Bryant Financial Advisory encourages our clients to begin planning their retirement as early as possible. We emphasizes the need to save for retirement before funding a child’s college education.
BFA creates models of the future constructing worst- and best-case scenarios. By projecting inflation, taxes, sources of income, living expenses, growth of assets, and life expectancy, we will show clients what behavior changes in savings and spending are needed in order to achieve their desired goals.
Once they are ready to make distributions from retirement assets, we will suggest a strategy for drawing down assets so taxes are minimized and life of the assets is maximized. Recommendations are balanced with the estate planning goals of the client.
Retirement Success – What it Takes
As a financial advisor, one of the most common questions I get from clients is “Am I going to be able to retire when I’d like and not deplete my assets before I die?”This is probably the single-most concern that motivates clients to seek my advice.
For this reason, I spend a great deal of time assessing a client’s financial situation before that question can be answered. In addition, since planning one’s financial life is a dynamic process, it’s important to run and re-run retirement cash flow scenarios each year, particularly if assets are somewhat limited and the impact of forces outside of your control (investment returns, tax and inflation rates) could derail a plan for meeting one’s financial goals.
The first thing I tell clients is to focus on those things you can control—when you retire, how much you save and, more importantly, how much you spend during the retirement years. Just because you’ve accumulated more than you think you will need to retire, doesn’t mean you are safe from running out of money. Once you’ve retired, your withdrawal or spending rate is the most important factor that determines the longevity of your assets.
Granted, someone who has amassed over $5 million may be safe from the worry of depleting their assets and live financially comfortable lives. However, most of us don’t find ourselves in that fortunate position. Most of us need to be “calculated” about what we spend in retirement if we are going to be successful in funding our goals. You can limit the impact that outside forces have on your nest egg in various ways.
Control spending in retirement by reducing or minimizing your fixed expenses as much as possible. This typically involves a plan to pay off debt by the time you retire. Just recently read a dire statistic that the rate of people retiring with debt has risen 123%! We are heading in the wrong direction. We need to plan well before retirement to pay off our mortgage—typically, the greatest fixed expense a household faces. Also, it’s important to take stock of discretionary spending every few months to determine if you are sticking to your spending plan. Yes, set up a reasonable spending plan and stick with it.
In addition, having more than one income source outside of our investments is key to increasing the longevity of your investment assets. Except for the lucky few, most of us will retire without a guaranteed income stream other than Social Security. If you can create additional income sources that will allow you to minimize the withdrawals on your investment assets, there is a much greater probability that you will increase the lifespan of your investment assets.
What does this look like? Possibly, working longer and delaying retirement. For some, it may be working part-time to supplement living expenses. For others, it may be weighing the different options of taking Social Security benefits—when and how—so you can receive the greatest amount available to you. Or, it may mean taking a portion of your investments and converting them to an immediate annuity thereby creating another income stream that is certain and lasting.
You’ve probably either heard or read about the 4% withdrawal rate as the rule of thumb for safely withdrawing assets in retirement and not risk depleting your assets in your lifetime. No matter what studies have been conducted to endorse or dispute this rate, what matters most is that you withdrawn amount that will allow you to live out your retirement comfortably.
Depending on the structure of your portfolio—how much you have in cash, stocks and bonds, real estate, etc., the return you need to realize to meet your income needs may or may not occur. Low or negative returns in any given year may require you to adjust your withdrawal rate and take less so you don’t risk depleting your assets.
Ideally, I would like to assure all my clients that they are in a great position to fully fund their financial goals. Realistically, clients’ success is mostly up to them and what steps they should take starting today that will provide them with the answers they want to hear.
One of my roles as advisor is to be a facilitator and informant as you pursue your financial goals and meet with success. If you haven’t been through the exercise with me lately, I would encourage you to call me so we can begin the process. The outcome will either be more favorable than you imagine or it could be a wake-up call to make the changes necessary that will give you peace of mind and allow you to enjoy retirement.