflationary environment is that with rapidly rising interest rates. Sometimes there may be safe options to get higher returns than their mortgage, and they may not be able to borrow money again at that low a rate anytime soon.”

Retirees may collect Social Security as early as 62. But some may want to defer payments until later. Brendon Dunuwila, a financial advisor of the Fayetteville, New York firm Dunuwila Wealth Management, says the latest an individual can defer Social Security payments is age 70. There is an advantage to this strategy.

“The longer you wait to elect, the larger your check will be. While most Americans elect to take their Social Security early, most financial advisors would encourage an individual to wait until age 70 if financially possible,” Dunuwila says.

3. How Should I Change my Investments When I Enter Retirement?

Many clients feel overwhelmed when they need to start using these nest eggs, says David Edmisten, a Phoenix, Arizona, certified planner and founder of Next Phase Financial Planning.

“With the different types of accounts many retirees have, there’s potential for penalties and higher taxes for incorrect withdrawals,” he says.

It can be difficult for new retirees to know how to shift investments to create a reliable retirement income. So Edmisten says to put a structure in place that dictates appropriate amounts of cash, income investments, and longer-term growth assets.

“This can give them the confidence to spend as they need in retirement without worrying about current market conditions,” Edmisten says. It’s important to understand all aspects of a financial plan to make withdrawals and investment decisions as tax-efficient as possible, he adds.

4. Is There Anything I Can Do to Save Money on Taxes?

Nold finds many people don’t take advantage of all the tax savings opportunities that different investment options may provide. For example, a business owner who doesn’t consider a retirement plan or a SEP IRA is missing out on an important tax-saving vehicle. Another example is someone who could benefit by contributing to a Roth IRA via a back-door Roth contribution but doesn’t. He thinks “people often underestimate the long-term tax savings of making small changes during their working years.” He also observes that people make investments that aren’t tax efficient, for instance, some mutual funds that may be subject to high capital gains.

5. Can I Retire Today?

The universal answer to this question is that it depends. Boris Castillo, a San Diego, California, financial advisor for Cuso Financial Services, says to ask yourself how much passive income you would need to walk away from your work today. 

To determine that amount, he recommends totaling your monthly expenses. Remove expenses that will eventually sunset out, like a mortgage or a car loan. Then look at them with the following metrics: 

• Net out all the expenses against your expected passive income (e.g., Social Security, pension, alimony, etc.). See if there is a shortfall. 
• Look at your savings (401k’s, IRA’s, savings accounts, CDs). Calculate what 4% of that total will be in today’s dollars. 
• If the 4% figure from your combined savings accounts covers the shortfall for a year, you’re on the right track. 
• If it doesn’t work, measure the time left on the expenses that will eventually sunset. If it’s less than five years, you may still be able to accelerate retirement. 
• Remember that the two greatest expenses in retirement are housing and health care. While you can control housing costs, the same can never be said about health care. 

6. Will I Run Out of Money During Retirement?

To answer this question, Chicago-based financial advisor and founder of SIS Financial Group, Cynthia Pruemm, asks clients to note what is important to them in retirement. The range of objectives varies from “whether they want to leave a legacy, or do they want to contribute to their grandchildren’s 529 college plan,” she says.

Another concern she hears is that cognitive issues may run in their family. These people are concerned about long-term care or want to retire before they become eligible for Medicare. “Whatever their concerns are, we complete a retirement analysis and offer them solutions to the gaps in their plan,” Pruemm says.

7. Should I Be Worried About Market Volatility?

The short answer is no. Nayan Ranchod, a Scottsdale, Arizona, financial planner with Silver Lining Wealth Advisors, says people should not worry about market volatility, especially if their portfolio is based on financial planning that reflects their long-term goals. A carefully thought-out portfolio already takes into consideration the fluctuations of the market.

“A market downturn is the time to reassess what’s really important in your life and adjust the portfolio and expenses accordingly to make sure we use this as an opportunity for the next growth cycle,” Ranchod says. In his opinion, you can use the market to set clear future goals. 

8. Is My Money Safe?

“As a fiduciary, an advisor can only give assurances that your interests go ahead of any other entities (other than the law),” says Castillo. However, he cautions that this says nothing about the investment strategy itself. For example, in the last few years, “many have taken risks in their portfolios that they ideally wouldn’t take. The economic environment almost dictated this since the US experienced historically low-interest rates persistently. There was little yield to be had anywhere else but in equities,” Castillo says.

With the recent shift in interest rates and asset valuations, many are finding out the hard way that they took on more risk than anticipated. “This is why we always run scenario analysis on any investment strategy. Knowing how far or fast an investment’s returns can change can benefit an investor since it can manage their expectations. But always keep in mind that the advisor doesn’t control the markets,” adds Castillo.

9. Is My Portfolio on Track to Meet My Retirement Goals?

It can be easy to look at a portfolio as a snapshot, but in reality, they change with the market. Retirees need to focus on an overall financial strategy instead of reacting to the fluctuations in the market, says Jennifer Lee, a financial advisor in Sarasota, Florida, and founder of the advisory firm, Modern Wealth. Lee believes people have been conditioned to think that everything will bounce back immediately. But that isn’t necessarily the case. Clients need to be clear on their ability to tolerate risk and to stay the course when things get bumpy.

“Review your timeline to retirement or a particular goal, and ask, ‘Can I sustain the type of investments I have?’ and ‘Is my portfolio positioned to provide me with adequate income in retirement?’ In a down market, we do not want to have to be reactive and reassess risk.” says Lee. 

10. How Should I Prepare for the Possibility of Going Into a Nursing Home?

Most financial advisors think retirees should give advance thought to long-term care. Waiting may mean settling on an option that isn’t ideal. “This is a more complicated question as, for some clients, it can make sense to self-fund for this risk. For others, it is better to work closely with an estate planning attorney to discuss asset protection and Medicaid options,” Dunuwila says.

11. Why Do I Need You? Shouldn’t I Just Buy an Index Fund?

Castillo believes an index fund is a nice vehicle for low-cost market exposure. “However, it doesn’t ask the most fundamental question any investor should ask themselves: ‘How much risk do I really need?’ Without a financial plan, most investors are flying blind and following the crowd, leading them to make all types of mistakes. Your financial situation is as unique as your fingerprint: many look similar, but no two are identical. The most efficient method is taking on the appropriate risk that fits your overall goals and financial situation. An index fund may result in too much risk, or, in some cases, not enough,” Castillo says.

12. How Much Will This Cost Me, and What Are Your Fees?

Financial advisors don’t have a standard cost or fee, but the key is to ask this question early in the process. “Every investment strategy will have its costs or fees. Some advisors charge flat rates for advice, some a percentage of assets under management, or some traditional commissions,” Castillo says. He believes that an investor needs to determine what approach is the most appealing to them.

“Pragmatically, the most efficient method to begin the investment journey (since longevity and discipline are the keys to the most rewarding outcomes of most investment strategies) is to know yourself, know how you’re most comfortable dealing with a professional. The markets will give you enough opportunities to second-guess any strategy over time, so why compound the uncertainty by utilizing an approach you’re not comfortable with?” Castillo says.