There’s so much uncertainty happening in our world right now; in our country, in the stock market, and in the economy. But there are still things that you can be doing right now to set yourself up for success in retirement. In this post, I’m going to go over three things specifically to be thinking about and to do so that you feel a little bit better about your plan and then feel a little bit more certain about the next steps that you’re taking when it comes to retirement planning.
One of the key parts of retirement planning is income, right? So in volatile times, or in times of uncertainty, sometimes it could feel a little bit shaky, where you might feel, do I have enough and do I have enough to sustain over my lifetime? Now for periods like this, it’s always helpful to review, and if you don’t have one yet, to create, a specific retirement withdrawal plan. Now, one of the things that we’ll talk about when planning with clients is a very simple, but a very effective withdrawal strategy called the Three-Bucket Strategy. This is going to be a high-level view, but it will at least give you an idea. The clients who had this during the months of March and April in this past year of 2020, it helped them to rest a little bit easier at night when a lot was happening in the markets and everything. But these three buckets, just to sum it up, we’ve got bucket number one, being conservative-type investments, bucket number two, more growth-income-type investments, and then the third bucket is the long-term-growth bucket.
Now in bucket number one, depending on your expenses and things like that, having two- to five-years worth in this conservative bucket and setting up systematic distributions, helps people knowing that they’ve got a specific amount of years of conservative assets. It helps you when things aren’t looking good, like in March of 2020, this growth-and-income bucket may even provide income and continually pump up the cash in the conservative bucket throughout the year. And then with this long-term growth-bucket, you know there’s going to be ups and downs that happen, and there will be in the future. But knowing that you might not have to touch this money for 10-plus years, it makes it a little bit easier to stay invested and to not worry about what’s going to happen tomorrow and know your return, your withdrawal plan, won’t be affected. So, the first thing to think about is just making sure you’ve got that retirement withdrawal strategy set. If we do step one correctly, then we’ll feel better about the money that’s coming into the bank account, having that, that retirement plan set up.
Now, step two is related to knowing where are we going to spend that money on that’s coming in and what are we going to spend it on? And really, the best thing to do that we’ve seen in uncertain times is to divide your expenses into two categories. The first one is the must-have expenses and then the second one is the nice-to-have expenses. And if you can do this in uncertain times, for that second category of nice-to-have, it’s helpful to know what you can cut from the budget or from the regular monthly expenses to help get you through a period of difficulty or get you through a period of uncertainty. And maybe you won’t have to cut the expenses, but just knowing which ones are must-haves and nice-to-haves is very helpful. As an example, some of those nice-to-have expenses might be things like the subscription services that you have, or maybe even the type of cable, whether you’re paying for basic cable or the all-access-to-everything cable. And then also things like eating out or ordering take-out food, these are examples of some discretionary expenses.
Since so much does change during uncertain times, the third step to take is have a total review of your retirement plan. I’ll show you exactly what that looks like because all these things might change, like your income or your job or your expenses, or just the projections of when you think you might start to have to use this money that you’ve saved. It’s important to do a total plan change, look at the account values and what they are now, and then adjust your retirement plan to make sure that it’s still working and to make sure that you’re on track.
So here’s an example of what it might look like for some of our favorite clients, Clark Kent and Lois Lane. Now, let’s pretend that early retirement was forced upon us. We can see that the plan is working. And again, this is a made-up client and made-up dollar values, but if you got forced into early retirement, what does that look like for your plan? How does that change your projections now, would that mean maybe we would want to sell this business a little bit earlier? How does that affect the total plan so that we can just keep things on track? So it’s things like that. This is our planning software that we use, but talk with a planner or have a review of your plan and just make sure that you’re still on track. That’s really the third, most important step to take.
Now, just to recap, the three things are:
- review your retirement withdrawal strategy or create one;
- write down those must-have expenses and the nice-to-have expenses;
- do a complete review of your retirement plan and make sure that you’re still on track and get those adjusted numbers in there.
I hope that was helpful for you. If it was, and if you like these retirement-specific posts, consider subscribing so that you don’t miss the next one. And if you looked at these three different things that I mentioned, and you don’t have any of them, or you want help implementing some of these things, feel free to reach out to me and have a conversation. On my calendar, I make some spaces available each week to talk with people who are not clients. So if that’s you, consider reaching out and I’d love to chat with you.