4 PRIMARY RETIREMENT PLANNING CONCERNS

Ø      Outliving Income;

Ø      Dealing with life’s contingencies (e.g., changing circumstances, emergencies, long-term care scenarios, etc.);

Ø      Retirement income does not keep up with reality (i.e., the never ending effects of inflation and taxes); and,

Ø      Transferring unused assets to heirs.

Question:  Which of the above concerns is the most important one?

Answer:    The one that a client is currently facing always seems more important.

Solution:   Ideally, a plan should provide a high likelihood of success for all 4 concerns without sacrificing one or more concern(s):  A plan that -

   1.    Provides reliable retirement income, but at a reduced life style or subsistence level, is acceptable only to sustain life;

   2.    Provides a comfortable life style for a while but knowingly later requires dependency upon working, family and/or society, is unwise;

   3.    Provides reliable retirement income and comfortable life style but cannot adjust to contingencies, i.e., real life, is dangerous;

   4.    Passes unused assets to the government or an insurance company, causes anger and disappointment;

   5.    A plan that provides a high likelihood of reliable retirement income, comfortable life style, ability to adjust to contingencies, and

          transfers unused assets to heirs, is ideal;

First Step:  Relative to a client’s R.O.I. managed portfolio, determine the actual projected dollar withdrawals (not a % of portfolio) from each, account by either: 

    1.   Creating a Comprehensive Financial Plan (CFP) that will accurately project future withdrawals after accounting for inflation,
          taxes, et. al; or,

    2.   The Client committing to specific future dollar withdrawals (some projections may be needed to determine viability of
          withdrawals).

Second Step:  Make sure client has an emergency fund (minimum = 3 months of budget), and open home equity line, and a 72 hour kit;

Third Step:  Divide client’s account(s) that are subject to planned withdrawals over current four years into Short-Term (S-T) and Long-Term (L-T) accounts, and then administer them as follows –

    1.   Preferably, starting four years before actual withdrawals begin, start funding the short-term account(s) with the first four
          years of projected withdrawals;

    2.   Make sure client has in possession the current year’s projected withdrawal;
    3.   Manage Short-Term account to assure up to 3 more years of future projected withdrawals (note that this helps protect
          the L-T Account for up to 4 down years prior to planned withdrawals, and, that 2 and 3 protect L-T account against up to
          4 consecutive down years after withdrawals commence – something that has never happened);

    4.   Manage Long-Term account to help beat the never ending effects of inflation and taxes (because the S-T account is so
          conservative, probably increase L-T account allocation model one level, e.g., Moderate to Aggressive);

    5.   Have Annual Review with client to see how life, economies, laws, and circumstances have changed, and make relative
          plan changes;

    6.   Both S-T and L-T accounts are very liquid and very diversified to deal with contingencies; and,
    7.   Distribute unused assets (due to smaller or fewer withdrawals than planned, or better than expected performance) to
          heirs, via tax efficient beneficiary and/or trust designations.