CMS Energy Workers: Reaching Retirement: Now What?

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As CMS Energy employees transition into retirement, you need to continually review and adjust your portfolio to better fit your long-term goals - and if you're dealing with required distributions and rising healthcare costs, working with a financial expert like Tyson Mavar at The Retirement Group can help you optimize these decisions.

So for CMS Energy employees approaching retirement age, planning now should include conservative spending and a diversified portfolio to ensure retirement income lasts a lifetime, and working with an advisor like Patrick Ray at The Retirement Group can help you tailor a strategy to fit your needs.

In this article, we will discuss:

1. How to periodically review your portfolio and strike a balance between growth and security.

2. How to spend wisely and plan withdrawals for a sustainable retirement.

3. Learn about your retirement plan distribution options and required minimum distributions.

Your years of work for CMS Energy have been geared toward your retirement. That day is here! But this also means you'll have to manage your assets to ensure your retirement savings last.

Review Your Portfolio Regularly

We first suggest our CMS Energy clients regularly review their portfolios. By convention, retired people should be concerned first about the security of their principal. Upon reaching retirement age, some move their portfolios into fixed-income investments like bonds and money market accounts. The problem is that you will lose purchasing power if your investment returns are not keeping pace with inflation. Although you should generally aim to get more conservative with age, we think it prudent for our CMS Energy clients to at least have some of their portfolio in growth investments.

Spend Wisely

But we caution our clients not to assume they can live comfortably for the rest of their lives on earnings from their investment portfolios and CMS Energy-sponsored retirement accounts - and that they should spend wisely. You may eventually have to start drawing on the principal. CMS Energy customers must avoid spending too much too soon. Such a temptation can be especially strong early in retirement.

An acceptable thumb rule for our CMS Energy clients is to limit their annual withdrawal rate to 4 - 6 percent of the portfolio. The appropriate percentage will depend on the length of your payout period and your asset allocation. But our CMS Energy clients should also consider that running down the principal too quickly may mean they will not make enough money on the remaining principal to last them through later years.

Understand Your Retirement Plan Distribution Options.

Most pension programs offer these benefits as an annuity. Typically, our CMS Energy clients who are married choose either a larger retirement benefit for themselves or a smaller benefit for their spouse upon death. You should consult a financial expert about this important decision.

Other CMS Energy-sponsored retirement plans pay benefits in the form of annuities, such as 401(k)s. You may have limited distribution (and investment) options. You want to max out your savings by dipping into your retirement accounts slowly. This will preserve your principal and allow it to grow tax-deferred during your retirement years after leaving CMS Energy.

Think about whether you should convert your CMS Energy retirement account to a traditional IRA with lots of withdrawal options if your new employer has a retirement plan and allows a rollover.

Plan for Required Distributions

Note to CMS Energy customers: You must begin drawing minimum distributions from retirement plans and traditional IRAs by age 70½, whether or not you need them. Consider spending these first years in retirement.

No distributions are required for CMS Energy customers with a Roth IRA during their lifetime. You can keep your funds tax-deferred, and qualified withdrawals are not taxed. These special tax advantages mean you should usually withdraw funds from a Roth IRA first.

Know Your Social Security Options.

When you start receiving Social Security retirement benefits depends on you. At your normal retirement age - 66 to 67, depending on when you were born - you can get your full Social Security retirement benefit. You can start getting your Social Security retirement benefit at age 62 but your benefit will be reduced if you start getting it before your normal retirement age. By contrast, putting off your CMS Energy retirement decreases your Social Security retirement benefit.

Consider Phasing

Some find the transition from CMS Energy employee to CMS Energy retiree difficult. For this reason, some employers - especially public ones - have started offering phased retirement plans. In general, you can continue working part-time during phased retirement. You gain from a more seamless transition from full-time employment to retirement while your employer retains a highly skilled employee. Some phased retirement plans let you take part or all of your pension benefit while you work part-time.

Obviously, the bigger your salary, the smaller your retirement pot will be. Still, have tax-deferred funds in your IRA or CMS Energy-sponsored retirement plan if you delay full retirement. You could start drawing minimum distributions from your qualified retirement plan or traditional IRA at age 70½ to avoid large penalties.

For our CMS Energy customers who continue to work, know the consequences. Some pension plans base your retirement benefit on your ultimate average pay. Part-time work may reduce your pension benefit because your pay has decreased. Remind these CMS Energy employees that if they are under the normal retirement age, their employment income could affect Social Security retirement benefits. You can earn as much as you want after the normal retirement age without affecting your Social Security retirement benefit.

Facing a Shortfall

But what if, nearing CMS Energy retirement, you find your retirement income is not enough to cover your retirement costs? With retirement approaching, you may have to up your spending and savings game. A little money can add up quickly if you save and earn a decent return. By permanently changing your expenditure patterns, your savings will last longer. Create a budget for where your money is going. Some ways our clients at CMS Energy can stretch their retirement funds:

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Refinance if interest rates have dropped since you took out the loan, or move to a less expensive home or apartment to cut down on accommodation costs. Use your home equity. Get a reverse mortgage or draw down funds from a second mortgage or home equity line of credit to repay debts with higher interest rates. You own two vehicles - Sell one. Your remaining vehicle should be replaced - buy a pre-owned vehicle. Switching credit card balances from higher rate cards to a card with low or no interest will shut down the old accounts. Review your needs for insurance and ask for discounts (you may not need life insurance anymore). Rediscover less frivolous expenses like dining out for lunch and dinner.

Planning ahead, investing wisely, and controlling spending can increase your chances of a financially secure CMS Energy retirement.

Added Fact:

Consider how much healthcare costs will affect your retirement. A couple retiring at age 65 could spend an estimated USD 300,000 on healthcare in retirement, according to research by Fidelity Investments. This covers expenses outside of Medicare - like deductibles, premiums, and prescription drugs. We recommend our CMS Energy clients consider incorporating these potential costs into their retirement planning and exploring Medicare supplemental insurance or health savings accounts to help offset the cost of healthcare in retirement. (Source: Plan for rising healthcare costs - Fidelity Investments).

Added Analogy:

Retirement is like climbing a mountain to the top. You can look down and enjoy the high point of a successful career and the financial security you have built. The journey doesn't stop there though. As reaching the summit means new adventures and pleasures, so too does retirement require planning and decision-making. You have to manage your assets, generate maximum income streams and preserve your savings. It is like going on an expedition - reviewing your portfolio, spending wisely and understanding your options. You may face obstacles as you descend from the peak but with preparation and guidance you can see the sights of financial security and a comfortable retirement. Thus, savor the achievement - but get ready for the next adventure that retirement will bring.

Sources:

1. Yahoo Finance. 'Cognizant Technology Solutions Corporation (CTSH) Stock Price.' Yahoo Finance, 2024, finance.yahoo.com/quote/CTSH.

2. Google Finance. 'Cognizant Technology Solutions Corporation (CTSH) Stock Quote.' Google Finance, 2024,  www.google.com/finance/quote/CTSH?sa=X&ved=2ahUKEwiN5KHL0v7_AhUJxosKHZlNBUoQ3ecFegQINBAY .

3. Bloomberg. 'Cognizant Technology Solutions Corporation.' Bloomberg, 2024,  www.bloomberg.com/quote/CTSH:US .

4. MarketWatch. 'Cognizant Technology Solutions Corporation (CTSH).' MarketWatch, 2024,  www.marketwatch.com/investing/stock/ctsh .