Retirement Planning: How to Get Help From Advisors

by Liz Kitchell

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Preparing for retirement is a two-stage process. Most people focus on accumulation strategies, but just as critical is the having a clear retirement income strategy.

Retirement planning at 20 and 30 is simple. The priority is getting started and not looking back. In your 40’s you are evaluating if you are on track; in your 50’s you worry if you were smart enough in your 40’s and had saved enough! When you reach your late 50’s and 60’s, you are calculating and recalculating when you’ll be able to stop working and hoping you have enough to live 10-30 more years.

Your Retirement, Beyond the Metrics

People talk about their “retirement number” as if they had a crystal ball that can predict how much money is needed once they stop working. Many people understand the accumulation phase but aren’t sure how to create a strategy for transitioning to retirement income. Ever-changing tax laws certainly don’t make it easier to make decisions. Unless you’re a friend of Harry Potter, it is unlikely you or your advisor has a functioning crystal ball to predict the future!

Rather than looking at your “number”, we encourage you to create at least two versions of Retirement Living Strategies. Create a set of goals for how you’d like to be living in 10-year increments for the next 30 years, assuming you’re in good health 30 years from now. Then create a second version assuming some unexpected health issues. The first few years usually include fun activities you could never do when working. As you approach 70, you might include more money for health care costs.

Each plan needs to have consistent income, growth, and flexibility. Consistent income from your years of accumulation must replace your paycheck, growth vehicles are needed to outpace inflation, and flexibility allows you to change the plan if your needs change.

Let’s talk briefly about each of these elements so you know how to talk to your advisor.

The Elements of Successful Retirement

If, within 10 years of retirement, you will be asking if you are on track to achieve your Retirement Living Strategies. Your advisor will be working with you to solidify your short-term and long-term retirement dreams and the amount of money needed. Don’t forget to include the legacy you want to leave. Your advisor will crunch the numbers and suggest adjusting your strategy if required.

Now is the time to test out your Retirement Living Strategy. We often create dreams for the future that don’t actually satisfy us. So if your dream is to own a lake cottage, rent some lake cottages for a few weeks and see if it’s reality or fantasy. SheMoolah helps people create meaning behind the money and future articles will be focused on this.

If, within two years of retirement, it is even more critical to have a Retirement Living Strategy in place! Work with a retirement expert as soon as possible to ensure you know what’s needed to achieve your goals. This will also give you peace of mind when you’re confident in your strategy.

Your expert should be able to brainstorm strategies for keeping your money growing as it won’t retire just because you do! Questions to ask your advisor: How will your money be structured to ensure it will last? How will your paycheck be replaced? How will I know I have enough? How do I stay independent and not burden my children?

Features of a Strong Retirement Living Strategy

Having consistent income is important in building your Retirement Living Strategy and often the most critical piece of the puzzle. The Strategy looks at how you are living at each stage of life, decade by decade. You’ll look at all the things you’ll want to be doing, including vacations, downsizing your home, buying a summer cottage, providing cash gifts to grandkids for college, and more. You’ll calculate how much you need each month and year to accomplish these goals. Then you’ll create your income strategy by identifying all sources of income including social security, pensions, annuities, etc., and see if there is a gap. If there is a gap, you and your advisor will need to construct a strategy to close the gap. Hopefully your advisor doesn’t have the conversation of essential versus discretionary costs of living due to a lack of saving and what potential activities and experiences you can do without. Instead, I hope they brainstorm ways to make it work. So, ask, how will my portfolio continue to provide consistent income if the interest rate or stock drastically moves?

Growth in your portfolio is the vehicle for having your money last 30 to 40 years. Average life expectancy is early 80s for men and late 80s for women, but who wants to be ordinary? Since the crystal ball can’t tell us how long you will live (thankfully!), advisors should focus on achieving your goals by managing for inflation. The cost of things typically doubles twice, sometimes more in retirement and for this reason alone you need to have growth in your portfolio to cover the future costs of living your amazing life! So, ask, how will this plan continue to meet my long list of travel and fun experiences?

The last characteristic of a Retirement Living Strategy is flexibility. This means you cannot have all your money in one vehicle to provide both the growth and the income. What if your needs change and the vehicle doesn’t give you access to your money? What if the interest rate plummets (we know this all too well in the last 10 years)? What if the stock market crashes? Creating flexibility in your plans is important. That may mean keeping 2 years of discretionary income in a savings account or having many different products with different kinds of access. Two years’ worth of discretionary income may seem like a lot, but it gives you and your advisor time to adjust a plan if your needs change or if a pension fails. Discretionary income is the amount in the gap between what is scheduled to come in and what is predicted based on investments. So, ask your advisor practical questions. What if my needs change? What kind of access do I have to a large chunk of change? What if I decide to make a large purchase? How will we work together to cover this purchase?

The View From My Perspective

For me, money is a vehicle to live my life. The last thing I want is to have my money be tied up in vehicles that restrict my ability to enjoy retirement. Any plan needs to include flexibility with an advisor who will help me brainstorm ways to fund it.

Start Working With Liz

Liz Kitchell is the President and Co-Founder of SheMoolah and the owner of Liz Kitchell Coaching. After decades coaching individuals through Liz Kitchell Coaching, her new company will provide a stronger platform for disrupting the “old school” financial conversations to bring balance to the logical and experiential sides of money, so people can find true freedom in life.