Key Takeaways

• A diversified approach to retirement planning reduces risks and improves outcomes.
• Leveraging real estate and home equity can provide liquidity when needed.
• Insurance products can help in managing healthcare, longevity, and unforeseen risks.
• Financial assets require careful management to optimize retirement withdrawal strategies and tax efficiency.
• Social capital, including Social Security and Medicare, can help support the foundation of a secure retirement plan.

Why Most People Fail to Maximize Their Retirement Situation

Many retirees make the mistake of thinking of their investment portfolio as their only retirement asset. This can lead to many suboptimal outcomes, such as taking on unnecessary risk or making trade-offs in other financial goals.

One of the leading reasons so many retirees fail to maximize retirement income or manage risk properly is that they do not consider assets other than their retirement portfolio to fund their retirement and mitigate certain risks.   

Why is it then so often the only asset so many consider when planning for retirement? Here, we explore a few of the key reasons and share insights for other assets you should consider for optimum retirement planning.

Reason #1: Misguidance from Financial Advisors

A primary reason why many people fall short of their optimal retirement outcome is that financial advisors are predominately paid on a percentage of assets under management. This means that when they create financial plans for clients,  they seldom consider anything other than billable assets (unlike flat-fee advisors who don’t have that conflict of interest).

Further, most advisors that charge on a percentage-of-asset basis lack the incentive to convert a portion of your investment portfolio to another type of asset that may be better suited for a task.  

Taking a look beyond just the investment portfolio to take stock of all an individual's assets can allow for a better-constructed retirement plan because certain assets are better suited to different goals. 

By taking a holistic approach and including overlooked assets such as real estate, insurance, and Social Security benefits, retirees can secure a stable and comprehensive financial future. This approach ensures you can maximize retirement income while addressing common risks effectively.

Reason #2: Thinking Retirement Asset Allocation Is the Cure-All

While getting your retirement asset allocation right can make a big difference, focusing solely on your investment portfolio could mean having to make unnecessary trade-offs in other aspects of your retirement planning.

Trying to optimize one's spending during retirement while managing the Big Five Retirement Risks that every retiree faces is a tall task for any single asset type. Especially when one of the most significant risks, sequence-of-returns risk, is heightened by the very reliance on such market-based assets.

If you rely on your investment portfolio for income and for covering unexpected expenses, it will be much harder for your portfolio to bounce back during a market downturn, putting more of your overall wealth at risk.

Five Broad Categories of Retirement Assets

As retirement planning specialists, we consider there to be five broad categories of retirement assets one should take stock of and consider when planning for retirement.  

While you may end up not wishing to rely on all of these assets, they should all be on the table to make effective tradeoff decisions when optimizing your retirement plan.   

Following are the five broad categories to consider:

• Human Capital
• Real Estate & Home Equity
• Insurance
• Financial Assets
• Social Capital

Each plays a vital role in creating a well-rounded plan tailored to your specific needs and goals. Let’s dive into each category to explore their significance and effect when seeking to maximize retirement income while mitigating top retirement risks.

1) Human Capital

If you are healthy, your ability to work and earn is an asset whether you desire to work or not.  If you are not yet retired, you have the option to continue working in your career.  If you are retired, you have the option to earn income through temporary, part-time, or full-time work.  

Here are some considerations for using Human Capital as a potential retirement asset:
 

• Earning Income: Continuing to work, even minimally, can delay withdrawals from your savings, mitigating sequence-of-returns risk by giving your portfolio time to recover during market downturns.
• Maintaining Health: Staying active through work can have positive physical and mental health benefits, enhancing your quality of life during retirement.
• Flexibility: Pursuing income-generating activities allows you to adjust your financial strategy, reducing reliance on volatile markets.

These possibilities can be meaningful when weighing your tradeoff decisions, such as whether to retire earlier or later or in trying to figure out how much is enough to meet your retirement spending plan.

2). Real Estate & Home Equity

Real estate is often one of the largest assets retirees hold, yet it is frequently underutilized as part of overall retirement income planning.

Your home is neither purely an investment nor purely a non-investment.  It may not seem like an investment, but your home may be a source of equity or potential income.  
 

Do you have a mortgage on your home? If so, a mortgage payoff analysis would be something to consider when chatting with your financial advisor or retirement planning specialist.  
 

There are several ways you could tap the potential value in your home.  You could sell it outright and invest the proceeds.  You could downsize your living arrangements and purchase a smaller home investing the difference.  Another less commonly understood way to leverage a home's value in a retirement plan is through a reverse mortgage.

Should You Consider a Reverse Mortgage? And What Exactly Is It?

Despite a bad rap due to a history of bad advice being given by salespeople and improper use of the product, a reverse mortgage can be a handy tool that offers the following attractive features:
 

• You can use a reverse mortgage to pay off an existing mortgage.
• Reverse mortgage income is tax-free (helps with tax management)
• No credit needed, and no impact on your credit score.
• When you sell your home, just as with any mortgage, the mortgage gets paid off, and any additional equity belongs to you or your heirs, so you're not leaving any equity on the table.
• You own and control the property at all times.
• You can receive proceeds as a lump sum, form of life-long monthly payments, as a line of credit, or in any combination.

Because of the features and flexibility of the reverse mortgage, it can be used successfully as a tool to help you achieve many different strategies, such as:
 

• Deferring your social security start date until you reach full retirement age (FRA) to maximize your Social Security income.
• Managing taxes through using its tax-free income to help manage your tax brackets.
• Managing sequence-of-returns risk by providing a source of income to pull from in down markets.
• Serving as a reserve asset to fund contingent or unplanned expenses.

Reverse mortgages are not necessarily right for every person in every situation, but they can help accomplish specific goals.  The point is your real estate, and mortgage decisions should be viewed objectively as part of an optimum retirement planning strategy.
 

Real estate investments beyond your primary residence can also play a role in your retirement plan. Rental properties or real estate investment trusts (REITs) provide additional income streams, diversifying your asset mix.

3). Insurance

Insurance is a financial contract with an insurance company that will pay out a benefit contingent upon an event in exchange for a premium paid.  Insurance can be a great tool in retirement planning.  Especially when it comes to needing to cover large contingent expenses that may or may not happen.  
 

Insurance is costly, but there are times it may be necessary if you are unable to "self-insure." To "self-insure" is to have the means to meet a large unplanned expense should it occur without drastically affecting your standard of living or goals. Amongst the four ways to manage top retirement risks, this option is also known as assuming the risk.  
 

Insurance is quite an effective vehicle for covering contingent expenses because insurance companies can pool risks over many individuals, giving them the ability to project more accurate and consistent results.  This allows insurance companies to insure against risks at a cheaper rate than an individual who chooses to self-insure.    

Key Insurance Products to Consider in Retirement Planning:

• Health Insurance: Medicare is a cornerstone of healthcare for retirees, but supplemental plans like Medigap can fill coverage gaps and reduce out-of-pocket costs.

• Long-Term Care Insurance: Covers the costs associated with assisted living, nursing homes, or in-home care, helping to preserve your savings.

• Life Insurance: While typically associated with pre-retirement planning, certain life insurance products, such as whole or universal life policies, can provide cash value or income streams in retirement.
   

Annuities as Insurance Against Running Out of Income

Insurance companies also sell annuities.  An annuity is a contract between you and an insurance company in which you make a lump-sum payment or series of payments and, in return, receive regular disbursements, beginning either immediately or in the future.   
 

Many aspects of an annuity can be tailored to the specific needs of the buyer.  Annuities are not inexpensive, but they can buy peace of mind by guaranteeing a stream of income for life. Click here to learn more about our take on annuities and their role in your portfolio.
 

Insurance's key role is to manage risk, not to be an investment or savings vehicle.  Many who sell insurance will try to present them as investment or savings vehicles.  Insurance doesn't make for good investment or savings vehicles because their primary objective is to manage risk. 
 

You have to pay for that risk management feature, which effectively reduces the return. Many retirement planning objectives can be accomplished without the use of annuities and insurance, but like any tool, they should be considered and used when appropriate to maximize your potential retirement outcomes.

4). Financial Assets

These are the assets most commonly thought of when referring to retirement assets.   Financial assets may include cash in checking/savings, investments in brokerage accounts, and/or investments in retirement accounts (401ks/403bs, IRAs, Roth IRAs).  
 

When taking stock of your financial assets, it's important to note the account type because various account types have different features and benefits. As retirement planning specialists, the types of financial assets that we see people utilizing most often in addition to their after-tax brokerage accounts include:
 

401(k)/403(b) Plans

401k plans, and 403(b) plans for you non-profit employees, have some interesting age-related rules that differ from those that apply to IRAs.  You should know these rules before deciding to move money out of a 401k plan into an IRA.  Many 401k plans have a rule that allows you to withdraw funds penalty-free at 55 (instead of 59.5) if you:
 

• Terminate employment no earlier than the year in which you turn age 55 but before age 59.5.
• Leave your funds in the 401k plan to access them penalty-free.

This may or may not matter for you, given your situation, but you don't want to start rolling over accounts until you have a full retirement plan strategy in place and understand the difference between a 401k vs IRA account.

IRAs

Most tax-deferred retirement accounts that belong to the same individual can be combined into one IRA account for that individual.  
 

Consolidating accounts near retirement makes a lot of sense, assuming you're not between the ages of 55 and 59.5 with a 401k at an existing employer.  
 

Rolling over can often make sense for 1). ease of administration, 2). a wider array of investment choices, 3). better beneficiary options, and 4). easier to handle required minimum distributions (RMDs) when they start.
 

Roth IRAs

A Roth IRA is an individual retirement account funded with after-tax dollars, unlike 401(k), 403(b), and IRAs funded with dollars before income tax is taken.  In exchange, assets in a Roth IRA offer tax-free growth and tax-free withdrawals in retirement. 
 

Roth IRA rules dictate that as long as you've owned your account for five years and you are age 59½ or older, you can withdraw your money when you want to, and you won't owe any federal taxes. Roth IRAs can be helpful when trying to manage income tax-brackets in retirement as well as tax-efficiently passing wealth on to your heirs.

Coordinated Withdrawal

Because different financial assets have different features, there should be some strategy behind the types of investment each account holds and a plan for selecting the best retirement withdrawal strategies for your situation. 
 

A proper retirement withdrawal strategy helps you strategically decide which accounts to withdraw from and how to coordinate that with your other sources of income in a way that minimizes your lifetime tax bill and improves your potential outcome.  

5). Social Capital

Social capital can be understood as networks of social or government relations characterized by trust and reciprocity norms.  Assets that fall under this category include Social Security, Medicare, and family/community help.    
 

Social Security

One of the most important decisions you'll have to make as you approach retirement is when to start taking Social Security Benefits. Social Security will be one of your most important assets.   
 

What makes Social Security so important is that it is a government annuity that you've been paying for since the day you started working that will pay you until the day you (and your spouse) pass.  

You cannot outlive your Social Security asset like you potentially can your financial assets.   
 

A smart Social Security claiming decision that is integrated with the rest of your retirement plan can help provide a solid floor of guaranteed income for life so that you don’t have to rely on your investment assets as much.
 

You can start receiving your Social Security retirement benefits as early as age 62. However, you are entitled to full benefits when you reach your full retirement age. If you delay taking your benefits from your full retirement age up to age 70, your benefit amount will increase.  Your full retirement age is based on your year of birth. Click here to visit the SSA.gov website to find your Full Retirement Age.
 

Social Security claiming is a complex subject.  Each year many people leave tens of thousands of dollars on the table by claiming too soon or not coordinating benefit strategies with their spouse.  Your claiming strategy matters a great deal, and there should be a strategy behind it as part of smart retirement asset management.  It is important to analyze before you make this critical and often irrevocable decision.  
 

Medicare

Medicare is the national health insurance program in the United States that provides health insurance for Americans aged 65 and older.  Generally, if an individual already receives Social Security payments, at age 65, the individual becomes automatically enrolled in Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance). 
 

Suppose the individual chooses not to enroll in Part B (typically because the individual is still working and receiving employer insurance). In that case, the individual must proactively opt out of it when receiving the automatic enrollment package. 
 

Delay in enrollment in Part B carries no penalty if the individual has other insurance (e.g., the employment situation noted above) but may be penalized under other circumstances. An individual who does not receive Social Security benefits upon turning 65 must proactively join Medicare if they want it. Penalties may apply if the individual chooses not to enroll at age 65 and does not have other insurance.
 

Medicare is divided into four parts:
 

• Part A -- covers hospital (inpatient, formally admitted only), skilled nursing (only after being formally admitted to a hospital for three days and not for custodial care), and hospice services.
• Part B -- covers outpatient services, including some providers' services while inpatient at a hospital, outpatient hospital charges, most provider office visits even if the office is "in a hospital," and most professionally administered prescription drugs.
• Part C -- is an alternative called Managed Medicare or Medicare Advantage, which allows patients to choose health plans with at least the same service coverage as Parts A and B (and most often more), often the benefits of Part D, and always an annual out-of-pocket spend limit which A and B lack. A beneficiary must enroll in Parts A and B first before signing up for Part C.
• Part D -- covers mostly self-administered prescription drugs.

No part of Medicare pays for all a beneficiary's covered medical costs, and many costs and services are not covered at all. The program contains premiums, deductibles, and coinsurance, which the covered individual must pay out-of-pocket. 
 

Many individuals choose to purchase a separate Medigap plan to help fill in the financial holes in Medicare Part A and B in addition to public Part D. These Medigap insurance policies are standardized but are sold and administered by private companies.
 

Family/Community

This category may seem odd when thinking about retirement asset planning, but it may be that a family member would like to be a part of your caretaking someday, whether physically or financially.  
 

Maybe you live in a community with a meals-on-wheels program that can deliver meals when you cannot cook on your own.  Maybe it is a member of your church that can drive you to the grocery store every week for groceries.  
 

This category may not be something that you want to plan to rely on, but taking stock nevertheless helps when it comes time to determine the amount of risk you are willing to take on in your retirement plan and sustainable spending strategy. Who are you likely to call for support if needed?

Crafting a Comprehensive Retirement Plan

A successful retirement plan integrates all five asset categories, ensuring each plays its part in achieving your goals. For example:
 

• Using human capital to generate supplemental income.
• Tapping into home equity for liquidity during a sudden high-expense year.
• Leveraging insurance to manage healthcare and longevity risks.
• Strategically withdrawing from financial assets to balance taxes and income needs.
• Relying on social capital to provide foundational stability.
   

By coordinating these resources, you can create a plan that adapts to changing circumstances, protects against risks, and maximizes outcomes.

Maximize Your Retirement Outcomes by Leaning on Our Retirement Planning Specialists

While identifying and considering all of your retirement assets is but one step of many in a Proper Retirement Planning Process, it is an important step. Not all assets are created equal, and some assets are better suited than others at tackling particular objectives within your retirement plan.  
 

Effectively accounting for all assets available to you and optimally using your retirement assets is key to maximizing your retirement outcomes.  This is one goal on which I think all retirees would agree.   
 

If you need help identifying and optimally using your retirement assets, we're here to help.  If you have any questions, please feel free to reach out.