RETIREMENT ADVICE FOR A SECURE FINANCIAL FUTURE
4th and last blog in a retirement spending series
A COMMON SENSE STRATEGY TO MATCH DIFFERENT TYPES OF INCOME AND EXPENSES
FOR A MORE COMFORTABLE RETIREMENT.
The challenge to designing the perfect retirement spending strategy requires the wisdom of a great financial coach who understands both the technical requirements and the emotional needs of the client. Just like top chefs who adjust their recipes for the dietary restrictions and tastes of their customers, talented wealth managers adjust the investment risks to match the fear of loss of their clients so they can sleep well and still achieve their desired financial results. Knowledge and flexibility is required in both cases because the perfect solution is always personal.
This concluding section attempts to address the retiree’s concerns about outliving their money without worrying about taking too much risk. There are many uncertainties during retirement over which we have little control. Important questions include: how long will I live, how healthy will I be, how will our expenses change, how will our investment returns vary, will we have to help our children or parents financially and how long will our funds last? Retirees mainly focused on risk avoidance may be concerned about meeting their needs but not planning for inflation, unexpected contingencies or discretionary spending to enhance their quality of life. The more confident risk-taker may not be sufficiently concerned about reducing their risk profile to prepare for market declines at an age when they don’t have the time to recover. Both may not have the knowledge or technical skills to change the growth strategy of their working years to a prudent investment strategy for preservation, income, and growth during their retirement years. Moreover, their advisor may also lack the knowledge required for success during their many years of retirement. A properly designed and funded plan should help to afford your desired lifestyle, and do so with a minimum of worry for as long as you live.
Happiness means different things to each person. Money for your desired lifestyle is important, but it alone may not create happiness. As financial planners, we help to uncover the many tangible and intangible activities that make our clients happy. When there is no clarity, we often suggest deferring retirement. A happy retirement begins with a planned transition to a future lifestyle without employment. Happiness involves not merely terminating employment, but interaction with people and activities you purposefully choose. Taking the time to consider your loved ones, friends and activities that will fill your days is essential. Fulfilling emotional and financial needs are both vital for success.
The academic community might select the best solution to plan for retirement spending based on mathematical equations and market history without considering the specific needs, wants, fears and risk tolerances of individual investors. Our preference is to employ the academically researched solutions to generate the investment growth needed for keeping up with inflation, unforeseen contingencies and luxuries. For the core expenses of life, we prefer to match them with income sources that are guaranteed or very predictable. It is very comforting to know that all recurring expenses are funded. We can adjust or delay discretionary expenses like vacations, cars and dining out if necessary, but not rent, mortgage payments, utilities or taxes. Of course, when the investment accounts outperform their expected returns, vacations, cars and restaurants are more obtainable.
Each client finds comfort on a continuum from conservative to aggressive, so we mix- and-match strategies for the best financial and emotional solution. The solution may be less than perfect, but if the client isn’t comfortable with the strategy, they won’t follow it and will be worse off. Effective wealth management is a combination of art and science.
Our goal is to help the retiree enjoy a long and happy retirement, knowing that their money will last for their entire lifetime. Working together, they will be able to make the necessary adjustments during their journey.
Marv Kaye, J.D., CFP® | Kaye Capital Management