Capital Investment Advisors

A Financial Planning Guide for Retirees with Kristin Curcio

There’s no way around the fact that financial planning impacts retirement. The decisions you make today will affect your tomorrow. But, how do you know which decisions are the right ones? Kristin Curcio, an Investment Advisor at Capital Investment Advisors (CIA), is here to help. Kristin has over a decade of experience in the financial services industry and is here to share her financial planning guide for retirees.

I asked her to explain the importance of budgeting and emergency funds, and how to avoid the penalties for early withdrawals. Between that and her tips on estate, will, and trust planning, Kristin’s nuggets of wisdom can help ease anxieties generated by the intimidating task of choosing the right impactful strategy for your future.

“I think that really it starts first with putting a budget together, making sure that you know how much money you need to be able to live the life that you want to live.” Whether you’re in your 20s, 30s, 40s, 50s, or beyond, Kristin wants you to be able to know how much money you’re spending so that you can put the appropriate plan in place.

Budgeting isn’t glamorous or sexy, but it is absolutely necessary. An approach that Kristin and I both use is called the TSL Budget. It stands for taxes, savings, and life. “So basically you’ve got 3 different buckets,” she explains. Look at your total pre-tax income and figure that about 30% of your paycheck is probably going to go into the taxes bucket. It’s painful but true, so you need to account for it. Some people adjust this number up to 40%. It depends on your specific situation.

After that, think about 20% for the savings bucket. Kristin suggests you have enough of an “emergency fund” in an easy-to-access liquid account because the one certainty about life is how uncertain it can be. She suggests setting aside 6 months’ worth of expenses just in case. The savings account doesn’t need to be anything fancy, as long as the money can be withdrawn quickly and easily.

Once the emergency fund is supple enough, the next step is to arrange for pre-tax dollars to funnel directly from your paycheck into your 401(k). It is suggested that you allocate as much you can. Put in as much as possible and try to increase the percentage each year. Fingers crossed that your company matches funds, but even if not, it’s typically still the right move to make to save for your retirement. And remember that there are no income limits associated with 401(k)’s, so you can participate no matter what your salary is.

Kristin notes that different industries use slightly different retirement accounts. For instance, teachers use a 403(b) rather than a 401(k). Government employees use a TSP (Thrift Savings Plan). They’re all similarly productive so go ahead and use whichever one your employer offers.

At CIA and on the Retire Sooner Podcast, our goal is to get people to a place where they can retire earlier than expected. Oftentimes, that doesn’t mean they stop working completely. Rather, they downgrade from full-time to part-time or consultant roles to give themselves time to focus on their passions and core pursuits. In these situations, some folks decide to rollover their 401(k) into their personal IRA of choice or they might decide to keep the funds in the 401(k). As a reminder, with a traditional IRA, the taxes are deferred until you withdraw the funds whereas with a ROTH IRA you pay them upfront.

Then we come to the fun part: life. If we aren’t living, what’s the point of paying taxes and saving? Living expenses are a combination of food, shelter, transportation, insurance, kid-related costs, entertainment, and the like. After accounting for taxes and savings, the money remaining will go into this bucket. If you can limit your life spending down to 30-40% of your income during your working years you’ll have more financial reserves to put toward maintaining your lifestyle once you retire.

Let’s say you have the budgeting figured out and the right amount of money is going into savings. How do you determine what kind of investments are right for you? Note that with a 401(k) you don’t always have complete control over this as plans typically have a selection of investment options. But, to the degree you can control it, or if you have your own IRA with total autonomy, Kristin says the investment decisions should be selected based on the right risk tolerance level for your age.

“A great thing to think about is ‘How long is my time horizon?’ Well, if you’re 20-years-old you probably have a very long time of investing so you can typically be more aggressive. It’s really when you get to that, I’d say between 55 and 60, and retirement is actually kind of creeping . . . you want to be able to scale back on the aggressive scale and go ahead and have a bit more of a conservative portfolio.”

About 2 years before you plan to retire is a smart time to shift some of your money away from the equities (i.e. stock) markets. Up until that point, the risk of a market fallout can be less worrisome because you have time to let it recover before leaving your job. Kristin encourages people to keep their foot on the gas and then slowly release the pedal when the risk of volatility is no longer worth it.

What about fees? If you succeed in your quest to retire before the traditional age, how do you avoid them? Kristin explains that if you begin withdrawing from a 401(k) or IRA before turning 59 and ½, there is a 10% penalty. It’s technically possible to avoid it, but the process is so complicated and treacherous that she advises against it. Unless you’re okay with the fee, the most sensible plan is to wait until you’re 59 and ½. And let’s be clear, that’s still quite young — a whole lot of joyful retirement years are still ahead, so it is recommended that you hold off on withdrawing the funds until at or near retirement.

If you do retire at 59 and ½, that’s still a couple of years before social security payments kick in and medicare doesn’t start until 65, so you want to make sure to have enough funds saved to fill that gap. This time period is what we call the financial grey zone because not all of your income streams are yet available to you.

And since we mentioned medicare, we should note that healthcare, in general, is a huge part of life in retirement and deserves ample time and focus during the planning process. There are a few different techniques and Kristin recommends you speak to a professional in the field to get the latest and greatest advice for how to navigate. It can be a little tricky for the layperson.

Another important part of your overall financial future is estate planning. It’s so important. You scratch and claw to get that nest egg and it’s imperative to protect it. “We highly encourage people to work with legal counsel to have their wills in place,” says Kristin. “And, if there is extreme wealth, perhaps even a trust in place. I speak to some people and they don’t have anything in place and maybe not even a will and usually, after our meeting, it’s their next stop.”

When is the right time to create a will? Kristin says once you have children or possibly even after getting married. And if you feel like you don’t have enough to justify it, think again. “It doesn’t matter how much or how little you have, it’s a good thing to have in place.” She cautions that it’s also critical to review the beneficiaries on your retirement accounts.

Overall, Kristin stresses that more important than becoming an expert in every detail is that folks understand how their money is going to work for them in retirement. “Really, that’s the key,” she emphasizes. “You’ve saved, you’ve worked for 40 years, you’ve got your money, you’re planning to retire, but how is that money going to work for you?”

Gather. Budget. Save. Let your money work for you. If you can do those things you’ll make Kristin, and yourself, very happy.

Click here to listen to Kristin’s episode on Retire Sooner Podcast

This information is provided to you as a resource for informational purposes only and should not be viewed as investment advice or recommendations.  Investing involves risk, including the possible loss of principal. There is no guarantee offered that investment return, yield, or performance will be achieved.  There will be periods of performance fluctuations, including periods of negative returns.  Past performance is not indicative of future results when considering any investment vehicle. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment advisor before making any investment/tax/estate/financial planning considerations or decisions.

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