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Preparing for Retirement

Posted February 13, 2013 in Des Moines West

Dan and Julie Brotherson are like many other Americans: Retirement is just around the corner.

The Brothersons, both of whom are in their early 50s, will likely retire within the next decade. Dan wants to be retired by age 58, while Julie says she’ll likely work until her early 60s, in part because of the economy and because she’s still not sure what she wants to do when she retires.

Julie Brotherson talks with financial adviser Kristy Barzen about retirement. Barzen has helped Brotherson and her husband manage their retirement accounts and given them financial advice for several years.

Julie Brotherson talks with financial adviser Kristy Barzen about retirement. Barzen has helped Brotherson and her husband manage their retirement accounts and given them financial advice for several years.

The couple has been working with certified financial adviser Kristy Barzen. Barzen has helped them go through various scenarios to determine how they can maximize their retirement benefits and when would be the best time for them to retire.

Julie says she might find a part-time position in a service-type profession, or she might not work. It’s still up in the air.

The Brothersons began contributing to their 401(k) plans through their employers as soon as they started their jobs. However, it wasn’t until the couple was in their mid-40s and their kids were finishing up with college — they’ve helped put three of their four kids through college — that they began really focusing on saving for retirement. Julie says there’s a lot of expense in having teenage children with vehicles and even helping them get on their feet after college.

“Once we had a handle on some of their college expenses, that’s when we switched over and started working more on our retirement,” Julie says.

The couple has always met their company’s match for their 401(k), something that Kristy Barzen recommended.

Kristy’s husband, Dave Barzen, also is a certified financial planner with Ameriprise Financial Services Inc. He recommends people begin to plan for their retirement while in their 20s or 30s so they have more time to save.

These individuals need to set a goal to try to contribute the maximum — 15 percent of their income or a maximum of $17,500 a year — to their 401(k) retirement plan as quickly as possible, Dave Barzen says.

He also recommends individuals in their 20s and 30s begin putting money into a Roth IRA, another type of retirement plan. They should also meet with a financial adviser and begin to project how much money they need to save in order to retire by age 60 or 62.

“This is one of those things that no matter how good of a job you think you might have done, you need to get a second or third opinion on how you’re planning for retirement and have someone work with you to do projections to see if you are really on track,” Dave Barzen says.

137950287aaaAny projections that are done, he says, need to have a realistic goal. An individual may want to retire at age 62 but only have three years of income saved. In that case, he or she can only retire for three years and then has to go back to work.

“People really need to be thinking about how many years of their income they have saved at the time they plan on retiring,” Dave Barzen says.

Although retirement planning should begin when a person is in his or her 20s and 30s, most are in their mid- to late-40s when they really begin to focus on retirement, he says.

If that’s the case, Dave Barzen recommends utilizing any catch-up provisions to contribute more money to retirement plans than the normal maximum if allowed. Most plans will allow an individual to contribute extra money if they are older than 50.

He says for those who begin to save later in life, they may want to consider a career where they can continue to work past normal retirement age so they have more time to save money and more income.

In retirement, the Brothersons will have Dan’s pension and a small pension from Julie’s job because she hasn’t been with her company for as long. One area of income they are not planning on for the future is Social Security.

“It seems so up in the air right now,” Julie says. “If we did received Social Security, that would be great, but we didn’t want to count on it.”

In order to cover the time from retirement until the Brothersons are eligible for Medicare and Social Security, if it’s available, Julie says they have been building up a savings account nest age, which Barzen recommended as a way to make sure they have enough money then or to cover emergency expenses that may happen before retirement.

“If we don’t touch it, then we have it in our retirement,” Julie says. “That’s kind of our padding, our emergency nest egg.”

Another factor individuals need to consider when thinking about retirement planning is to look at how their investments are going to be able to generate income for use during retirement and re-adjust those investments as necessary so they generate more income.

Individuals also should consider how the death of a spouse could affect their retirement income and expenses. The death of a spouse could mean loss of some retirement income including Social Security and possibly a work pension, depending upon the company’s restrictions or options the individual chose.

Dave Barzen says the individual may want to consider a life insurance plan that would cover the surviving spouse in case death of the primary provider would mean a loss of income. Otherwise, the couple needs to make sure they have enough investment money or savings to cover loss of pension or other income.

Long-term care is probably the biggest life event that Dave Barzen says individuals need to consider when planning for retirement. Individuals need to decide whether they have enough insurance to protect their assets, or they need to be well-versed on the government’s partnership plan and decide whether the appropriate thing to do is spend their assets until they can then rely on the government for long-term care.

“People really need to be thinking about how many years of their income they have saved at the time they plan on retiring.” — Dave Barzen, Ameriprise Financial Services Inc.

“People really need to be thinking about how many years of their income they have saved at the time they plan on retiring.”
— Dave Barzen, Ameriprise Financial Services Inc.

“There’s a fine line there,” Dave Barzen says, adding that he recommends to his clients they have insurance to protect assets in case nursing home or assisted living care become necessary.

Most individuals retire between ages 62 and 66. Dave Barzen says early retirees need to consider how they will receive health insurance coverage until they are eligible for Medicare at age 65. He says some employers will cover health insurance until the former employee is Medicare eligible, while in other cases, the retiree is only eligible for full benefits from the company through a COBRA, or a spouse must work to pay the costs of health insurance.

Nowadays, people tend to live longer, so they also need to look at inflation costs for the future and what it may mean for their cost of living. Dave Barzen says a good way to examine this is to consider what inflation has done for the past 20 or 30 years at the time the person is thinking about retirement.

Through their projections with Kristy Barzen, the Brothersons have decided their lifestyle in retirement will not be much different, if any different, than it is today. Part of their plan was to move into a smaller house, which they’ve already done. They have paid off all debt other than their mortgage, Julie says.

She says the couple has never been big travelers, so they will not start traveling during retirement and would rather stay in Des Moines, with a few small vacations, and do volunteer work. They don’t plan to become snowbirds, but they’ll still have plenty of income to see a movie or go to dinner when they like.

The Brothersons are now grandparents, so much of their extra time in retirement will be spent with their grandchildren, Julie says. The couple also plans to care for their aging parents.

“We had to envision ourselves as we’re going to be when we’re retired,” she says. “We just decided our money was going to be helping our family, and we are going to have some parents who are going to need some care.”

Julie says she recommends people start saving money for retirement as soon as they pay off all debts and to make sure even before retirement that they have a two-month safety net saved up for any unexpected expense. Participation in your company’s 401(k) program also is important, she says.

She says working with a financial adviser was helpful because Kristy Barzen almost worked as a life coach and took the emotion out of decisions while helping them save as much money as possible.

In the end, Dave Barzen says there’s no magic number for the amount of money a person should have saved for retirement. He says it depends on many factors from what kind of lifestyle the person wants to have in retirement to inflation to long-term health care costs.

“It varies a lot from person to person, and they need to figure out what their family history is for life expectancy and what they want to do in retirement to come up with a realistic goal,” he says.

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