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5 Fundamental Questions of Retirement Planning

When we’re in our 20s and 30s, and even 40s, we’re not exactly captivated by visions of our retirement years. We prefer to spend our money and time planning our next vacation. But one day, maybe around 50, you’re on vacation, relaxing on some tropical beach somewhere, and Louis Armstrong is crooning in the background “We have all the time in the world,” and it hits you: No. We don’t. Retirement is around the corner and you need to prepare. But where do you start?

Regardless of your age or stage in life, planning for retirement shouldn’t be complicated and it shouldn’t induce panic. Or at least, it doesn’t have to. When we meet with people, coming from all walks of life, we start by asking some fundamental questions that help chart a course toward the retirement they want. Here are those 5 retirement fundamentals:

1. What’s my retirement vision?

I’ve spoken to so many people who are so preoccupied with the financial elements of retirement that they haven’t even considered this vital question. I get it. It sounds simple. But when you finally take a stab at an answer, it can seem overwhelming. But I can’t stress how important it is to specify how you want to spend your retirement days.

Your vision doesn’t have to be chiseled in stone, just a general idea of where you’d like to be and what you’d like to do. Think about it. Throughout your career, you’re working 40, 50, even 60 hours in a typical week. Once you retire, you’ve suddenly got all of that free time on your hands. It can be as unsettling as it is exciting. So, how are you going to fill that time?  

So I ask clients to write down 100 things they already enjoy and/or want to do. It’s harder than you think. Maybe you want to continue to work part-time in retirement or do volunteer work. Maybe you want to move to a sunnier climate or join a PickleBall league closer to home. Maybe you want to invest in a massive RV and hit the road like Hunter S. Thompson, minus the psychedelics. 

Whatever it is, write it all down. The first step in charting any course is setting your destination. Don’t overlook setting yours.

2. What’s my retirement budget?

Once you have a vision of what you’d like your retirement to look like, you can start working on a budget. It doesn’t need to be elaborate, just a decent framework of what you’ll need for income monthly.

When I first sit down with my clients, we take a look at what their current expenses are and which ones may be eliminated once they retire. I met a couple earlier this year that had about five months left on their mortgage. When I said, “Guys this means you won’t be shelling out $18k a year anymore,” they looked incredulous. It’s so easy to overlook the fact that many of your monthly expenses — especially ones you’ve been paying for decades — will suddenly disappear. On the flip side (there’s always a flip side, right?), you have to factor in what expenses may increase once you retire — healthcare being among the most prominent, for example. But when we sit down and work out a budget with you, we take into account all of the knowns and potential unknowns (that’s the benefit of working with people who prepare for retirement multiple times a day).

Another exercise I have my clients run-through is the dress rehearsal, which is exactly what it sounds like, except it lasts for about six months, and you don’t have to don any resort wear. For six months, try to work within the budget you’ll be on when you retire, and then figure out if you could have the retirement lifestyle that you want within those parameters.

3. What’s my retirement income strategy?

We have a mantra around here: You cannot invest for retirement the same way you invest in retirement. It doesn’t work that way. Don’t do it – you’ll create a disturbance in the Force.

During your working days, you’re investing for retirement. You receive a paycheck, you contribute as much as you can into your retirement accounts; you can weather the highs and lows of the markets and not think too much about it. Once you retire, though, you need to invest in retirement, meaning instead of you working for your money, your money needs to start working for you. 

When you transition into retirement, you have to start taking distributions from your accounts. That’s why it’s important to have a strategy that balances investment growth with easy access to your money. You should always have funds reserved for monthly expenses, funds for unforeseen events or emergencies, and then money leftover can be used to invest in the market or other assets with greater growth potential. 

4. How much money do I need in retirement?

As the saying goes, life is a marathon, not a sprint. Retirement is no different. People are living a lot longer these days so you should prepare to spend at least 30 years in retirement. And you need a portfolio that will help you weather all storms, financial and personal. Of course, future expenses are hard to predict. But the closer you are to retirement, the better idea you probably have for how much money you’ll need to sustain your current lifestyle—or support a different one.

One old rule of thumb you may have heard is the “4% rule”, which says that you should limit your annual withdrawals to 4% of your nest egg. In theory, by following this formula, you should have a very high probability of not outliving your money during a 30-year retirement. Unfortunately, while it might work in some situations, it has limitations.

The 4% rule makes assumptions about how your investments will perform and how long your retirement will last — and these predictions don’t hold true for everyone. For example, if your investments take a big hit, you might need to decrease your withdrawal rate, but if they’re performing well, you may be able to bump it up. See what I mean? You can use the 4% rule as a starting point, but you should troubleshoot different possibilities before deciding on the right withdrawal rate for you.

5. What is my legacy?

If you’re planning to pass your assets on to the next generation, you want to do it in the most tax-efficient manner possible. I’m sure the last thing you’d want to do is create a tax burden for your beneficiaries when your intention was to be generous.

In 2020, we saw some of the biggest changes in the tax laws around estate planning in more than a decade. The most significant ones arrived via the SECURE Act, which impacts every single one of your beneficiaries. Before the SECURE Act, if you had pre-tax money in a 401(k) or 403(b), and your plan was to live off the portion that covered whatever amount you needed during retirement, you could then transfer the remainder of your retirement account balances to your family once you passed away. You can still do this, but the law changed how your beneficiaries will be taxed on the inherited money.

Before beneficiaries were able to stretch out the taxes on the money for decades, sometimes generations, beyond the death of the person who left them money. By taking a very small required distribution out each year, beneficiaries could leave the bulk of the funds in the accounts. But the government eliminated these so-called stretch IRAs because they didn’t want them to become wealth transfer vehicles.

Estate planning is a fundamental part of your retirement strategy. Developing a plan for what happens to your estate once you pass will be a big help to those you leave behind.  

Take the first step and don’t hesitate to ask for help

The best thing to conquer any challenge is simply to start. Hashing out the fundamentals to your retirement is a great way to start easing your retirement challenge. Though, I completely empathize. I understand why pre-retirees and even retirees feel anxious about retirement. It’s one of those strange events in life that you’ve never planned but you do only once, so you need to get it right. Honestly, the best piece of advice I can give is don’t go it alone. You only strategize for retirement once, but there are resources out there that do it six or seven times a day. We’re one of them. Find experienced professionals you can trust and just take your first step. I promise you’ll feel better when you do.


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