Keys To a Successful Retirement
In almost 4 Decades of providing financial advice for clients getting ready to retire or already retired, we have found there are 12 Key issues that you should not only be addressed, but should be fully analyzed, and understood before you can successfully transition into your retirement lifestyle.
We find that most people we meet during our initial meeting process don’t have a handle on or in some cases, have not even thought about most of these key issues.
We designed this part of our website from one of our most popular workshops called “Keys to a Successful Retirement” so you can see what the keys actually are and do an initial self-assessment of your current situation.
You will see, maybe for the first time, that this is a full Fiduciary Financial Planning approach to your Retirement. There is no magic Investment to make all of your planning work. We work with our clients to create a strong fundamental base to build their vision of their future on and something that needs to be addressed and adjusted on an ongoing basis for them to have the opportunity for long term success.
Lets take a look at the 12 Keys to a Successful Retirement.
1. Having a Comprehensive Financial Plan created by a Fiduciary Advisor along with a system of ongoing review and updates as your life unfolds and your needs evolve.
We start with preeminent Key: we believe this key is greater than all the other keys combined.
Most people we meet for the first time have worked with a number of advisors and financial companies over time and may have done a few things on their own as well. They may have a lot of the pieces of the puzzle but no real plan to put it all together.
Our Initial Meeting Process is designed to fully address all 12 of these Key issues around your dreams for the future so you can finally see how your personal financial plan comes together.
In our initial process, we help you identify the things you are doing well, the things you are missing out on, and the things that are holding you back. We like to say it is like looking at an x-ray of your current situation. Once you see that, we can discuss and present to you the most important planning strategies and work together at your pace, to create a comprehensive and customized financial plan for you. Once we set it up and implement the strategies, we have an ongoing Planning Review cycle where we meet with you 2-3 times a year to update your planning and keep up with the changes in your life. Of course, we are always available for you in between those meetings anytime you need us. Our clients have told us that our ongoing planning provides the Confidence, Perspective, and Reassurance they need which provides them clarity and comfort.
Are you Confident that your current plan and strategy will provide you with a successful retirement? Are you getting advice from a Fiduciary Advisor on an ongoing basis?
2. Knowing your “Phases of Income” and changes to your expenses into retirement.
We find that most people who first come to us have an idea of what income they are eligible for at retirement but when do you start it, how do you start it, when does it start and/or stop, survivorship issues and how to put it all together. From Pensions, Social Security, Part time work or consulting, Required Minimum Distributions (RMD’s) and how this all measures up against your changing expenses at retirement. Your financial plan should address all of these issues which will help you fill the gap from your investments.
Pensions are going away. If you have one, when and how to start and also how to provide survivorship needs to be addressed. Social Security can be started in a variety of ways and is also getting weaker as a system as the years go on. There is going to be greater reliance on how to create income from your retirement savings to fill in any gap from income you are receiving and the ongoing, rising expenses of Retirement. Your financial plan should address your phases of income, your gaps and how to cover them to meet your retirement expenses and also help you understand how much more you can spend for discretionary purchases, fun, travel and gifting to family.
Have you fully analyzed all of your options on how to create income at Retirement?
3. What is your Distribution Rate at Retirement?
We calculate your distribution rate based on your income and expenses we reviewed in Key #2, with every client and in every meeting. We define the distribution rate as the amount of money you need to supplement your retirement income, (your gap to meet your expenses), divided by the assets you have that are providing the distributions.
We have found that most of our clients have a lower distribution rate and with them, we spend our review meetings exploring the possibilities of living more, doing more of what is important to them being able to spend more money to chase those passions.
After understanding your baseline spending to cover mandatory expenses and the fun things our clients are used to doing and want to continue or do more of at retirement, if we see our clients have a lower distribution rate, we will encourage them to use extra capital every year to enjoy their passions and get more out of retirement.
Time is precious! We don’t want our clients to waste years figuring out later that they could have done more while they were younger in retirement and by that time, it is too late. The benefits of our planning and our process of Guided Transformation from Fundamental Assessment, to Exploring the Possibilities, and even to Financial Self-Actualization, it is all about what your distribution rate looks like and reviewing that every year. Clients that have an above average distribution rate risk losing to inflation quicker over time and seeing their assets decrease throughout their lifetime. Understanding that situation sooner allows us through planning design and monitor a financial plan what will give you the best opportunity for your money to outlive you instead of you outliving your money. We call our process to discuss every clients distribution strategy their “guardrails” for a successful distribution plan.
In every client plan, we believe it is extremely important for our clients to understand, and understand this today:
a. if they on track for long term success, and are on pace to statistically not run out of money.
b. if they can indeed spend more money at retirement, how to do it and how much they can spend responsibly, and track that on an ongoing basis, and for new clients,
c. if they retired and were on pace to run out of money due to a higher distribution rate beyond the guardrails, what they can do now to make the proper adjustments in their financial plan to statistically have their money outlive them. What do they have to do to make it all work?
Do you know what your guardrails are, and how that will impact your long term retirement? Don’t you think that would be a very important thing to know?
4. Planning for Inflation over your Retirement.
It may sound very benign but this is one of the most important issues to consider in your retirement through your Financial Plan. Inflation is like a tasteless, odorless poisonous gas; by the time you realize that it is a problem, it has already killed you!
Very simply put, at retirement you will understand these 5 words over time; Every Year, Everything Costs More! We should make that the retirement bumper sticker. Most people don’t realize that at a 4% Inflation Rate, that your expenses would Double every 18 years, and with most people living longer, it is possible to see your Normal Expenses (not to mention health care expenses) not just double but grow 2 and a half times to your life expectancy. The second biggest issue is that most people we meet don’t have any built in inflation hedge to their planning. Most people we meet have their assets overexposed to this risk and it will be just a matter of time before the ‘poisonous gas’ kills their financial plan.
As one of the most important factors to project for our clients in their long term planning, we show the effects of inflation on their current planning and show them proper strategies to help offset this ongoing risk. If you don’t have a plan to at least double your income thought your retirement, you will be planning to fail. We want our clients to understand the impact of inflation in their lives and on how they spend their money, so we can incorporate inflation hedging strategies into their long term plan and we monitor the strategies every meeting.
Do you understand the impact of Inflation on your income and assets over the lifetime of your retirement? Have you proper inflation hedging strategies in place to grow your income at retirement?
5. Planning for Equity Markets volatility( “Financial Crisis”) while retired and especially when taking income
Since 1989, we have worked with clients through every world crisis that affected equity and fixed markets including the big ones: September 11, the Great Financial Crisis of 2008 into early 2009, the COVID drop in 2020 and everything in-between.
Your Financial plan should be set up for you to get income without having to take a loss anytime you need money, even in the midst of a “crisis”. That is in any interest rate or market environment. And as the Media is paid to do, your plan should not be set up on you or someone else “predicting” the outcome of things that are currently going on, but instead BE PREPARED at all times for anything that can go on. It is worth saying that again. Don’t have a financial plan that is based on predictions; have a financial plan that is always PREPARED for Anything. That is possible because that is what we do for our clients.
There is no one on earth who can predict where equity or fixed markets are moving next, but it does not stop them from doing so anyway. We feel that listening to the clanging cymbals of the mainstream media can be entertaining but is not a way to formulate and investment strategy from your Financial Planning.
We have created a pre-retirement investment strategy that will help you take advantage of market volatility, as well as a Retirement Income Strategy that helps you have the opportunity to pull from the proper assets in times of market crisis and avoid ever having to sell any securities at a loss for income. Worst yet, is that some people that we first met had a game plan that in those time of crisis, their plan was to stop living and wait out the crisis before spending discretionary money again. That to us is insanity! Don’t let the vagaries of the markets dictate your lifestyle at retirement. As we have said, Time is Precious. Our clients have an income planning strategy that works in any market or interest rate environment that has been implemented and tested in every crisis we have lived thought and never predicted over the last 3 decades Plus. Time tested and refined over the years.
Do you have an income strategy that will allow you to pull from your assets and continues to hedge inflation for the rest of your life? Are you confident on where you can pull your money from in times of crisis?
6. Income Tax Planning before and during Retirement.
Most people we meet have very limited understanding of the tax code. So when it comes to having a pre-retirement tax advantaged wealth building strategy and a tax advantaged income strategy at retirement, they miss opportunities and fall short of their full potential.
Regardless of Income or assets, everyone should have a tax planning strategy
Having an understanding of tax advantaged wealth building strategies while you are still working helps you prioritize what type of financial vehicles you should be investing in. At retirement, creating a tax advantaged income strategy allows you to pull out more money for your needs at a lower cost of tax and build wealth for future generations. We work with clients who also have complex tax issues they need to address like, Stock Options planning, Divesting from a concentrated stock position, Deferred Comp payouts, Selling a business or depreciated properties, Employee Stock Ownership Plans (ESOP) and more., we work with our clients and their tax advisor on how to incorporate sound advanced tax strategies into their personal financial planning. Every year, we work with our clients on their individual tax planning strategy. We show a baseline scenario and then show the options and opportunities they have and continue to work on it together throughout the year so they stay in full control of their planning strategy. Our clients have told us that our work on this complex issue annually, gives them confidence and is one of the most valuable services we provide.
Are you building your wealth for retirement in the most tax advantaged way?
Do you have a tax advantaged income strategy for Retirement?
7. Debt Management/ Having a Mortgage at Retirement
Proper use of debt and proper payoff of debt is a big consideration in every financial plan. Ultimately it is great to be debt free at retirement. However, we’ve seen many cases where the only way that would be possible before retirement would be to direct current assets and/or income into that debt which in turn reduces your money for retirement. That is when incorporating a debt management plan into your Financial and retirement plan comes into play.
A Debt Management plan will take into consideration all of the options you have so you can make the best informed decision that will allow you to not just pay off debt, but also have the most capital available for a successful retirement. Not all debt is created equal. The interest rate on your debt is the biggest consideration in the debt payoff analysis. For example, if you had a 5% mortgage on your home that would naturally run 5 years into your retirement, and figured out that putting an additional $8,400 per year ($700 per month) would pay it off by the time you retire. You can do that, and what you are doing is taking your income and paying off a 5% debt meaning you are guaranteed to make 5% on your money by eliminating that debt. However, if you took that extra $700 monthly and added to your Retirement plan ( 401k, 457, 403b, etc.) pretax, depending on your tax bracket, Lets assume you are in the 22% Federal and 6% State income tax brackets, That same $700/m going into the retirement plan is going to guarantee a 28% income tax savings which is much greater than the 5% cost of the loan. The moral of the story is that it is important to look at all of your options and all the implications of the strategies available to you before you make any financial decisions including debt management. Do you have a solid debt management plan now and for your future? Do you have an understanding on how you can use debt to your advantage at retirement?
8. Issue of Not Knowing What You Don’t Know-
We find that most people we meet in our initial meeting process are not fully up to date on the Income Tax code, Financial planning concepts, Investment Allocation strategies, Estate planning distribution rules, and more.
We really don’t expect you to be. If you know you don’t know something, it is easy to seek for guidance and wisdom.
The worst thing we see is when those same people come in and tell us what their plan is and what they are planning to do but don’t realize that their plan is flawed by their misunderstanding of the above mentioned issues. They don’t know what they don’t know, and that is a terrible position to be in.
Generally known as the Dunning-Kruger Effect, this is a cognitive bias where people with low ability in a specific area overestimate their competence. By lacking the expertise to recognize what would be good for them, they are “blind to their own blindness.” This is a type of Double Curse. Incompetence leads to poor decisions, poor planning and poor results, and it also robs you of the metacognitive ability to realize that your decisions, planning and results are poor. Are you confident that your current planning takes into account everything you need to know to be successful at retirement?
9. Issue of Over-Concentration of One Stock Usually Due to Company Stock or Inheritance.
Asset Allocation and Diversification are keys to a successful investment plan. Asset Allocation is determining, at a high level, how to split your assets between Fixed and Equity assets and the proper balance of asset classes within your fixed and equity strategy. Diversification is the spreading of money among the investments within each asset class. If you hold a large percentage of one company stock, that can drastically increase the volatility and Risk of your investment portfolio.
Most of the time we see this happen from Company stock incentive plans or inheritance. From the company incentive plans, there can be a sense of familiarity which can also create a sense of comfort for being an owner of your company’s stock. In the inherited situation, there can be a feeling of honor, and loyalty to keeping the stock that has been in the family for years. In any case, you don’t need to maintain excess risk in your investment planning. Of course, every situation is different and you also don’t need to sell everything immediately and create a massive Capital Gains tax for yourself. We recommend to run your planning and realize the risk you are taking. The best way to do this is to run your plan as if that stock position went to zero – how does everything look now? If that holding is only 5 or 10% of your overall assets, there may be very little difference at all in your long term retirement planning. But if you are at 20-50% or more in concentrated stock, positions, the results may not be looking too good. Not every stock is going to end up being like the Enron, AIG, GE, GM, or Worldcom Story. Locally, There have been big fluctuations over the years at Raetheon Technologies, Hartford Insurance, United Health Care, CVS/Aetna and more, that could have impacted clients retirement plans. Creating a strategy so you can divest in the most tax efficient way down to a manageable risk scenario is the best way to manage this risk.
Do you have a strategy to manage over concentrated risk in your financial planning?
10. Planning for Survivorship/ Health Insurance-
Pre-Medicare/Pre-age 65 medical planning is an important cost consideration early in retirement. Also understanding the scenarios of either spouse passing away early in retirement is important in all the decisions you make leading up to and into retirement. When and how to take Pensions, Social Security and how you set up your assets are all major considerations in providing survivorship for a surviving Spouse.
First with Health Insurance, Just because Medicare Health Insurance does not start until age 65, that is not a reason to delay your retirement if you are all ready to retire. The cost of COBRA and another pre-Medicare medical plan is a consideration to address with that additional retirement expense. However, as expensive as that medial plan may seem, we’ve found that by addressing, planning and earmarking dollars to pay for that expense, clients can have the opportunity to retire earlier and still have the opportunity for long term success. Don’t lose years of your retirement just because you don’t think you can’t afford Pre-Medicare Health Insurance.
After all the living scenario’s are analyzed in your financial planning, we run individual survivorship scenarios showing the impact on income, assets and expenses at the death of either spouse. By knowing this in advance it allows us to recommend current strategies that will be good if both spouses live a long time, or if one passes very early in retirement. We also update and review this every 3 years at a minimum for our clients. Knowing the financial impact and changes that happen at either spouses death, allows us to select the best income options and set up assets correctly so you are ready no matter what happens and when it happens in the future. Do you have a strategy for your Healthcare Planning Pre and Post retirement? Do you understand and have a plan for survivorship in the event of a premature death of either spouse?
11. How to Plan for the Orderly Distribution of your Estate and Protection from Costs of Long Term Care.
One of the biggest risks to a successful retirement plan is the cost of care due to an accident, illness or cognitive decline. Preserving and protecting assets is solved through planning not just buying insurance.
Passing assets to heirs in the most tax efficient way is the primary goal of a strong estate plan. It is not just about having documents. The documents should be the result of your desires, dreams, values and vision on how the money and assets you have, transition to your family.
Through planning with your Financial planning and legal team, the passing of ones estate and for the heirs, how they receive the assets in the most tax advantaged way should be a smooth process. However all of the planning to set up assets to pass and the issues and options heirs have should have been worked out and reviewed with the family well before any death occurs. From setting up your Financial and Estate planning, to discussing your vision and concerns on the transfer of wealth, to setting up the proper documents, ownership and beneficiaries and then through implementation, we feel the thing that brings all of this together is The Family Meeting. In this meeting, you can discuss with your family your dreams and vision with the family wealth while introducing your financial planning and estate planning team. You can show them the roles and responsibilities of trustees, executors and the options for receiving assets that the beneficiaries have especially for complex assets like IRA’s. We’ve found these meetings to be insightful and comforting for everyone involved.
Have you set up a game plan for protecting and preserving assets especially in the event of a progressive long term care situation? Do you have your Estate plan set up with the proper ownership, and beneficiaries? Do you have a system of planning set up so you can review changing goals and tax law changes with your advisors and your family?
12. Are you Mentally Ready to Retire?
You never want to Retire from a job. You want to retire to a lifestyle that will allow you to chase your passions and live a life less ordinary. Not a “Honey Do” List or Playing Golf every day or just sitting on a beach. Even if you have enough money and income to retire comfortably, you need to be mentally ready. Being mentally ready means shifting your identity beyond your career, establishing a new daily purpose and cultivating social connections outside of your company.
Our planning gives our pre-retired clients the Confidence, Clarity and Perspective that they can retire comfortably, but we also need to stress to them when is the optimal time to break through that threshold. The successful clients tell us that as retiree’s, they cannot believe that they had the time to work because they fill their days and weeks with purpose and passion. Clients who can shift focus from their job title to their passions, skills and personal strengths. Create a purposeful Routine and daily schedules that can include things like exercise, hobbies, and social activities to replace the structure of work. And build social networks though sports and activities, clubs, volunteering and create a retirement network. You want to feel more excitement than anxiety to retire.
Are you mentally ready to retire or does the thought of retirement give you anxiety? Are you excited about moving on beyond you work life and start to chase your passions and live a life less ordinary.