Retirement Planning: Advice from a Financial Consultant (16 Tips) 

Retirement Planning: Advice from a Financial Consultant (16 Tips) 

Planning for retirement can be overwhelming. Every facet of life seems like it needs to be re-examined. We have three decades of experience retiring hundreds of clients and bring that experience to provide some insight into what pre-retirees need to achieve a successful retirement. 

Calculate your retirement goals and desired income. 

Ask yourself: 

  • “What kind of lifestyle do I want to maintain in retirement?”
  • “How much income and savings do I need to achieve that lifestyle?” 

These are crucial questions to ask yourself well in advance of retirement. 

Keep in mind that your savings rate (not investment returns!) accounts for 74% of retirement success (Blanchett, 2011 ASPPA Journal). This means that if you haven’t started to plan for retirement, now is the best time to start. Scrambling to put together a plan 10 years prior to retirement is a risky prospect.

Having a rough idea of what the below numbers look like is crucial to obtaining a realistic vision for retirement: 

  • The timeframe between now and retirement
  • Existing retirement savings
  • The amount you can save every month

If you’re looking to have a plush retirement, your focus should be on saving additional retirement dollars, the earlier the better.

Figure out what your expenses might look like.

This can be challenging, especially the farther you are from retirement, but it’s important to understand what kinds of expenses you might incur in retirement.

Once you understand your expenses you will have a better idea of what kind of income you will need to generate from your assets in order to achieve a successful retirement. 

Plan using a reasonable growth rate.

Too often we find prospective retirees relying on extraordinary growth rates to reach a particular retirement goal. While many years in the market do have double-digit returns, those returns can go both ways. Over the long run, the market is more likely to achieve single-digit returns. 

During some time periods, market performance can be surprisingly awful. During both the Dot-Com Bubble and the financial crisis of 2008-2009 the market lost around 50% of its value, wreaking havoc on retirement plans, particularly those with aggressive investment allocations.  

Sometimes investors are tempted to hold riskier investment allocations in order to make up for a smaller-than-desired retirement balance. Aggressive allocations might pad a retirement plan in the short term but can backfire over the long run. 

Our advice: hope for the best and plan for what’s reasonable. We believe a 6% annualized growth rate for retirement projections will give you a reasonable idea of how much you need to save in order to reach a particular income level in retirement.

Evaluate the type of advice you’re receiving. 

Confusingly for retirement savers, there are many different types of “financial advisors” with various compensation methods and regulatory regimes under which they operate. 

We recommend asking the following questions of your advisor: 

  • Are they held to a fiduciary standard? This means they’re required to act in your best interest by law.
  • Are they compensated transparently? Do their products contain hidden fees or convoluted commission structures?
  • Do they receive incentives to place clients in a particular company’s mutual funds or investment products?

As you save for and enter into retirement, you want to make sure you’re receiving independent, objective advice. One way to improve your chances of finding this type of advice is by seeking out a Registered Investment Advisor, or RIA. RIAs are held to the fiduciary standard mentioned above.  

Incorporate tax strategies into your retirement planning to maximize savings and reduce taxes. 

The IRS allows you to take advantage of special tax incentives and deferrals that can help maximize your retirement savings. 

Some of the potential tax-deferred accounts you can utilize include: 

  • 401(k)
  • 403(b)
  • 457 
  • Traditional IRA
  • Roth IRA 
  • SEP-IRA 
  • Defined benefit/pension plan
  • Cash balance plan
  • Non-qualified plan

Which accounts you utilize will be dependent on 1) which plans your employer offers or 2) whether you are an employer or an employee. Everyone’s retirement savings opportunity set will look different based on their individual circumstances. 

Examine your investment options.  

Within different account types, you will find various investment options. In employer-based plans your investment options are likely to be limited to a predetermined investment lineup with a range of options dependent upon 1) the number of years you have until retirement, or 2) the amount of risk you seek to take. 

Sometimes you will encounter annuities or life insurance being sold as retirement savings vehicles. While these can be good retirement savings options, beware that many times these options are significantly more expensive than employer-based plans or brokerage-type accounts. Additionally, it can be expensive and difficult to exit these investment options. Many annuity and life insurance salespeople are compensated through commissions and use high-pressure or deceptive sales tactics in order to obtain business. 

If you’re considering allocating assets to an annuity option talk to a fee-based RIA for a second opinion before pulling the trigger.

Think about how much risk you’re taking.

One of the most challenging aspects of saving for retirement is gauging the proper amount of risk one should take in order to achieve a successful retirement. Risk is multi-faceted. Below you’ll find 3 ways to think about investment risk.

  1. Think about your risk tolerance.

Some in the investment industry think of risk as a personal, subjective judgment. Some clients have the propensity to desire lower-risk, lower-reward investment options while others might want to be more aggressive, regardless of the volatility that aggressiveness might entail. Do you feel comfortable with large swings in the value of your assets? Or is investment risk a frightening concept for you? 

  1. Think about how investment choices impact long-term returns.

On the other hand, investment risk can have substantial consequences on a retirement saver’s ability to retire. 

  • Too conservative and the retirement saver might not achieve enough growth to achieve their retirement goals.
  • Too aggressive and an investor might lose their retirement nest egg right when they need it most. 
  1. Think about the market environment you’re investing in.

Finally, sometimes asset classes carry more risk in particular investment environments. For example, in 2022 many bond investors were surprised by the volatility they experienced in their portfolios. Historical data was not much help: there were only two years in the previous 96 that experienced that degree of volatility in the bond market. If you’re close to retirement, make sure you’re aware of what’s possible with regard to asset price fluctuation.

Think about your estate before it’s too late. 

Somewhere around 170,000 people die every day. None of them planned on doing so. 

It is important to make sure that your hard-earned savings go to the persons or causes you desire.

We recommend having a conversation with an estate planning attorney to make sure your estate is allocated as intended upon your passing. If you haven’t reviewed that document in a while, it makes sense to do so as circumstances change over time. 

Think to whom you would assign power of attorney.

One of the unfortunate aspects of growing in years is the greater incidence of serious illness. Many of us will, at some point, not have the capacity to express our wishes and must rely on another party to do so. It’s important that the party you entrust with power of attorney is trustworthy with financial matters and someone whose judgment you trust when it comes to serious medical matters. 

Think about longevity risk.

Many retirees play a game of chicken with their retirement assets. Once an individual reaches their 70s, they have a 50% chance of living past 85. The longevity of their assets depends on: 

  • the size of pre-existing savings
  • their investment returns
  •  the amount of income being withdrawn

Investment returns in retirement will be lower due to a more conservative allocation. 

The size of your pre-existing savings is likely fixed. Many retirees do not care to go back to work and may find difficulty finding the same work they did prior to retirement. Additionally, by the time the retiree runs out of money, they could be sick in a way that precludes employment. 

The amount of income being withdrawn is the easiest element to change during retirement, but how many want to give themselves a pay cut? 

It’s important that your income goals are in line with your potential longevity. 

Think about how you’ll pay for unexpected expenses.

Going from employment to retirement is a challenging shift on many fronts. One of those involves our relationship with money. Prior to retirement, any money we have in a savings account that is not explicitly earmarked for a big purchase feels like fair game. Sure, maybe we have an emergency savings account but generally, we have substantial flexibility with how we use that money.

One reason for that flexibility is that our income is coming from our labor rather than our savings. 

Once one becomes retired, that arrangement shifts substantially. Now, the income we receive comes from our savings. Those withdrawals that were relatively consequence-free before now carry real meaning. 

Any withdrawal you take during retirement in excess of your existing financial plan should be thought of as borrowing from your future self. Any excess dollars that are removed from your account today can’t generate income tomorrow, reducing the lifetime of your assets. 

All this is to say, it may be good to set aside a particular sum of money for additional expenses so that you don’t have to draw upon your main retirement balance. 

Think of some of the unexpected or ancillary expenses you’ve incurred over the last couple of years. For most people, these include items like: 

  • New cars
  • Vacations
  • Gifts 
  • Home repairs

Use estimates of those dollar amounts to gather an idea of what an appropriate “emergency expense account” might look like in retirement.

Think about how you’ll spend your time in retirement.

“I’m bored.” After decades of working, it’s hard to imagine not enjoying a break. Nevertheless, many retirees find that soon after retirement they become bored and restless. 

It’s important to imagine how you’ll spend your time in retirement. Do you have hobbies that you can pick up? Are there causes you would like to volunteer for and contribute time towards?  Will you spend additional time with your grandkids? 

You’ve worked hard for years and saved – you should spend these years doing what you love and enjoy.

Make plans as to where you will live.

Living circumstances are about so much more than a home. 

Do you want to live close to particular family members or friends? 

If they don’t live close by, is moving a possibility? 

Does it make sense to carry a mortgage in retirement or will that make your retirement a more precarious endeavor? 

If you do purchase a dream home, will it be too difficult to maintain once you encounter health issues?  

Are you close to activities you enjoy participating in? If you enjoy fishing but are more than an hour away from a lake, it might be worth looking into options to move. 

Finally, does it make sense to sell your home and use those proceeds to fund a stay at an independent living facility? 

Think about how you’ll pay for long-term care. 

A substantial portion of the population will have a long-term stay in a medical facility. If that stay lasts several years, would your retirement plan be able to pay for it? Some long-term visits to medical facilities can cost as much as $11,000 per month. 

For some people, long-term care insurance is a good option.

For others, it makes more sense to use a home sale to pay for a long-term care visit. 

Think about how your assets will be managed if you’re incapacitated.

Do you have someone you trust to manage your assets if you’re unable to do so effectively? Does that person have the legal ability to do so even if you’re unable to give consent? It is important to have all of this in writing well in advance of retirement.  Once again, we recommend speaking with an estate planning attorney before you need to.

Think about using an advisor when you’re planning for retirement.

If you don’t currently have a trusted advisor to discuss items like the above it might make sense to engage the services of a professional with experience in helping folks like yourself achieve a successful retirement.

Whether you have just started your career or you are entering your sunset years, with the right plan in place you have the ability to achieve your retirement goals. Find out if you’re on track for retirement by having a conversation with one of our  financial advisors . To get started, send me an email at [email protected] or reach out via our contact form. 

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