The following is an excerpt from
Big Picture Retirement Planning
A BIRD’S EYE VIEW FROM 3,000 FEET
Les Goldstein, M.B.A.
Personal Financial Strategies, Inc. PARK RIDGE, ILLINOIS
Copyright © 2018 by Les Goldstein.
The following content is for non-commercial educational use only. All rights reserved. No part of this publication may be reproduced, distributed or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other non-commercial uses permitted by copyright law. For permission requests, write to the publisher at the address below.
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Big Picture Retirement Planning/ Les Goldstein. —1st ed.
Establishing and Defining Your Goals and Objectives
I believe that procrastination can lead to financial failure. At our new client workshops, I always ask the following question: “Please raise your hand right now if you have ever procrastinated.” Inevitably, at least half of the folks in the room raise their hand. “Great,” I always say. “For those of you who did not raise your hand, it’s okay to raise it later.” This little joke always gets a laugh. But, as some wise man once said, “There is always truth in jest.” Everyone procrastinates. So, let’s get off the procrastination train right now and get to work!
Let’s begin RIGHT NOW to develop the thoughts and feelings of your own Personal Retirement Action Plan. And, always write your thoughts down. For me and the entire PFS team and all of our financial planning clients, nothing is real unless it is written down. Writing it down creates a way to track your progress, as well as creating accountability, especially when you share your goals with people you love and trust.
I have read that many people spend more time planning their vacations than planning for retirement. And I have personally seen what happens when people live only for today. No savings. No retirement plan. No long-term care plan. No estate plan. The so-called golden years turn out to be anything but golden.
I completely agree that there must be balance in life. Enjoying today is so important because no one knows what tomorrow may bring. This includes enjoying today but being prepared for the 15, 20, 25, or even 30 years of your retirement. For our clients at PFS we advocate a balance, and we have learned over the years that successful folks balance their short-term desires with a longer-term view.
A sad potential outcome of having only a short-term view is that these short-term thinkers might not have the resources to enjoy life the way they want to during retirement. At a time they might like to be traveling, visiting their children and grandchildren, volunteering, donating time and resources to churches and charities, and truly enjoying what are meant to be the golden years, they don’t have the financial resources to enjoy even small pleasures. So, even though this process may be time-consuming and not what you enjoy doing, it is well worth focusing on where you are right now, financially speaking, to begin moving forward in a meaningful manner.
Establishing your goals and objectives can mean organizing everything on spreadsheets, using Quicken or Excel, or just writ-ing everything out longhand on a yellow pad. It’s up to you and your individual style. The SMART Chart at the end of this chapter will help you with Step 1 and the other SMART Steps to follow.
In our client interviews, we often begin by asking the following question: “In a perfect world, where you had all the money you would ever need, how would you live your retirement?” Here’s a real-world example to help get you thinking about your own SMART goals.
1. I want to retire on December 31, 2017. I will be 67 years old, and my wife will be 65 years old.
2. We want to sell our home in Chicago and move to Phoenix, where many of our relatives are currently living.
3. Our Phoenix home will be a ranch, and smaller than our 3-level home in Chicago. We will not want to deal with the stairs anymore!
4. We will buy our Phoenix home with cash from the sale of our Chicago home.
5. After the sale and subsequent purchase, we will have approximately $300,000 to invest to generate additional re-retirement income for our desired lifestyle.
6. We will rent an apartment in Chicago from May through August to visit friends and family here.
1. In 2017 dollars, my wife and I need $5,800 after tax every month to live. We have completed our budget and are comfortable with this amount.
2. My wife and I do not have pensions, and our only source of reliable retirement income currently is Social Security. We do own annuities that we will use as an additional source of reliable retirement income as needed. (Footnote #1 annuity disclosure.)
3. Based upon our Social Security payments at our normal retirement ages of 66 years and 7 months, our after-tax retirement income gap (RIG) is $2,400 each month. We know that our RIG will increase every year with inflation.
Actions to Take:
1. Should I roll my 401(k) to an IRA? After considering all factors involved including, but not limited to, investment options, fees and expenses, services, possible withdrawal charges, protection from creditors and legal judgments, required minimum distributions, passion of employer stock, it appears that I will benefit from having more in-vestment choices and improved legacy planning.
2. Should we do the same for my wife’s 403(b), rolling it to her own IRA?
3. Take a risk tolerance test to measure my ability to emotionally handle losses. Have my wife take the test as well, separate from me.
4. Redesign our current investment strategy to be properly designed to generate retirement income distributions beginning in 2017 to fill our retirement income gap.
5. Hire a realtor to sell our Chicago home six months prior to retiring in 2017.
6. Take Social Security at normal retirement age or later? Are there advanced Social Security planning strategies available to me and my wife? We need to figure this out carefully, as we understand that our Social Security choices are irrevocable.
7. Update our estate plan for our three adult children and two recently born grandchildren.
8. Analyze our ability to retire at our desired standard of living for 25 or more years.
9. Make sure our long-term care plan makes sense and is affordable.
10. Identify what’s missing.
Realistic and Relevant:
1. How do we solve for our retirement income gap? Will we need to spend down our savings and investments to support our desired retirement lifestyle?
2. How and when should we take money from accounts during retirement?
3. Which accounts should we take money from first?
4. What will the impact of bad times be on our investments? How can we take out money during bad times, if we even can? Will this deplete our accounts too quickly?
5. Is it okay to spend down principal to live?
6. What are the chances we will run out of money?
7. Using straight-line return assumptions, we need 6 percent per year on our money so we do not run out of money during our expected lifetimes. Is that a realistic assumption?
8. We are budgeting $1,000 per month for health care. Is that realistic?
9. Leaving a specific financial legacy is very important to me and my wife. What is the best way to accomplish this in the most efficient manner?
10. Are all of our assumptions reasonable and accurate?
1. Should I take Social Security early, at 63, wait until my full retirement age of 66, or delay until I am 70 years old? What about my wife?
2. Are there advanced Social Security planning strategies that I do not know about? What are they?
3. What is the impact on my assets if I take IRA distributions beginning at my retirement, or should I delay until a later date?
4. I have a Roth IRA of some size. When should I take money from it?
5. Can I afford to retire on December 31, 2017, or do I need to keep working?
As you can see from the titles of the various topics listed, this is our SMART planning format. SMART planning will help you start thinking and get organized. This is just an example to get you thinking. Your goals can be similar to the goals listed. Or, they can have nothing to do with money, and everything to do with life-style and legacy. It’s completely up to you and what matters to you and your loved ones. The more specific you are, the more valuable this exercise will be for you.
Some additional thoughts on goal planning. Put everything on your retirement wish list. Include all your needs, wants, and wishes in your lifestyle plan. Measure and test everything. If necessary, scale back on wishes if they are simply not achievable.
Just like building a house, we need a blueprint. Here is where you really need to be thorough and take your time. Think of yourself as a financial architect, and pay attention to every detail. If you will be methodical and thorough, this process can be very fruitful. When we do financial planning for our clients, we start with their desired outcomes first. Here are some key questions we ask every new client, questions that we repeat at every review meeting. So, ask yourself: In a perfect world, when will I retire?
1. What are my short, mid, and long-term financial goals?
2. What are my needs, wants, and wishes? Differentiate between needs, wants, and wishes so that I know what is most important to me.
3. Where will I retire? Will I live in the same town? In the same house? Or will I move to a new town and a new house?
4. If I had all the money I would ever need, how would I spend my time? Having a clear plan as to how the hours and days will be filled is crucial to your mental and physical health. The hours you used to spend working will now be free time for other activities. Do you have hobbies? Will you volunteer some of your time? Will you consult, either in your own profession or another? Some clients tell us, “I can’t believe I ever had time to do my ‘real’ work, I am so busy during retirement!” Other clients have nothing but idle time on their hands, which can be dangerous and might lead to a shorter life expectancy.
5. How much money does it cost us to live today? Use our monthly budget number here (we’ll work on this later in this book), on an annualized basis. Do not forget to in-crease our cost of living every year by at least a reasonable percent, in order to keep up with inflation. Continue to inflate our lifestyle need every year for the rest of our lives.
6. What about health care? What would happen to our financial picture if I got sick for an extended period of time? What would happen to my spouse’s financial well-being? Do we have a long-term care insurance plan of action?
7. Will our wishes be carried out in the event of disability or death? Do we have a will, durable powers of attorney, and a living trust? Are all our documents current?
These questions, and more, are crucial to understanding your desired retirement lifestyle and to analyzing if you will be all right during retirement. When you complete your homework in this book, you will have a much clearer vision of your desired retirement outcomes and whether or not you are on track. So, try it for yourself, right now! Or, even better, make a copy of this chart, and then share this book with a friend. I am certain they will thank you.
Complete these SMART goals thoroughly and thoughtfully. This is not meant to be easy, so don’t get discouraged. The harder you work on this, the greater the potential benefit to you and your loved ones.
Done? Good! Congratulations on completing your SMART goals. Just know that you are already in a small, elite group. Very few people take the time to even think about specific and actionable retirement tasks, so you are already ahead of the game. I know this to be true from my more than 30 years of financial services industry experience. Having conducted hundreds and hundreds of client and prospect interviews, I can count on one hand the times people have brought in their written retirement and legacy goals. And, after counting, I still have fingers left to cross!
It’s time to move onto the next stage of this journey.