When it comes to retirement income, a casual assumption may prove to be woefully inaccurate and well below the amount of money that you will likely need. What’s more, you’ve probably heard the oft-repeated projection that you’ll need about 70% of your ending salary to live comfortably in retirement. In fact, this assumption may not be true for you. Consider that more and more Baby Boomers are retiring with the hope that they can become centenarians—a hope that thanks to advances in medical science may be true. With longevity increasing like this, it may not be enough to save for retirement during your work years. Most likely we also need to save in retirement for the anticipated decades ahead. This means investing with growth and tax efficiency year after year, not solely being concerned with budgeting. To get a better picture of your specific situation—whether you plan on retiring soon or sometime down the road—you must consider several factors. Plus, it helps to meet with a qualified financial professional who can address these issues with you. This process will help your advisor to determine and you to clarify your lifestyle needs and the short- and- long-term expenses you’ll face in retirement.

Here are some things to consider:

Health: Most of us will face a major health problem at some point in our lives. The cost of care for a single event as well as the costs of prescription medications and recurring treatment for chronic conditions can really make a dent in your retirement income—even if you have a good health plan.

Heredity: You may come from a family where people frequently live into their 80s and 90s, and you may live as long, if not longer. What if you retire at 55 and live to 95 or 100? You’ll need 40 steady years of retirement income.

Portfolio: When it comes to your portfolio, there are a couple of things to consider. Your asset allocation may no longer be appropriate, especially if you haven’t reviewed you investment portfolio in years. There’s also the issue of risk. New retirees often carry too much risk in their portfolios, and this means the retirement income from their investments are vulnerable to the extreme volatility of the stock market. Finally, there is risk-aversion. Some retirees are super-conservative investors, and their portfolios are so risk averse that they can’t earn enough to keep up with even moderate inflation. Over time, they discover they have less and less earning power.

Spending habits: Taking a realistic look at your spending habits is important. Do you really only spend 70 percent of your salary, or, like most Americans, is it more like 90 percent or 95 percent of your salary? It is probably shortsighted to assume your spending habits will change drastically when you retire.

Yes, it’s important to review the various aspects of your financial life on a yearly basis; these components in particular require your attention

Investments

Review your investment strategy to make sure it’s in keeping with your current goals. Look over your portfolio positions and revisit your asset allocation.

Retirement

Take a look at your overall retirement strategy. Does it make sense as it did when you established your retirement strategy? If applicable, take your required minimum distribution (RMD) from your traditional IRA and consider whether you might deposit that sum of money into a different retirement investment vehicle that would better begin to meet your income needs. Take a look at and/or max out contributions to IRAs, 401(k)s and consider maxing out catch-up contributions, if applicable. Finally, give a thought to converting your retirement monies into a Roth IRA(s).             

Taxes

Confer with your accountant or tax professional to determine whether there are possible credits, deductions or transactions that could potentially enhance your circumstances. Ask your accountant to prepare a year-end projection, including a potential supplemental filing under the Alternative Minimum Tax (AMT). Review appreciated property sales and both realized and unrealized losses and gains. Take a look back at last year’s loss carry-forwards, and if you’ve sold securities, gather cost-basis information.

Gifts and Contributions

Consider meting out a portion of your money to make charitable and/or education fund account contributions and/or contributions to education accounts. In a similar way, consider giving cash gifts to certain family members. 

Insurance

Review your insurance policies, to ensure your beneficiary designations are up to date. Consider whether there have been any significant changes in your life. Significant events such as having a baby, moving to a larger home or a job promotion are the types of things that could change your insurance coverages and needs.

Personal changes

Review the following and then determine if such changes will require changes in your financial picture. Did you:

• Get married or divorced
• Move or change jobs
• Buy a home or a business
• Have or adopt a child
• Receive an inheritance or gift
• See a severe illness or medical condition affect a family member
• Lose a family member
• Discover that your parent(s) would need assisted living

Birthday Milestones

Here are some important ones that require action:

• If you turned 70 ½, you must now take Required Mnimum Distributions (RMDs) from your IRA(s)
• If you turned 65 this year, you are now eligible to apply for Medicare
• If you turned 62 this year, you are no eligible to apply for Social Security benefits
• If you turned 59 ½ , you may now take IRA distributions without penalty
• If you turned 55 this year and you also retired, you may now take distributions from your 401(k) without penalty
• If you turned 50 this year, you may now make catch up contributions to IRAs and certain qualified retirement plans

Many families protect themselves against financial risk and work collaboratively with financial and legal professionals who focus on estate planning and wealth transfer issues. But all too often, families make blunders that can have huge financial consequences. For example, they procrastinate in documenting important information such as beneficiary names, neglect estate planning, fail to communicate among and between various family generations, or are lax when it comes to matters of digital security or security in their homes. Family wealth can diminish as a result of the missteps listed below.

Procrastination:

Many people put off completing administrative details. For example, failure to fully complete paperwork that includes items such as the names of beneficiaries, the birth of another child, a change of residence, or other lapses concerning an IRA, real estate holdings etc. can result in an individual’s assets in probate following his or her death.

Insufficient, inadequate or no estate planning:

In fact, Forbes notes that about 55 percent of Americans do not have a will. Even worse, so many people die without wills.  As in the above example, the absence of a will can mean that the destiny of family assets is left to the decision-making of a probate judge. Plus, certain situations such as families with abundant wealth, a special needs child, or a goal to endow a favorite charity typically require more complex estate planning in the form of trusts or other vehicles that protect assets and earmark them for specific purposes.

The absence of family communication:

Sometimes family communication about wealth can be more opaque than transparent, and decisions made by family elders who have built businesses and amassed family wealth fail to communicate their strategies to the younger generation. When the heirs finally become decision-makers they may be in their 40s and 50s with families of their own, and/or to make matters more complex are connected to former spouses and stepchildren as well. This makes wealth decision-making thorny.

Horizontal decision-making can help multiple generations understand and participate in the manner in which family wealth is managed. As importantly, estate and succession planning professionals who understand different communication styles can help a family develop financial strategies and evaluate their options.

Technological flaws:

While technology has changed our lives in many positive ways, it has also created new risks, and many of these risks challenge our financial security. Hackers can hijack email and send phony messages to banks brokerages and financial advisors green-lighting asset transfers. And social media that pleasantly connects people and helps them to build their businesses can also expose personal information to identity thieves. Even security systems can prove problematic and complicated to a level that businesses or families turn them off much of the time. Again, security lapses make people prey to unscrupulous individuals.

Being aware of some of the factors that can jeopardize your retirement income and savings may help you make sound decisions now to ward off problems down the road. Here are some pitfalls to avoid:

Leaving work too early: Roughly 40 percent of Americans retire earlier than anticipated and apply for Social Security benefits before full retirement age, which for most people is 66. Because Social Security benefits rise about 8 percent every year you delay receiving them, waiting a few years to apply for benefits will position you to receive a greater Social Security benefit and bolster your retirement income.

Underestimating medical expenses:

Experts say medical expenses in retirement for a couple that lives to their early or mid-80s might be as high as almost $290,000. Understanding the need for this potential financial outlay may spur sanguine retirees to research ways to cover these costs.

Taking longevity too lightly: 

Today, men and women are living well into their 80s and beyond thanks to innovations in medical science. Still, many people underestimate life expectancy and fail to plan for a possible 20 to 30 year retirement. Failure to take a reality check can short shrift retirement savings.

Withdrawing too much from retirement savings each year:

People have more free time in retirement, and they often to pursue new adventures and live more lavishly—especially when they first retire.  To support this lifestyle, they pull out as much as 7 percent or 8 percent of their retirement income each year, as opposed to the 4 percent which is typically recommended. By taking withdrawals that are too large they run the risk of depleting their retirement savings. 

Ignoring tax efficiency and fees:

Failure to invest your money in a combination of taxable and tax advantaged accounts in retirement can make your entire portfolio vulnerable and negatively impact its after-tax return.

Chasing returns and subsequently trying to live on portfolio income from a combination of high-yield bonds or stocks with significant dividends can leave you with a shortfall. Taking retirement income from both the principal and interest of a portfolio may give you a way to reduce ordinary income and income taxes.

Account fees can impact the income a retiree receives from a 401(k). In fact, the Department of Labor reports that a 401(k) plan with a 1.5% annual account fee would leave a plan participant with 28% less money than a 401(k) with a 0.5% annual fee.

Avoiding market risk:

While the reward of equity investments may be plentiful, it’s important to be aware that investing in equities does invite market risk. On the other hand, the return on many fixed rate investments might seem pitiful in comparison to other options these days, but there is less risk involved.

Retiring with big debts:

Handing chunks of your money to assorted creators makes it difficult to preserve or accumulate wealth.

Putting college costs before retirement costs:

Try to refrain from touching your home equity or your IRA to pay for your children’s education expenses.

Retiring with no plan or investment strategy:

Too many people do this. An unplanned retirement may leave some people prone to market timing and day trading—and terrible financial surprises and consequences.

Generally speaking, getting a second opinion on all important matters is a great idea that enables you to assess strategies and approaches to achieve the goal you want to accomplish—in this case, your financial goals. But when it comes to retirement planning, there’s an even more specific reason for getting a second opinion: the fact that there are two different types of advisors, accumulation advisors and distribution advisors. Both serve equally important roles for consumers, but focus on different market segments and have different areas of expertise. To understand the roles of each, consider your adult life divided into two phases, an early phase and a late phase. When it comes to investing, each phase has different needs. Therefore, while you may have a terrific relationship with your current advisor who helped you during the accumulation phase of your life, it’s important for you to recognize that you are entering a new chapter in which you, like most people, want to replace risk with certainty.

The number one focus of an accumulation advisor is accumulating assets. Because in this phase you are putting money in with the intent to make it grow, you tend to take more risk. Still, your accumulation advisor will perform a risk tolerance questionnaire to determine whether you are a conservative, aggressive or somewhat in between investor. An accumulation advisor focuses on clients ages 30 to 60. That age span means you have a longer time horizon which, in turn allows you to afford the ups and downs of the market. One important behavior for you to adopt during this period is developing a plan to make systematic contributions to a savings vehicle(s). Your financial profession will manage your assets ongoing and charge a fee, usually around 1 percent.

A distribution  advisor, on the other hand, has income as its number one focus. In this phase, which includes people 60+ years old,  the emphasis is on money going out—in essence people taking money withdrawing money out of their accounts. Behavior here is characterized by the need for individuals to develop a plan for taking systematic withdrawal for your retirement assets. Typically, the time horizon in this period is shorter than in the accumulation phase and individuals must count on the money or income they withdraw to live and support their desired lifestyles in retirement, regardless of how long they live, when a significant other dies, or what happens in the stock market. As a result, an individual can’t afford a major market correction during this period. However, once the income issue is solved, the rest of the financial planning is easy.

The following quote from a nationally recognized authority on retirement planning drives home the importance of retaining different advisors in the first and second phase of your life: “The same rules that helped you accumulate money can separate you from you money in the second half of the game of life.”

First, ask about his or her experience with people in a similar situation to yours. Second, ask about education and certifications. Third, ask about the breadth and depth of products offered. Fourth, ask how he or she is compensated for services. Finally, always be sure to check that the financial planner is fully licensed and in good standing. If the financial planner is a Certified Financial Planner (CFP0, visit the Certified Financial Planner Board of Standards website to run a quick check.

Traditional thinking used to be “as soon as possible.” When individuals turned 62, claiming this benefit was viewed by many as a rite of passage. Today, however, as consumers receive more and more strategic information about investing, this answer may not apply, and, in reality, may not be wise. Social Security is taxed at a lower rate than ordinary income, guaranteed by the Federal government, not dependent on the economy or markets and indexed for inflation. Therefore, it can be a powerful component of your financial profile in retirement.

Still, Social Security is complicated, and when considering this question the best approach is recognizing that you may need to analyze your options prior to making a decision. You may also need to turn to a professional for help. Talk with the financial professional you trust, even better, an advisor who specifically provides guidance on Social Security filing strategy. He or she will run the numbers with you and help you determine when and how to file.  Basically, if your financial situation allows you to wait, you will benefit from an increase that’s the result of delayed retirement credits you earn for your decision to postpone receiving benefits past your full retirement age. In fact, might realize as much as hundreds of thousands of dollars more in benefits over your lifetime.

It’s surprising how many people have their financial documents scattered all over the house. A poor “filing system” will make it difficult for you to keep tabs on your financial life.

Be prepared: Take an hour or two to put things in order before you schedule or attend a meeting with your accountant, financial consultant, mortgage lender or insurance agent. This will not only improve your readiness for the meeting, but will also benefit your heirs when you pass.

Use a large filing cabinet or sturdy storage boxes or stackable units. Here’s a checklist of things that should go inside:

Investment statements:

Organize them by type: for example, IRA, 401(k), mutual fund or portfolio statements..

More specifically:

• Annual statement – More important than monthly or quarterly statements, the yearly statement will show you your dividend or capital gains distributions
• Form 8606s – Reports nondeductible contributions to traditional IRAs
• Form 5498s – Fair Market Value Information statements your IRA custodian sends you each May
• Form 1099-Rs – Reports IRA income distributions
• Original investment statement in a fund or stock – Will help to determine your capital gain or losses
• Bank statements – Keep at least three years of statements on file (You may need more if you are involved in a lawsuit, divorce, or past debt dispute)
• Credit card statements – Not as important as people think, however, it is wise to keep any tax-related statements up to seven (7) years
• Mortgage statements or documents and HELOC statements –Mortgage statements for the ownership period of the property plus seven (7) years; mortgage documents for the ownership of the property plus 10 years
• Annual Social Security benefits statements – Keep the most recent one as it will show your earnings record from the day you started working *Note: If you see an error, you must have your w-2 or tax return for the particular year on hand to help Social Security correct it
• Federal and state tax returns – Three years to expiry date: this is the period of limitations, the time frame during which you can claim a credit or refund
• Payroll statements – Retain your payroll statements for seven (7) years
• Employee benefits statements – Keep the most recent year-end statement on file (your company may issue these annually or quarterly)
• Insurances – Policy information for life, disability, health, auto, home for the life of the policy plus three (3) years
• Medical records and health insurance – Keep for five years following a surgery or the end of treatment; keep these for seven(7) years if you plan to claim them on your federal return
• Warranties – Keep until they expire then toss them
• Utility bills – Do not keep them around for more than a month to check statements against each other month to month

Tip: If the amount of paper seems onerous, consider buying a sheet-fed scanner so that you can store on your hard drive

With 64% of Americans having no financial strategy at all, according to the 2009 National Consumer Survey on Personal Finance conducted by the Certified Financial Board of Standards, that answer would have to be know. That’s a scary statistic, because retiring without a financial plan is an enormous risk. Equally compelling, of the 36 percent of respondents who said they had a financial plan, only 17 percent had reviewed that plan in context of changing economic times—a scenario that is also risky. Plus, only 38 percent of the 36 percent of respondents who had a financial plan, have not connected with a financial advisor. They are doing their financial planning on their own.

The respondents gave various reasons for not having a financial plan or connecting with an advisor with answers ranging from “I’m getting along just fine,” to “my finances aren’t complicated enough to warrant retaining an advisor.” And many respondents simply had no of the professional credentials or designations for financial advisors.

While a written financial plan does not guarantee wealth, nor does it ensure that you will reach your financial goals, it does give you an understanding of the gap between your current financial situation and the financial destination you want to reach.  It also gives you a roadmap toward a goal—one that is ever evolving in relation to the changes in your personal circumstances and the economic times.

Unfortunately, it seems that too many Americans have little comprehension of their financial situation or their potential. Don’t be one of them. Seek out an advisor. Create a plan. And develop clarity and confidence in your financial future.