Friday, April 19, 2024

A pre-retirement planning checklist for today’s environment


As retirements rise against the backdrop of a labor, economic and tax landscape rife with change, PNC shares 10 actionable items for retirement planning.

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For years, economists and wealth strategists have looked to 2030 as a key milestone in the universe of retirement planning. That’s when, according to the Census Bureau, all members of the Baby Boomer generation will have reached the traditional retirement age of 65.

Going into the decade preceding this milestone, Americans were retiring at a consistent pace. Then the pandemic hit – and with it, a confluence of contributing factors that have caused many professionals to fast-track their retirement plans. According to the Pew Research Center’s analysis of Current Population Survey data, roughly 28.6 million Baby Boomers reported being retired in the third quarter of 2020 – a staggering 3.2 million more Boomers than the 25.4 million who reported their retirement status in the same quarter of 2019. This acceleration is playing out visibly in N.C., which continues to attract retirees from out of state and is home to an increasingly graying population.

Compounding this labor trend is the prospect of impending tax policy changes and implications, which only amplify the importance of planning for retirement and business succession, says Charlotte-based Jim Benedict, PNC senior wealth strategist and private business strategist. What follows are 10 actions Benedict suggests taking when it comes to planning for retirement – particularly when exploring the prospect of early retirement.



1. Engage your planning team. The importance of establishing a shared line of communication between your advisors, including your attorney, accountant, wealth strategist, investment advisor and life insurance advisor – and in the case of business owners, a private business strategist – cannot be overstated. “It’s important that these advisors are aware of what your financial and tax position is – and what your risks are – in order to provide holistic recommendations,” says Benedict.

2. Define your goals. These may include maintaining your current lifestyle throughout retirement, not outliving your resources, protecting a spouse’s financial security, providing for other family members, and philanthropy.

3. Determine your spending and create a budget. Consider the broad range of costs you’ll need to anticipate in retirement. An advisor can help estimate these costs and prepare realistic future budgets that factor in such complexities as inflation, expense spikes, and potential lifestyle and health changes.

4. Understand income streams. Determine how much of your income will come from various sources such as Social Security retirement benefits and spousal benefits, defined benefit pension plans, traditional retirement accounts, Roth retirement accounts, Health Savings Accounts, taxable accounts, real estate, life insurance policies, annuities, inheritances, trust income, and stock options – and in the case of business owners, the proceeds from the sale of your business.

5. Create a withdrawal plan. Building wealth is just one aspect of retirement planning; creating a withdrawal plan is crucial to preserving accumulated wealth. An advisor can model different scenarios to help devise an appropriate withdrawal plan, weighing various factors including taxes, timelines and withdrawal requirements – while managing risks relating to market volatility.

6. Evaluate your risks. These include unexpected illnesses, accidents, a need for long-term care for yourself or a loved one, unexpected death, unexpected large expenses,and a drop in equity markets. Determine how you will mitigate these risks – or understand the degree of risk you are assuming without mitigation. Keep in mind, says Benedict, that the younger you are when you retire, the more likely you are to experience unexpected events that may impact your portfolio.

7. Consider scaling back instead of retiring completely. From an asset preservation standpoint, some expense coverage from earned income is better than nothing, particularly for younger retirees. Additionally, this option allows for continued engagement and activity in the workforce.

8. Focus on what you can control. The tax proposals on the table are causing concern for many business owners and affluent individuals. While this angst is understandable, it also is unproductive. “Accept the fact that the tax environment will change and that higher taxes are probable,” says Benedict. “What you can control is how you react to the environment, not the environment itself.”

9. Have a “third act” plan. Consider how you will spend your time and what will add meaning to your life in the absence of a career. According to the Exit Planning Institute, 75% of business owners have “profoundly regretted” selling their businesses within just one year of selling. This may be because they didn’t mentally prepare for their post-career lives or neglected to cultivate meaningful ways to spend their time in retirement. Professionals leaving the workforce at the pinnacle of their careers may risk a similar experience, says Benedict.

10. When it comes to selling a business, focus on the non-tax reasons for selling. When facing the prospect of higher capital gains taxes, a business owner’s knee-jerk reaction may be to sell the business. However, it is important to focus on the non-tax reasons for selling. These reasons may include retirement readiness, industry dynamics such as the need to consolidate to compete, an opportunity to sell at a high multiple that is too good to pass up, and the ability to retain a position of control in negotiations with prospective buyers.

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