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It happens time and time again. Clients who are eager and enthusiastic to begin the retirement planning process often arrive at our office with spreadsheets and account statements in hand, well prepared to discuss their finances.
What they may not be ready for, however, is the need to slow down and engage in a more introspective discussion before putting pencil to paper.
For example, one of the first questions I ask clients who are nearing retirement is, “What will you do with yourself when you wake up on day one, and you’re no longer working?” You would be surprised at how many people are stumped by this inquiry. Interestingly, those who struggle with it the most are often the same people who appear to be best prepared financially.
According to a recent study1, only 48% of American workers have even tried to calculate how much money they will need to live comfortably in retirement, with only 4 in 10 having:
What I try to help people realize is that planning for retirement also requires other equally important considerations and asking deeper questions that include:
My goal as a Financial Advisor is to make sure you’re fully prepared for retirement, both financially AND emotionally. Taking the time to explore what’s possible as you approach this new and exciting phase of your life enables you and your financial team to put a structured plan in place that covers the full range of your lifestyle goals. A plan also helps manage the risk factors that can negatively impact how long your income may last.
Transitioning from a lifetime of work to a lifestyle without work is certainly a significant milestone. And it’s important to understand that your retirement years may be dramatically more complex and last even longer than the years you spent working. That fact alone—that you may spend more time retired than you spend working and saving for retirement—makes it critical to have a well-prepared plan in place before deciding when to retire.
As far as I can tell, the reason so few people adequately prepare for this next stage of life is three-fold.
First, many are reluctant to devote the time and effort required to go through the mental exercise of planning. Like most good things in life, retirement planning takes rigor and forethought, which can be hard work. People don’t want to associate hard work with retirement!
The good news is you don’t have to do this work alone. A skilled financial advisor can take on much of the heavy lifting to help ensure the right questions are asked and answered, resulting in a confident plan for your future.
Second, those who are cost-conscious may view financial planning as expensive or only for the wealthy. That couldn’t be further from the truth. My belief is if you’re reading this, then you probably have enough assets to justify hiring a professional. In today’s marketplace, guidance is accessible for individuals and families at all income levels. That makes it relatively easy to find an experienced advisor at a reasonable cost.
The third, and possibly most common, reason more people don’t plan for retirement simply comes down to pride.
Some people like to brag about how smart they are, proclaiming to friends, family members or anyone within earshot that they manage their own money. They wear it like a badge of honor, sharing all their successful stock picking proclamations! My experience? They don’t tell you about the other half of their investment choices that went bad.
Many more are afraid to admit that they don’t know much about investments or retirement planning and that they should have sought assistance from a professional long ago. Over the years, I’ve lost count of how many times a new client confessed that they could have saved more or perhaps made better financial decisions if they simply would have asked for help sooner.
If any of these barriers are preventing you from seeking retirement planning assistance, then the solution is not to stick your head in the sand and do nothing! Instead, learn from your mistakes, confront your ego, and let a seasoned professional guide you.
Planning is critical for determining when you can retire with confidence. Choosing the perfect time to begin depends on several factors—some of which can be hard to predict. For example, according to a recent survey, half of the retired participants said they retired earlier than expected, often for reasons outside of their control: 34% experienced an unanticipated job loss, and 25% were forced to retire early due to healthcare concerns.2
In addition, you don’t know how long your money will need to last. This factor is difficult to pinpoint because we obviously don’t know when your retirement will end, or even what kind of unforeseen problems you may encounter along the way.
Certain decisions—such as your spending habits or where you choose to live during retirement—may be within your control, but other circumstances may not be. For example, a job loss, unexpected economic and financial market event, debilitating accident or injury, or countless other factors could derail your plans.
From my experience, I’ve compiled a list of five of the most common risk factors that impact virtually all retirees:
While these are five of the most common and impactful risk factors to consider during the planning process, I have seen plenty of others over my more than 20 years in business.
Other situations that have thrown a wrench in the best laid retirement plans include family drug addiction, divorce, mental health issues, grown children unexpectedly moving back home, caregiving, and let’s not forget the random global pandemic! We are human beings after all, and we can pretty much guarantee that unexpected curveballs will come our way. You simply need a retirement plan that’s flexible enough to adapt with you when presented with these life challenges.
It’s one thing to talk about unexpected life circumstances and another to see them take place firsthand.
This was the case for a longtime client of mine who wanted to retire at age 62. Before she gave notice to her employer of 20 years, we planned for her retirement appropriately, using financial planning software to confirm that she could confidently step into the next stage of her life.
Sadly, however, one year after she retired, her elderly mother was diagnosed with dementia. Her mother would not be able to live safely on her own for long, nor did she have the financial resources to pay for the level of care she would eventually require. My client called me and wanted to know what her financial situation would look like if she took a “retirement detour,” selling her home and moving in with her mom to be her primary caregiver.
Obviously, this event resulted in a major shift in her plans and a lifestyle change that could adversely impact her overall retirement plan if not done right. To determine if this path would be economically feasible, we ran multiple financial scenarios to ensure she could adjust to this new reality.
There were many new decisions to make. Who would own her mother’s home? What would she do with the proceeds of her own home? Should her mother’s estate pay her as a caregiver? Could she continue to collect Social Security without a reduction of benefits? How would this income affect her Medicare premium once she turned 65? How should her investments be managed now that the need for supplemental retirement income would be postponed for a few years?
Working with my client’s CPA and estate planning attorney, we collectively drew upon each other’s expertise and developed a workable adjustment to the client’s original retirement plan, one the client felt comfortable implementing.
While the planning process cannot eliminate all surprises or unexpected events, it can provide the confidence that you are ready to weather any storms that may come your way.
Who you choose to work with may also make a difference. An experienced advisor can stress test your strategy with advanced planning software to determine how it may hold up to various possible lifetime curveballs.
As your wealth grows, managing it becomes ever more complex. And as that complexity increases, the need for a team with experience across multiple financial disciplines also becomes progressively apparent. I can confidently say that this level of comprehensive planning and ongoing advice is readily available to all investors who seek it, but the hard part is often knowing where to turn first. Once that relationship is established, however, the return you can expect on a relatively small investment of time and money can bear fruit for countless years to come.
To learn more about how retirement planning can help ensure a smooth transition into and through retirement, watch for additional posts and planning tips in the weeks ahead, or contact us below anytime to talk about your planning needs.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
The scenarios presented are hypothetical situations based on real life examples. All investing involves risk including loss of principal. No strategy assures success or protects against loss.