Peck Bulgin Wealth Management

Retirees & Pre-Retirees

The transition from working life to retirement is one of the most rewarding AND challenging times in a person's life. Emotions like relief and excitement start to make room for worry and panic. These are natural reactions that can be drastically reduced when a carefully articulated retirement strategy is created. Many advisors consider themselves proficient in retirement strategies simply because they are in the financial services industry. When looking to develop a retirement strategy, we believe that you should work with professionals that have acquired professional credentials in the specific areas of retirement and financial planning. Planners who have pursued additional professional designations and have attained certain credentials dealing with the specific areas of retirement and financial planning have a higher level of competency. This along with continuing educational requirements ensure to keep the planner abreast of industry changes and breakthroughs.


Whether you have been retired for one day or for 30 years, one thing remains the same … your "earned" income has stopped and you are reliant on the saving and planning you have already done. Within the transition from working years to retirement there are often things that are easily overlooked. In order to make sure your golden years are as golden as they can be, we have listed a few things to keep in mind:

Running out of money

If someone can tell you exactly how long you will live, it would surely make planning for retirement much easier. Since this is not commonplace, you are forced to create retirement strategies based on certain assumptions to ensure you don't run out of money before you run out of life. Americans are living longer every year and costs of goods and services only seem to go up. With these two certainties, making sure that your retirement nest egg is maintaining pace with inflation is essential. Making sure that you have assets that will keep up with inflation is imperative. To understand the areas within a retirement portfolio that can and can't have exposure to risk, retirees should look at the "three-bucket strategy" for guidance with their retirement savings:

Bucket No. 1 - Cash reserves for immediate expenses up to five years. This bucket should be risk-averse and losses should be very minimal or nonexistent.

Bucket No. 2 - Funds earmarked for expenses at least five years out but less than 10 years out. These investments should contain a moderate level of risk. However, this risk should only be enough where losses can be recovered in a reasonable period of time.

Bucket No. 3 - Funds earmarked for expenses 10-plus years out. Investments should contain more risk than either of the first two buckets as they have 10+ years to recover losses.

As a retiree gets older there should be more money flowing into Buckets Nos. 1 & 2 from Bucket No. 3 as their time horizon for loss recovery will begin to get shorter.

Keep in mind that there is no assurance that any strategy will ultimately be successful or profitable nor protect against a loss.

Learning what Medicare "actually" covers

It is extremely important to take a few minutes to review the basic "getting older" necessities that every retiree will most likely have to deal with and see if Medicare actually covers it (for example, hearing and dental needs, etc.). We often see retirees develop their annual spending budgets without looking at these types of expenses, and it could potentially erode your retirement account. Finding out what are reasonable expenses to be aware of in retirement will go a long way to proper budgeting and helping to make sure your retirement saving lasts as long as you need it.

Living within your budget

Preparing a budget is one thing while sticking to it is quite another. We encourage all of our clients who are retired to revisit their budgets on an annual basis and compare it to their "actual" bank statements. It is very easy to stray from your prepared budget for "one-time" expenses. It is essential to review these "one-time" expenses to make sure that your overall retirement goals are still intact with these diversions factored in. Oftentimes these "one-time" expenses are actually ongoing and should be included in the annual budget and spending should be adjusted accordingly.

Structuring withdrawals/distributions

When many folks retire they have at least two types of accounts, savings/investment accounts and retirement/IRA/401(k) accounts. It is important to make sure you begin to take withdrawals from these two types of accounts in a deliberate manner to ensure what you are doing is tax-efficient. We have seen folks who have done exactly what they are supposed to do with saving for retirement and then undermine their prudent saving techniques and hard work by taking money out of the wrong accounts and leaving themselves with huge, unnecessary tax bills. Be sure to look at your specific tax bracket to ensure what is coming out of your retirement account is not pushing you up into a tax bracket that you don't need to be in.

Estate and tax planning

Making sure your accounts are titled properly and have the appropriate beneficiaries listed is paramount to ensuring you are limiting unnecessary taxes and probate expenses to you and your heirs. A discussion with your financial planner will help to eliminate the major mistakes of improper account titling and will help confirm your assets are left to the proper people when you pass.


Someone who is less than five years from retirement

The transition from wealth "accumulation" to wealth "distribution" should not be taken lightly. This is the 10 yard line for the working force. You are almost there, and with such limited time remaining this is when the biggest and most crucial mistakes can be made.

Preparing an "honest" spending budget

We hear one question all too often … "How much money do I need to retire?" The amount of money in your savings and investment accounts is not the only number you should be concerned with. In fact, the number that should be at the center point of your retirement planning should be how much money you plan to spend on an annual basis. Talking with your financial planner and taking an honest accounting of what you plan to spend in retirement will go a long way to ensuring you have enough money to last through your golden years. Making sure you have enough savings built up is very important but will only go as far as how it relates to your annual spending.

Addressing appropriate retirement investments

Too often we see folks wait until after they retire to re-allocate their savings and retirement accounts to reflect their retirement risk profile. This can be a big mistake if something were to happen to the market in the years leading up to retirement. Addressing the gradual adjustments of a retiring person's investment accounts may help limit additional pressure being placed on the retiree.

What will fill your day?

A question as easy as this will go a long way to retirement happiness. When you retire and you no longer identify as the role you played for so many working years, it can be a wonderful and exciting thing. However, this transition can also be a daunting and very difficult one. It is important to have balance in your new phase of life and have a plan for what you will do each day. If you don't have hobbies and travel plans and things to fill your day, negative things can overwhelm you. This is something to think about to ensure you have the happiest and healthiest retirement you can.

Proper account titling

In the final stretch before retirement is a great opportunity to examine the account titling of investment accounts and to ensure all beneficiaries are listed as they should be. There are many different ways to title investment accounts, and it is important to ensure you and your financial planners are on the same page so as to limit undue taxes to you and your beneficiaries.

Articulated plan for Social Security

We often see pre-retirees employ the "wing-it" mentality when it comes to Social Security. Typically their answer is "I guess I will take it as soon as I can get it" or "I don't know; I will wait until I need it." These are both poor approaches to Social Security planning. There are many resources available to you and financial planners out there that can help you have a well-thought-out plan for your Social Security benefits. There are many things that play into this discussion such as:
File and suspend strategies
Can I work and still collect benefits?
Filing on your spouse's earnings
How much of my benefit is taxable?
Government Pension Offset
Windfall Elimination Provisions

Taking the lump sum payout or the monthly pension from an employer sponsored retirement plan

If presented with the retirement option of getting a pension check for the rest of your life or a lump sum payout, what's the better deal? For many years retirees have solely relied on the monthly pension benefits of their employers to support them through retirement. Of course there are obvious reasons to elect for the pension such as guaranteed monthly income and payments for life. In addition, there are obvious reasons to elect the lump sum as well, such as the ability to leave money to heirs and a possibility to earn a higher rate of return. However, with the growing concern of the financial health of current pension systems, the organizations that back them and the simple thought that one can do better on their own, we have outlined a few things to consider when making this very crucial decision.

Unexpected expenses

One item we hear quite regularly in favor of the lump sum payouts versus monthly pensions has to deal with unexpected expenses. Obviously, no one wishes to incur a major expense while in retirement. The truth, however, is it may be safe to plan as if rising healthcare costs or an unexpected financial burden may creep up in retirement. The monthly pension does not allow you to access additional funds, where the lump sum will give you access to all or part of your rollover depending on what investments you choose within your IRA.


A monthly retirement pension will be fully taxable as it is received, while the lump-sum rollover will only be taxed as distributions are made or requested. If you have other savings, investments or Social Security payments that cover some or all of your expenses, you may not need to spend all of your pension benefit. If this is the case, you can let them remain in the rolled-over lump sum IRA, and it will continue to grow tax-deferred until you need to withdraw them or are required by the IRS to take a required minimum distribution. Keep in mind, distributions from the IRA will be taxed the same way as the pension payments. The key here is the option to delay income that is not needed to a later date.

Cost of living adjustment caps

Although some pensions do have cost of living adjustments (COLA's), many have caps of 1.50 - 2.00%. This cap is very important to this overall decision as this severely diminishes the benefit of the monthly pension in years when we have high inflation. For instance, in 1981 when the U.S. had inflation of 14% and a grocery bill that increased from $100 to $114, a retiree would have only yielded a maximum increase in the monthly pension benefit up to the cap (typically 1.50 - 2.00%). The lump sum option will allow you to invest how you wish and potentially keep up with higher rates of inflation over time.

Even with the case for the lump sum retirement option becoming more and more valuable, there are still many circumstances where the monthly pension will serve someone best. For instance, if someone is a spendthrift(spends money without regard to consequences) it may be best to have a forced payout option without access to principal to ensure the funds are not at risk of being completely used up when they are needed most.

At the end of the day, this decision is a tricky, yet very important one. Please let us know if you have any questions regarding either side of this debate as everyone's case is different and it is essential to consult with a financial professional before making the call in either direction.

The above information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Raymond James & Associates we are not qualified to render advice on tax or legal matters.

Opinions expressed are not necessarily those of Raymond James & Associates. Information contained was received from sources believed to be reliable, but accuracy is not guaranteed. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Past performance may not be indicative of future results.