And even though retirement planning is one of the most common financial goals our clients ask us to help them achieve, we are careful to consider all the complexities and variables within each client’s unique situation.
Here’s some of what we focus on:
- Cash flow management. Each investor, retired or otherwise, needs to have a cash flow budget. A good cash flow statement tells us a lot about the reasonableness of retirement goals. How much we spend and save is the linchpin to any successful retirement plan.
- Longevity risk. Because longevity risk (the risk of running out of money before running out of breath) weighs so heavy on not only our clients’ but also our advisors’ minds, we plan for longer than average life expectancies. Planning until age 95, or in some cases 100, helps mitigate much of the longevity risk issue. It may cut client spending along the way by planning for a horizon that is not statistically likely.
- Lifestyle expenses. In our experience, the expected retirement expenses ebb and flow over the lives of our retirees. Often, newer retirees find themselves spending more in retirement because they have the time necessary for travel, hobbies, and newfound opportunities to spend. In the middle to late retirement, spending may slow. Houses sometimes get downsized, travel may lessen, cars might be driven less, and the trappings of consumerism lose some of their appeal as some retirees spend less time accumulating possessions and may instead feel a calling towards simplification.
The lives we lead now and in the future need to be sustained by well-reasoned asset allocations and appropriate spending for a long and healthy life. It is important to remember why we are investing and to stay focused on these life goals and aspirations.