Retirement: Like a Rubix cube
By LouAnn Schulfer
AWMA, AIF
We meet with a significant number of people each year who are preparing for retirement. If you are planning on retiring, the thought of structuring your retirement income plan can feel like trying to solve a rubix cube. On one side of the cube is your 401k. On another, your pension. Flip the cube over and there is your social security. The other sides of the cube are your spouse’s 401k, IRA, and his/her social security.
Solving for one color can feel daunting in and of itself. For example, you typically have four options when trying to decide what to do with your 401k, each having different rules and tax implications. You may open the availability of choices to investments that did not exist in your 401k.
Distribution rules vary depending upon the type of retirement account, something you may not have considered during the accumulation phase when you didn’t have to concern yourself with anything other than contributions and return. Just when you solve for the 401k color, flip over to another side and you have decisions to make for social security, another color. What is the best age to begin social security? How is the best way to claim? On your own benefit, your spouse’s benefit, on a divorced spousal option or widow or widowers benefit?
Then there are pension decisions representing another color – is it best to select a joint option that covers both lives or take the larger single life option and purchase a life insurance policy in the event that the pension recipient dies before their spouse?
It is obviously important to know the options, consequences and rules of each “side” of your retirement rubix cube. You and your spouse’s 401k, IRAs, pension, and social security are important each and of themselves.
But, the best retirement plans are put together solving for the entire puzzle. How and when you take your social security, for example, will definitely affect when and how much money you will use from your own personal investments.
My professional pet peeve is when a source of so called “advice” gets people to focus on only one of these sides of the cube. Articles written on the mathematics of social security and potentially how to get the most out of the program are great if that is all you are concerned with. Seminars selling a one-size-fits all investment to everyone who shows up for a free dinner obviously dismiss the fact that circumstances are different from one individual to the next. Co-workers who will tell you that a particular pension option is always the best, really have no clue how that benefit election will affect individuals differently, based upon the other sides of their cube.
In fact, that is entirely the reason that different options exist. Options exist not to try and trick you, but to give you the opportunity to calculate what is best for you. It’s much easier to solve for only one side of the cube, than it is the entire cube.
My point has become obvious by now. About the only retirement advice that I can give to everyone unequivocally, is to make sure that you are not messing up “blue” when you are paying attention to the “red” or “yellow” sides of your retirement Rubix cube.
LouAnn Schulfer is co-owner of Schulfer & Associates, LLC Wealth Management and can be reached at 715-343-9600 or [email protected].