Retirement planning is all about the future. Planning for retirement is the most common reason people call a financial planner. It’s most common to ask, “Can I afford to retire?” In some respects, it is about the numbers. However, retirement planning is a process and having someone lead you through that process can be extremely valuable. Following is the basic structure of the process:
Define Your Goals & Objectives
Here everyone is unique. Depending where you are in life will influence the choices you make. You could be starting a family and want to buy a home in a few years. You may have met someone special later in life and decide to marry, or just live together. Maybe you want to evaluate your rental real estate to find out if you can retire on the income. Each situation brings with it many choices and issues to address.Today, the very notion of retirement is changing as many people don’t like to think of themselves as “retired” as it implies you’re not doing much. People often define themselves by what they “do” for a living. Retirement changes that.What does life look like if you’re not doing your day job? This step is important because people don’t often spend time really getting in touch with the type of life they would like to live. Having discussions around what the years after work look like, is a key part of this step.
Gathering Financial & Personal Information
Your financial planner will have the list of documents and information to gather.
Analyzing the Information
Here we begin to assemble the pieces to the puzzle. People come to realize that they will still need a “paycheck” in retirement, and they are not sure where it is going to come from. Hopefully you have a number of sources of potential income; Social Security, distributions from retirement accounts, pensions (for those who still get such things) income from rental property, savings, etc.How much do you need to spend? Will the money last? Unfortunately, there is not a ‘yes or no’ answer to this question. Think of all the factors to consider as we plan for the future: inflation, healthcare costs, investment returns, home appreciation, need for long term care, home care. The list grows rather quickly as you can see.
This is where planning software can do much of the heavy lifting.
Your financial planner can help you analyze different scenarios and this is the exciting part of planning. You get to view different options and see an estimate of your probability of success. For example, perhaps you want to spend $75,000 a year in retirement but you risk running out of money by the time you are 92. You can do “what if” types of analysis and evaluate in real time how much longer your money would last if you spent $68,000.
Developing a Plan
We just looked at a very simple income and spending portion of a retirement plan. The plan itself is much more detailed. Perhaps you still have ten years until you plan to stop working. You’ll want to know how much you can save in those year. And how to invest the money you’re saving. How will your investment mix (the percentages of stocks and bonds in a portfolio) change once you retire? Do you need life insurance for a spouse or child? Are you adequately insured for various risks?Key components of our retirement plans include: determining a sustainable spending amount, income planning, including Social Security maximization strategies, investment analysis and recommendations, the impact of long term care expenses on your portfolio, tax planning, estate and insurance planning. All these components make up the roadmap, or “recipe” for your financial future.
Implementation & Review
Here’s where the most important steps are…because if you have a plan and don’t implement and follow the plan will lose most of its value. What gets you closer to the life you’ve envisioned for yourself in the next stage of life is doing what you have to do to get there.As we get close to this stage of the planning process clients already have an idea of what needs to be done and who is doing what to make it happen. Working with a financial planning professional is great if you need or want an accountability partner. Planners are great with lists and making sure stuff gets done! As planners it’s practically part of our DNA.One thing I’ve noticed is that people can ‘forget’ they have a plan. That is to say, something comes up and it involves money going places that you hadn’t included in your plan…like $75,000 remodel of the house or something. This is a time for the “review” of your plan. Does this spending goal interfere with other parts of your retirement plan? How does it impact your probability of success (i.e., not running out of money?Implementing and review are then perhaps the most critical steps in the process. Planning is not just “do it once and it’s done.” It really is an iterative process. It is vital that you track your progress, especially in the years leading up to when you’d like to stop working (or at least work a lot less!)
Managing a Retirement Plan
Managing investments is an important part of retirement planning. However, it can be complicated and confusing.
For example, what happens to your 401K when you retire? Do you roll it into an IRA? When should you start to draw money from it? When do you have to take required minimum distributions? Is your money invested properly now that you’re about to retire?
All these questions are answered in a comprehensive retirement plan.
Key components of our retirement plans include: determining a sustainable spending amount, income planning, including Social Security maximization strategies, investment analysis and recommendations, the impact of long term care expenses on your portfolio, tax planning, estate and insurance planning. All these components make up the roadmap, or “recipe” for your financial future.
The complexity of these decisions and how they can play out over the potential thirty years of retirement can have a significant effect on your circumstances. Our retirement planning services can help you to make the best possible financial decisions for this new phase of your life.
Contact us for a complimentary session about your retirement plan and your future.