Will I Have Enough Money To Retire?
As we begin to try and answer the question will I have enough money to retire, which of course, is the number one question that we help our clients answer here at Third Act Retirement Planning, we want first to understand that the answer varies greatly from person to person and couple to couple. One of the things that we start in our process as we're beginning to build a financial plan is that we look at the current person's income if they're not already retired, and if they are retired, we'll look at their part-time income. Of course, there's social security, pension, annuity, rental income from maybe some rental houses they have and any other types of income. We begin to enter that into their plan, and then we'll walk through and list their children and grandchildren and any other beneficiaries that they might want to have, family members or just friends. So we'll list those, and then we'll move into a kind of looking at their expectations and that type of thing, and all of our clients are different there. They might want to make sure they have no work.
They might want to decide that they don't want to work. That's important to them. They've worked their entire life, and they might not want to work at all, whereas many of our clients do want to continue working part-time for a few years while they're still healthy and also as a way to keep them moving and active and making money to live the type of retirement that they want. They just don't want to work the hours, the full-time hours that they were working before and then we have some of our clients that never really want to retire completely, and that's not unusual at all. We ask our clients to kind of look at how important an active lifestyle is going to be to them, as well as a quiet lifestyle. We have clients, of course, that really have the goal that they'd like to have time to travel, and so we've got to sit and put in a budget for that. Do they want to do domestic or international travel? How long do they want these trips to be? How upscale are they going to make these trips?
Are these going to be first-class trips to four and five-star hotels? Are these going to be driving in our car to stay with friends or family? So we build in the budget on the travel, and then we also want to have the client's expectations on how much time they're going to have with their friends and family. Most of our clients, that's important to them. They want an opportunity to help others, some of our clients, not just with their time but also, of course, their resources. Well, that has to be budgeted in and then many of our clients, when they retire, would like to move to a new home. That's very important to them, and something that they look at doing or maybe they want to start a business. I've had several clients start a business where it would allow them to contribute to the community as well as make some extra money and have a little fun, have some responsibility and again, keep them active. So you can see that several of these have been about work after retirement. Is there going to be none, some start a business?
WHAT PEOPLE REALLY WANT FROM A RETIREMENT PLAN
We'll find out, and then, of course, many people just want to have less stress and peace of mind. Well, what is it going to take to do that? Do we need to move from an urban or suburban area into a more rural area, or can we just stay where we are? What's going to give us less stress, and how much money is that going to take to make sure if that's really important to have less stress and peace of mind? How much do we want to do that? Home improvements, I would say most of my retired clients do renovations to their homes on a regular basis. It might be their bathroom, their bedroom, their driveway, their backyard. They might put a new roof in or solar paneling. I just have clients in 15 states, and I see my clients do all types of different home improvements over the years. The next thing that we want to look at with our clients is we're going through their financial plan. We're creating that as we want to look at their concerns and how concerned they're going to be about, for example, the top five money concerns that we will discuss are:
1. Not having a paycheck anymore;
2. Running out of money;
3. Suffering investment losses;
4. Leaving money to others and
5. Spending too much.
So we look at those concerns if they have them at all, and we go ahead and say, "How big of a concern is this to you?" So, for example, if one of their greatest concerns is running out of money, then that tells me as their financial planner that we need to really gear up and take conservative action so that this doesn't put them in a position where that could happen or get close to that, and I would typically do that for all of my clients. But some clients need more reassurances, more money in the bank than others. Some clients still want to be saving in retirement. That's the only way they feel good. They want to have a goal of saving $500 a month or several thousand dollars per month to make them still feel good in retirement. Some clients don't care about saving anything at all and are, in fact, comfortable drawing down their assets as long as the plan works for them, and they can see that even though they're drawing down their assets, they are still not going to run out of money. So those are just some of the money concerns, and then what we look at is our client's health concerns.
So the cost of healthcare and long-term care have been rising, and I think they're only rivaled by the cost of college education in this country for the past 20 years. The cost of healthcare and long-term care have just absolutely skyrocketed. They continue to skyrocket where it's not unusual where I see my clients providing care for their parents at the cost of $10,000 per month, which is quite a budget for people in their eighties and nineties to be spending $10,000 per month. So this is a huge concern. We look at the current or future health issues of our client and begin to make recommendations for that with our team of experts. Many clients are concerned about dying early or living too long. Those are things that need to be planned for.
TOP 5 CONCERNS ABOUT RETIREMENT
Of course, dying early, and as morbid and as cold as this sounds, dying early is rarely a bad thing for a financial plan because, of course, the goal is not to run out of money and if that's the goal, to have a comfortable retirement, if you don't live very long, then that gives you less likelihood of becoming uncomfortable or having to at least change your budget. Most of our clients aren't going to run out of money. However, many, if not almost all of them, do have to watch their budgeting and their spending as they're navigating their way through retirement, and we go over our clients' financial plans on a yearly basis. Getting Alzheimer's, of course, is another concern, going into a nursing home. All of these are concerns that we look at. Probably the most important concerns are the
top five concerns that we consistently run across, which are:
1. Going to be running out of money.
2. The cost of healthcare or long-term care.
3. Suffering investment losses.
4. Current or future health issues.
5. Not having a paycheck anymore.
Probably the top concerns that we see as we're trying to help our clients navigate retirement.
HOW LONG WILL YOU LIVE? OR AT LEAST PLAN TO
The next thing that we do in deciding if our clients will have enough money to retire is in looking at the age they want to plan to live to and are they going to plan to live to be 80 or 90 or some number in between? We look at that, and we really want to make sure that we have a conservative number in there. The average man now in the US lives to be 76, and the average woman now lives to be 80. So when we're planning, we want to make sure we're very conservative with that. One way to do that is to add ten years to each. So plan for men to be 86. Plan for women to be 90, and by doing that, we build in a huge amount of conservatism and frugalness and wisdom into their plan that can help make sure that they will not run out of money and that they will have enough money when they retire by adding a decade to the average age of people here in the United States.
It really puts them into the bell curve, as we call it, for less risk for having an unsuccessful retirement or relying on their loved ones for money and again, this can happen to anyone. I mean, I know of clients that have budgets that are above $200,000 a year in today's dollars during their retirement. I have clients that have $40,000 budgets during retirement. It doesn't matter how much money you have. If your budget is too high, you can outspend it and then the most important thing or one of the most important things that we do is to create their goals.
MOST IMPORTANT: BASIC LIVING EXPENSES
We really have to go through it, and the number one goal that we set and that we rate the highest importance on our financial plan is the retirement basic living expenses. This, along with the income and the assets, will drive the entire plan. The plan will live or die on those three things, the income, which is the offense, the living expenses, which is the defense and then, of course, the assets, which we'll call the special teams as we're comparing it to football. But that is what we want to put in. We want to look at what will be their health insurance, their food and entertainment, their taxes, insurance, and all of the things they're going to be paying for. What do they want to put into their budget, and then we rate that as a need?
Goals and Rating Their Importance to You
On a scale of 1 to 10, we rate that as a need and then we'll put healthcare and put the cost of Medicare and the other expenses they have, and we'll rate that as a 10 (as a need), and then we'll go, and we'll look at things like travel or weddings they might have for their children or grandchildren, cars that they might want to purchase and again, the cost of starting a business or buying a new home or leaving money to their kids or even giving away money now. Maybe they want to have a celebration, a 50th wedding anniversary or 25th wedding anniversary if it's a second marriage, a private school for their grandchildren or just a gift or donation, home improvements, college. They want to provide care for maybe their parents. Maybe they want to make a major purchase like a boat or some other type of second home, major purchase and insurance policy premiums.
We put all of those things into the plan, and we rate them on a scale of 1 to 10, and then we also put them into three categories, needs, wants and wishes and of course, wishes are the least important and when we do that, it allows us to use the plan to determine where to pull the money from if the plan gets tight in the mid to later years. So in other words, if a client had basic living expenses that were, say, 95,000 in today's dollars in 2021, I keep saying today's dollars because our currency continues to devalue so quickly, at least as I'm writing this article today, and we're going to give that a 10. So the first thing we want to do is make sure we have that 85,000 or $95,000 budget provided for in retirement, and then let's say, "Well, we'd like to give our daughter or granddaughter $25,000 for a wedding or $20,000 for a wedding." We're going to put that in the wishes category. So, that's going to have a low rating.
So as we put these goals into the plan and the plan begins to compute, look at possible market crashes and run all the scenarios that could happen the way their money is with the withdrawals, with market crashes, without market crashes, with bull markets, with bear markets, what we begin to see is we pull from the needs first and then if we can provide those with the income and the assets that we have, including possible market crashes, then we'll go and provide that all the way to the age that we set earlier. Then we'll go back and start pulling money for the wants. Maybe you want to buy a car five years from now. Well, that might be a want, and then we go to the wishes and try to see if we can pay for our granddaughter's wedding and if the plan can hold up under all that, then it'll provide the client with 100% funding for all their needs, wants and wishes. However, if the plan runs out of money after it does the needs, then it'll significantly reduce the wants and the wishes, maybe all the way down to zero.
Although, we try not to do that. We try not to go all the way down to zero. We try to budget for the client so they can do something. Just maybe change what they're doing. Perhaps, instead of giving your granddaughter $20,000 for a wedding, give her $10,000 for a wedding as an example.
These are several of the things that we begin to look at with our clients as we go through and build their financial plan. Every single one of our clients is required to have a financial plan as they come on board. We make sure that we provide them, not just with institutional class money management, but also with financial planning that'll help the years that they're in retirement to be their best ever.
SET UP A CALL OR WATCH MY FREE VIDEO
Set up a 20 minute call with Thomas Cloud, Jr., CFP(R) to determine if you will have enough money to retire. Tommy can help you answer these questions and others in a 20 minute no cost no obligation phone call. Click here and schedule it now: https://calendly.com/thomascloud/retirement-ready-success-call. Also, we will perform an audit on your portfolio (greater than $500,000) and review that with you as well at no cost or obligation what so ever.
Also I encourage you to watch my free retirement video: https://go.thirdactretirement.com/strategy