Three assets are the key to a successful retirement plan. If you plan for all three, the result is going to be a retirement with more confidence in your finances. And it’s also going to mean that you’re living a life full of purpose, joy, and peace of mind, instead of retiring rich but miserable.
At Streamline Financial, we’ve helped a lot of people retire successfully, and we’ve also seen a lot of people who haven’t. In our experience, these three assets are an important factor to a successful retirement.
If you want a free guide on living your purpose in retirement, or, if you just want to have a free planning session with me, click here to contact me.
Before we jump into the three key assets, grab a pen and a piece of paper.
First, take a couple of seconds and write down a list of your assets.
Maybe you’re listing 401k, IRAs, house stocks, bonds, mutual funds, things like that.
Next, think about, and then write down the most important things in your life.
Did you think of your spouse or your kids, maybe your faith, health, or creative mind? Was anything you thought of on the second list also included on the first list?
Usually the answer is no. This is typical because we don’t think about things on that second list as assets, but they are.
As wealth managers at Streamline, we not only engage with your financial assets; we know that you actually have three types of assets that you steward. Managing all three types is the key to a successful retirement, and those three types are:
House, 401k, IRAs, mutual funds
Knowledge, skills and abilities, experience
Family, values, faith, health
This is what makes up your family balance sheet.
Now, pretend that you could only pass one two of these assets to the people that you care most about.
If you had to drop one, which two would you pass on? When we ask most people, they say they would drop the financial assets. Why? Because they can rebuild financial assets using the other two assets; if you pass on your human and intellectual assets, your family can rebuild your financial assets. This is why part of your perfect retirement plan focuses on what’s most important to you. If you’re able to begin a plan that’s based on your values and what’s most important to you, then all other financial decisions become easier. Your values are the foundation to that successful plan. They’re really your reason why. They’re your reason for planning in the first place, right?
What do you think you could do to grow your human and intellectual assets? I’d love to hear from you in the comments if you’ve got any ideas.
In our initial call with clients, we take them through a five-minute conversation that helps them uncover their most important values and shows them how these fit into their plan. If you’re interested in having that conversation, then click here to schedule a time to talk with me.
Thank you to Ron Bolis and Doug Andrew whose ideas inspired this post.
take a look at the average savings for people at age 60
see how you compare
look at what you should have in retirement savings by age 60
If you’d like some ways to help increase retirement income, click here to have a conversation with me.
Now, to start out, let’s consider the average balance and the median balance between five different 60-year-old future retirees: $600,000, $320,000, $68,000, $42,000, and $30,000.
The average out of those five numbers is $212,000, and the median is $68,000, based on Fidelity’s report of 401k balances. The median balance shows that many people have saved less than $68,000. And keep in mind that the average may be skewed because there’s some very large 401k balances out there.
So what does this actually mean for you and what should you have saved now?
In order to know that, we need just three important numbers:
The amount saved for retirement
Your pension or social security income
How much you’d like to spend each month (What are your expenses?)
You could use your numbers to get a general understanding of what might be possible, but if you’re looking for more than just general information, and you want to have a little bit more clarity and confidence with your plan, then feel free to reach out to me.
But let’s get back to the just general numbers here, based on the list above:
Pretend (1) we’ve got a $500,000 balance saved up, and (2) social security income is going to be $2,500 a month, and (3) your expenses are going to be $4,000 a month.
First, take that expense number and subtract the $2,500 to see what we need to withdraw from savings, and then multiply that number by 12.
(4000 – 2500)*12 = 18000
Based on this formula, you need $18,000 per year from your savings.
Next, take that $18,000 and divide by the saved $500,000.
18000/500000 = 3.6%
That’s going to give you 3.6%. Now you’ve probably heard of the 4% rule, and that’s a good place to start. In this example, you’re withdrawing under 4% in your sixties, so you should be in a pretty good spot.
But be aware, because a lot depends on your investment allocation and what sort of investments you have in your accounts. The rule-of-thumb 4% number is commonly used in financial planning. It looks at history, it takes a portfolio of 50-50 mix of stocks and bonds, and sees that you’re planning for about 30 years. And in this case, 4% withdrawal, there’s usually a high probability of not running out of money.
However, you deserve more than general rules of thumb when you’re planning for your specific retirement. So it’s a good place to start, but please reach out to your retirement planner or someone you trust so you can get some of the specifics of your plan in place. There are some negatives to the 4% rule, but that’s a topic for another post.
The past 12 months have been such a wild ride with so many changes happening in a short amount of time.
In this post, I’m going to share two things that you can do to prepare in the new year, so that you feel good about your retirement plan and your investment plan.
The first thing to do in the new year is review your asset allocation.
Since there were so many extreme swings last year in the markets, and maybe also your portfolio, it may make sense to sit down and review how your money is allocated. Pay attention to the mix between stocks and bonds and any other asset categories that you might own. It’s important to do this because if you don’t, you run the risk of becoming more and more aggressive. And the older that you get, that might be exactly the opposite of what you want to be doing.
As an example, if you’re invested in both stocks and bonds, over time the stock portion might go up and take over more of your total fund. If you do nothing from year to year and don’t review the allocation and see what your money is doing, then you run the risk of the stock portion taking up a bigger and bigger piece of the pie each year.
If you’re projecting your income based on investment balances, then you could wind up in hot water if there’s a big correction or something that was just unexpected. The value of your portfolio can move in a pretty drastic way.
Something we’ll do for our clients who are in retirement and value predictability is to regularly rebalance the portfolio when things drift.
And as an example, some years stocks do go up and take a bigger piece of the pie. Then we might sell some stocks to balance out the portfolio and get back to that original balance. And stocks go down some years and they end up taking a smaller portion of the pie. At that point, it’s time to sell some bonds and buy some stocks to get back to that original 60/40 mix.
The second thing to do this year is make sure you have enough money in your emergency fund.
Looking back at 2020, we saw that those who had a healthy amount of cash or conservative investments were able to weather the storm much easier than those who did not have emergency funds set aside. The right amount to keep in your emergency fund is going to vary depending on your personal preferences. A common amount that you’ll see is to have between three to six months of expenses set aside. But if you’re in retirement or getting close, then you might want to have more in the conservative bucket. To get an idea of the amounts to have in conservative funds, click here to check out the three-bucket withdrawal strategy.
This year has been a challenging one for sure. Nobody really knows what’s going to happen in the next year, but these two investing moves can help you get on track for a brighter financial future.
There’s so much conflicting advice out there when it comes to this topic. If you’ve got questions or you just want to talk to someone live, click on the link at the end of this post and I’d be glad to talk about your specific situation and ideas for social security.
If you’re thinking about claiming social security before your full retirement age, here are three things that could hurt you, that you might want to pay attention to.
You plan to continue to work before your full retirement age. Currently in 2020, if you make more than about $18,000 per year in wages, and you receive social security, that social security benefit could be reduced. They might deduct as much as $1 for every $2 you earn above that $18,000 limit. So if you plan on earning an income either from work or from self-employment before your full retirement age, think twice about claiming early.
You don’t have a lot in retirement savings. The average earner typically receives about 40% of their former wage from social security, but it’s common for retirees to need about 80-90% of their previous income just to live comfortably. Those with savings can supplement that extra need. But if you don’t have that option, then it might be a mistake to claim early because it’s going to permanently reduce that benefit that you could receive.
You have a chance at living a long life – hopefully you do. And if you anticipate living a long life, then it may not make sense to cut your social security benefit by claiming it early at 62. Because when you do that, you permanently reduce the monthly benefit.
As an example, the percentage reduction is about 30% if you were to take it early at 62 versus waiting for full retirement age. So this means if you’re entitled to about $1,500 per month from social security at full retirement age, then that might just mean you’re getting just a thousand bucks per month at age 62.
In some cases, filing for benefits early is a smart move and it can make a lot of sense. But if any of the above scenarios that I just mentioned apply to you, then you might want to be thinking about waiting instead. And if you’d like to talk about social security or retirement income planning, then click on the link here or reach out to me and I’d be glad to have a free meeting with you or give you a free copy of The Perfect Retirement Plan so that you can start to evaluate some of these things yourself.
Your retirement plan is not valuable, but the continual process of planning is, so step one is to create a flexible, adaptable retirement plan, not a static one.
What I mean by adaptable is a successful and secure retirement plan with investable assets each year until well into your nineties, as with the example shown in the video.
Now we know that life isn’t static and you and I both know that things change, life changes. So your plan should be able to change too and to adapt on the fly.
Now, what if the unexpected happens; an additional expense that we didn’t plan for? How does that impact a decision made today or next year? How does that impact the long-term plan?
Let’s say that you sell your business earlier than planned and you retire early. How does that impact the long-term plan?
Or you’ve got a family, you’ve got grandkids, you want to take them on vacations while you still can. How does that impact if you were to spend $20,000 per year to go to the lake house or go to North Carolina, whatever it may be.
So there’s all these different things and things we don’t even know that are going to happen yet.
The main point is that when life changes, let’s change the plan. And if we have an idea of what could come, let’s see what sort of impact that has on the long-term plan. So I hope that gave you a good picture of how to create a plan that’s flexible and that’s adaptable.
These 5 mini-plans make up every successful retirement plan. A retirement plan is not something to take lightly. What you put away now, and where you put it, can greatly impact how much security you will have later on in life when you are looking to retire. When developing a retirement plan, there are a lot of aspects to consider. What will your income look like? How will taxes play into it? What happens if later on in life you face medical complications. There is no way of knowing these things ahead of time, but there are plenty of ways to plan for them so that when the time comes, you will be able to face surprises down the road with some peace of mind. There are five mini plans that we include in an overall retirement plan to help round the plan out and cover all necessary bases.
This plan is important to ensure that when you are ready to retire, you can count on a reasonable and stable income to cover your month to month expenses. There are a variety of components to this plan including, but not limited to: social security, maximization, spousal planning, and investment income. This plan is foundational to retirement, as it ensures that you will be able to maintain a comfortable lifestyle, even when you are no longer actively working.
2. Investment Plan
All our investment plans are based on your Income Plan. The two work in unison.
The traditional retirement planning industry commonly decides how to invest your money based on your “risk tolerance”. We think this a deeply flawed approach that leads to higher than needed worry during major market corrections.
Instead, if we can find the right cashflow needed from investments, we can map out the next 10 years need and design the income plan so you don’t market fluctuations do not affect your income plan.
3. Tax Plan
Whether you are retired or not, you better believe that you will owe your dues to Uncle Sam. However, it is important to plan for this, and to ensure that you will never end up paying more than needed in your taxes. There are a variety of strategies that we can implement in this plan from withdrawal strategies to Roth conversion strategies.
4. Healthcare Plan
This is the less glamorous, but unfortunately common, side of retirement. Healthcare costs tend to rise pretty consistently upon retirement, and therefore, a healthcare plan is an essential aspect of an overall retirement plan. There are a variety of factors that will impact your healthcare plan. One of the main factors people face is medicare planning in addition to any supplemental and long-term planning.
5. Legacy/Charitable Plan
This is the part of the plan that most people prefer not to think about, however, it is a part that requires thorough consideration. When a person passes away, their money and assets will have to go somewhere. It could end up at any of these three places: to their heirs, to a charity, or to the government. It is important to put consideration into where you would like for your own assets to go, and to set up a plan to ensure that your wishes are granted when that time comes. In addition to estate planning, is the wealth transfer plan. This plan simply alerts those who will be receiving assets upon your death so that they can be prepared to receive it when the day comes.
There are a variety of essential parts to a retirement plan, and at times this can seem overwhelming. If you are looking to increase security upon retirement, our team of experienced financial advisers is happy to help you develop a plan that best fits your unique needs, income, and interests. Contact Streamline Financial Services today, to meet our team and learn more about our unique approach to each of these essential mini plans.