How to prepare for retirement with a dress rehearsal now – Part 2

Robert A. Valente, CEO and Managing Member, RAV Financial Services

Last month I introduced the concept of a “dress rehearsal.” So here is where the dress rehearsal comes in. If you’re five years from retirement, begin to live now on that bottom-line number you identified to be your future retirement income need. Working within your budget and with your advisor will help you focus on what nonessential expenses need to be eliminated or adjusted prior to retirement. Statistics indicate that retirees will need 70 to 100 percent of their pre-retirement income during their retirement years. Rather than guess what that required income need is, let’s identify your future bottom-line monthly number now.

So as you begin to determine the actual monthly income need for your eventual retirement, you may stumble across insurance expenses for life, disability, long-term care and other insurance needs. What will you need to maintain and eliminate in retirement? Hopefully your children will be financially responsible and living on their own, minimizing your responsibility to cover their liabilities and commitments. However, if you have made assurances to your family to cover any of the shortfalls in their future, consider how these promises will affect your overall retirement income needs.

Having a conversation with your property and casualty agent is a good starting point to determine what coverage is needed on your homeowner’s, auto and excess liability exposure. Hopefully you have had the conversation with your wealth manager/life planner as to where you plan on retiring. Your residence location will definitely impact your decisions. Determining where you will live during retirement and what risks you will need to cover will give your agent an idea as to what proposals to prepare.

As you begin to address your future property and casualty insurance needs, you’ll need to evaluate the other insurances that you have previously budgeted during your earning years. Begin by reviewing the needs, purposes and future status of these policies by creating a spreadsheet of all of your life, disability, long-term care, personal, and business policies. Identify the date of issue, premium amount, length of coverage, portability, and the ability to maintain coverage, and its importance in your overall strategic estate plan.

Some of the policies, e.g. disability insurance, may terminate at a specific time or event (such as at age 65 or when you are no longer gainfully employed due to retirement, etc.). There may be some insurance policies that you will have no control over whether they continue  in your portfolio. Other policies, such as long-term care and life insurance, may provide you more flexibility with incorporating them into your new legacy plan. However, applying for any improvements into these policies may be dependent upon your current health and other factors. Once the spreadsheet is completed, identifying the various polices owned, your wealth manager can help you determine the relevance of each policy and how it fits in with your strategic estate and legacy plan.

With the increasing expenses of health care costs, a long-term care insurance policy should be a fundamental building block as you create the foundation for the preservation and transfer of your family legacy. As you receive proposals from your insurance agent, share this information with your wealth manager. Together you will determine which plan might best accomplish your overall strategic estate vision. Reviewing your LTC policy during this dress rehearsal phase pre-determines the budget allocation in your retirement expense projection.

Another way to protect, preserve, and/or provide heirs with liquidity of your legacy is through life insurance. What policies have you listed on your spreadsheet, and how are they owned? Are the policies personal or business? Which one(s) can you maintain or will you want to keep? Which ones are scheduled to terminate prior to or during your retirement? Remember, your health situation may limit your ability to purchase additional coverage or replace obsolescent contracts. So don’t cancel anything prematurely until you have your estate plan review with your wealth manager. Your discussion with your life planner will determine the policies or techniques to include in your strategic direction.

Initially, you are attempting to get a handle on your insurance expenses during this dress rehearsal phase. This in-depth discussion on estate planning and budgeting will now better prepare you for your discussion with your estate planning attorney to begin changes or amendments to your existing documents.

The focus of a wealth manager/life planner is to help you develop an ultimate legacy strategy. Once the vision is clear, then the techniques and products can more easily be assimilated to create your desired outcome. Many clients agree that they have been blessed with abundance, and they are concerned for the welfare of their children, grandchildren and other heirs. Long-term care insurance and life insurance can be great tools for wealth replacement or wealth preservation. Insurance may also perpetuate your commitment to your philanthropic institutions, ensuring your contributions continue assisting the non-profit(s) in accomplishing their mission. I am not advocating a one-size-fits all rule for all individuals and families. An objective discussion and analysis about insurance’s relevance to your family’s situation is necessary. Exploring your desires, passions, values and purpose drives the decisions as to whether insurances play a major or minor role in completing your strategic estate plan. Again, during this dress rehearsal phase, we are also attempting to determine the extent of your retirement income needs.

Make this dress rehearsal a powerful experience. You are preparing for the next phase of your life: a successful retirement.

Robert A. Valente, CFP®, AEP®, is CEO and Managing Member of RAV Financial Services LLC. He can be reached at [email protected]

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