As one of the most important milestones in life, retiring is a major accomplishment. It tends to indicate that the person has reached a state of financial freedom where they no longer need to have a job to live comfortably. Due to this, however, it is also one of the most challenging goals. After all, the amount of hard work and planning that must go toward a good retirement is incredibly extensive.
Because of the level of difficulty, many third parties specialize in helping you overcome these types of challenges. In fact, retirement in the United States has slowly morphed into an enormous market where countless companies operate. Their services are usually tied to financial advising that aims to improve the likelihood of someone accumulating enough income to stop working. So, why is it important that you speak to a counselor before you retire?
You May Not Know All the Legal Details
The first reason is the fact that you might lack a lot of important knowledge when it comes to the legal side of things. For instance, when you are no longer working, the mere act of turning 65 has far-reaching implications. This is because you will meet the eligibility to enroll in Medicare, which you have most likely been paying for during the past few decades. The process, albeit relatively simple, has a very strict timeline, however. You usually have seven months to complete the initial enrollment or you will face much higher premiums.
Similarly, when you turn 62, you will become eligible to receive Social Security benefits, which you have also been paying for a long time as a part of the Federal Insurance Contributions Act. To determine how much you will receive, though, you need to do some extensive calculations that include finding the 35-year average of your highest salaries. Subsequently, you need to apply specific thresholds to each earning range, as depicted by the Social Security Administration. Unless you have spent your career in accounting or finance, the easiest way to go about this is to let a retirement planner deal with such details. They will know the law and cut-off amounts much better, and they will be able to account for any recent legal changes that you may not have heard of.
Your Expectations Might Be Unrealistic
As per the retired financial expert who spent decades in the industry, Dennis Farrah, one of the greatest challenges for every retirement planner is managing clients who have unrealistic expectations. Sadly, the number of those who qualify as such exceeds their more reasonable counterparts by far. People who retire seldom consider the costs that they must pay for retirement plan withdrawals, healthcare coverage, overhead costs of life, and more. Unfamiliarity with how taxes and the medical industry operate are enough to throw someone’s entire retirement plan off track.
A lot of people also fail to consider some basic guidelines that every retiree needs to follow. For instance, there is a fundamental rule that is known as the “rule of four.” It is a budgeting principle that stresses how annual withdrawals from savings should not exceed 4% of the total sum. The vast majority of people who hear this advice, however, tend to get shocked. After all, 4% is usually well under what they were hoping to spend each year. The reason why that is the optimal amount is that it will allow you to practically live off of interest and dividends that your portfolio is generating.
Also, when you retire around the age of 65, which is the most common age in the United States, you must remember that you have another 13 years before you reach your life expectancy. So, ensuring that your retirement savings can last you a decade or two is extremely important, and it is the main reason why your annual withdrawals should be around 4%.
Your Budgeting Skills May Need Improvement
Dennis Farrah further stresses that you may need help with budgeting. Unless you have been doing so throughout your entire life, you will probably not have the necessary skill set to handle long-term budgets. Since even minor mistakes could adversely impact your livelihood, it is imperative that you either get educated on the topic or find someone who will be able to do the work for you. Retirement planners are a good resource as budgeting is an essential part of their job. Thus, the odds of perpetuating inaccurate calculations are borderline non-existent.
Your Investing Experience Might Be Limited
Although the majority of companies who offer retirement plans work directly with third-party providers who handle the investing side of things, you might want to grow your private savings. To do so, you have to be familiar with the types of assets that exist in the market, how you should purchase each of them, what type of returns to look for, how to predict future payouts, and similar. If you attempt to buy a ton of stocks, bonds, options, or other securities without doing extensive planning, you are very likely going to see your funds decline.
The same applies to those who may not be familiar with the timeline of investing. Unlike day trading, your retirement accounts need many years, usually decades, to grow in value. Since you must sidestep a lot of these types of challenges, the best course of action is to look for retirement planning specialists. While you could technically handle the brunt of the work yourself, the odds of your doing everything perfectly are very low.
Ultimately, Dennis Farrah reminds that a retirement planner can be helpful during the decision-making process when it comes to choosing the age of retirement. They may even help by being a good resource when it comes to large post-retirement transactions that may not be in your best interest.