Dollars & Sense Local

Start planning for retirement about five years out

Nancy Mellard, the executive vice president and general counsel for the Benefits & Insurance Division of CBIZ, Inc., talked with The Leaven about how the pandemic might impact your retirement. LEAVEN PHOTO BY KATHRYN WHITE

The closer a person is to retirement, the more worrisome the financial impact of the pandemic is. The Leaven visits with Nancy Mellard, of CBIZ Benefits & Insurance Services, to discuss what has changed and what has not changed for those workers approaching retirement.

Q. With vaccines now in distribution, some businesses might soon expect to return to normal. Others might still take years. What should workers consider if they fear they will not earn as much before retirement as they were expecting? 

A. Most folks that arrive at their retirement date do not declare, “Darn, I saved too much!” If the recent downturn in the economy has adversely affected earnings/savings ability and potential, retirement planners have a few options.

One option, though not desirable, is pushing back the retirement date. This lengthens the time horizon for savers and allows existing retirement assets time to grow.

Another less-than-desirable option is to reduce the amount that one withdraws from retirement nest eggs in the future. Both of these options are things investors should consider as they approach retirement, even if there isn’t a pandemic.

Q. Some people don’t realize there is a “catch up” option for people over 50, regarding their 401(k)s and Roths. Could you explain what that is and how it works?  

A. The government allows those over age 50 to contribute more dollars to retirement accounts. In general, participants in 401(k)s, 403(b)s and 457 plans can contribute $19,500 in 2020. The “catch up” provision allows participants to defer an additional $6,500. For those savers who contribute to IRAs, the $6,000 annual limit has a catch up provision for an additional $1,000 for those who are age 50 and over.

Q. What other developments do you see on the horizon that will impact people hoping to retire in the next five years? 

A. There has been much discussion about possible legislative changes to retirement accounts with a new administration. For now, it is probably prudent to use existing law for planning and wait for 2021 to unfold.

Q. What kind of help do you think the average worker needs to make good investment decisions in the years before retirement? 

A. Good tax and investment planning go hand-in-hand when approaching retirement. Planning should begin about five years before retirement. That might seem like a long time to plan, but the goal is to try to take market timing out of the equation and give retirees adequate time to reposition investment portfolios and develop plans. If you are within five years, no need to panic. But it’s a good New Year’s resolution.

Q. Where should they go for that help?

A. Talk with your existing accountant and financial adviser. If you do your own taxes, think about retaining an accountant to help with transitions. Many do-it-yourselfers appreciate a second set of eyes in the year leading up to and after retirement. The same goes for investments. Go to your existing adviser to map out a plan to reposition assets to meet retirement funding goals. If you invest on your own, you may want to seek an opinion from an adviser to confirm your plan or expand it.

Q. What should individuals look for in terms of qualifications of an individual they seek investment help from? 

A. It is essential that they trust their adviser. An individual needs to know that the person and firm they work with serves as a fiduciary, who puts the individual’s interest first.  Firms should have Chartered Financial Analysts (CFAs) to select investments and determine allocations. This is the highest level of accreditation in the investment industry. Individuals are better served by fee-based advisers as opposed to commission-based arrangements, due to the alignment of interests. Certified Financial Planners (CFPs) are also well-educated with assisting those nearing retirement. Get references and make sure the trust factor is present.

Q. Finally, there is always a lot of standard advice available for people five years from retirement. But none of that advice factored in a global pandemic. How will this experience change how you advise people in the future? Any final words of wisdom? 

A. The pandemic created a market cycle in nine months. Investors saw both down and up markets over this time frame.

Typically, market cycles take years to unfold. An investor can see in 2020 how investments performed in both bad and good markets. A well-diversified portfolio should perform well over time and over market cycles. The second quarter of 2020 strained many portfolios while the third and fourth quarters provided dynamic recoveries. 

Do your homework or get help. Some retirees like to follow investments and have the tools to deliver good results. Others outsource to firms and individuals for expertise and assistance.

My final advice is to develop a plan that includes contingencies and reach out for help where needed.

Nancy Mellard is executive vice president and general counsel for the Benefits & Insurance Division of CBIZ, Inc. She and her husband Ken have been chairpersons for Snowball and she is currently serving on the finance council for the archdiocese.

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The Leaven

The Leaven is the official newspaper of the Archdiocese of Kansas City in Kansas.

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