If you’re reading this, you have some concerns about how much you have or are saving for retirement. You’re being honest with yourself and it’s nothing to be ashamed of. Most people start to wonder if they’ve done or are doing enough to set themselves up for their retirement dream. As an advisor for over 25 years, I can’t recall talking to anyone approaching retirement that felt 100% confident that they were financially ready to retire. However, I also can’t recall talking to anyone that has regretted their decision to retire.
One major obstacle to feeling “ready” to retire has nothing at all to do with money. After working for 40 or 50 years, work becomes a habit. Breaking a routine or pattern that you’ve followed that long is difficult and many times triggers an emotional response. Retirement then, is obviously a very emotional decision and one of the last major decisions we will make in our lifetime. Psychologically, that’s tough. There are some things in life that we really don’t control and our emotions, at times, is one of them. I’d love to tell you I have the answer to get beyond that, but that’s not my area of experience.
Since we’ve established that we probably can’t control our emotional response to retirement, let’s focus on what we can control. We have complete control over how we prepare financially for retirement. That doesn’t mean everyone reading this can retire when and how they choose. That does mean that we either choose to plan or we choose not to plan. If you chose to plan, you very well may be on your way to achieving some version of the retirement that you envisioned when you embarked on your plan. If you chose not to plan, the road to retirement is going to be much tougher; not impossible, but tougher.
Let me define what I mean by “plan”. I’ll start by telling you what I don’t mean. I don’t mean that you managed to squirrel away a million dollars, five times your annual income, or some other rule of thumb that you read in a “do it yourself because financial advisors are bad” book. Those are results, not plans. My definition of planning requires you analyze five areas of life in retirement:
Sources of retirement income
Essential versus discretionary retirement expenses
Healthcare
Taxes
Transfer of wealth
A thorough analysis of the above, not a rule of thumb, will uncover how much we all need to fund our retirement. Further, this isn’t a one and done analysis that will last for the rest of our lives. It is essential to revisit these areas as our situation evolves. Here’s why. Over the last 3 or 4 decades, plans like these have probably used a 2% or 3% annual rate of inflation. Guess what? Inflation is now closer to 10%. How accurate do you think the “complimentary” financial plan is that was done for you in 1999, or 2020?
Here are a few other things to think about that are part of the five areas of analysis that make up a plan. When should you begin your Social Security retirement benefits? Should you take a single or joint life benefit if you have a government or other pension? Traditional Medicare or Medicare Advantage? How will you spend down and transfer assets to the next generation in a tax efficient way. What do I do if my spouse or I need rehabilitation or extended health care either in or out of the home?
This list is not exhaustive. Everyone and every situation is different. Don’t buy into the financial sales industry’s claim that all you need is a book, webinar or index fund to solve your problems and pave the way to the retirement of your dreams. Pay a reputable financial advisor to help you. Yes, I said pay. Free advice is too expensive.
Maybe you’ve noticed that I haven’t said anything about investing. Great observation. Investments are considered after the planning process is completed. The plan is the foundation. A builder doesn’t start construction on the second floor. Without a solid foundation, the house will collapse. Without a solid planning foundation, investments are irrelevant. My investment approach focuses on the fact that as we get older, our emotions (there’s that word again) take over. Most people don’t have the capacity in volatile times to follow traditional, “Buy and Hold” or “Just Ride it Out” advice that is very common. I think a more tactical approach may be well-suited as we age.
It's very easy to put off planning thinking there’s always more time. Start today. I think everyone can achieve prosperity. Prosperity that isn’t defined by a number, but by a mindset of freedom and comfort after decades of hard work. Take control. Don’t choose not to plan. Start today by committing to a conversation with an advisor that can build a plan to help you purse your prosperity.
About Sal D'Angelo
I am the founder and President of LakePointe Advisors LLC, a Northeast Ohio based financial solutions firm. I am a trusted advisor to entrepreneurs, physicians, and other healthcare professionals. I provide the experience and advice to help people build and protect their wealth, reduce their taxes, and build a secure future for themselves and those they care about.
I am a lifelong resident of Northeast Ohio. My wife and I are proud parents to three grown children. When not working, I enjoy sports, especially football and golf, and spending time with family and friends.
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