How to Retire Intro:
Embarking on retirement planning can sometimes feel like attempting to scale Mount Everest without a guide to explain the tools you’ll be using to scale that monstrosity.
In the realm of financial strategies on how to retire, traditional retirement accounts like 401(k)s and IRAs seem to face new challenges, with their impact evolving in today’s economic landscape characterized by high inflation, market volatility, and often perplexing government communications. The result? Some individuals contemplate the idea of working indefinitely just to navigate the uncertainty.
However, I believe it doesn’t have to be this way.
Step 1:
It’s crucial to recognize that relying solely on historical patterns as a crystal ball for the future is far from foolproof. Yet, as a wise observer noted, “history never repeats itself, but it often does rhyme”.
This perspective forms the foundation of our approach. At the heart of what we do is helping individuals and couples define their “enough.” In the ever-changing landscape of personal finance, understanding what constitutes “enough” is paramount. Our goal is not just to enhance your financial literacy but also to instill confidence in your financial approach.
Today marks the first step of the three-step journey towards “How to Retire” with the first step being “Find What You Have.”
While seemingly straightforward, many clients we meet initially possess a different understanding of their retirement accounts than when they first entered our doors. This discrepancy often arises due to various factors:
- Underestimating how purchasing power influences portfolio growth
- Neglecting to account for taxes and fees in financial planning
- Overlooking healthcare needs, disability, and emergency funds in retirement income planning
- Having an incomplete strategy for withdrawals from 401(k)s, social security, and other income sources
- And more
Starting with an accurate assessment of our current financial standing is essential to planning how to retire properly. Without a realistic understanding of what we have, meeting retirement expectations becomes an uphill battle.
For instance, envision a scenario where someone holds $2 million in retirement assets. They might plan how to retire with the goal to sustain or even elevate their current lifestyle with their spouse. But if they’re anticipating another three decades or more in retirement, is this feasible?
Questions like these fuel my passion for this profession and underscore why starting at this point is among the most crucial steps in retirement planning.
How do I do this?
If I were to pose a question to you right now—how much money do you live off per year—would you have a ready answer? If not, don’t worry; it’s a common oversight, but one that becomes crucial to address before stepping into retirement. As our primary income sources shift, transitioning away from daily jobs, our precision and attention to our spending become paramount.
TIP: Personally, my wife and I find great value in budgeting apps like Rocket Money, Mint, or CoPilot. These tools automate our budget, offering a comprehensive breakdown of our expenditures against our income. Consider exploring these options for a streamlined budgeting process.
Once you’ve established a reasonable estimate for your expenses, let’s transition to assessing your assets. Below is a somewhat comprehensive list of potential sources for your retirement income and how we typically categorize them for our clients:
| Category – CASH FLOW | Examples |
|---|---|
| Cash flow tends to be where many retirees start | – Income (Salary, Business Income) |
| simply because it’s most similar to their typical | – Social Security |
| weekly/monthly pay they’ve been used to. | – Pension Payments |
| – Rental Income | |
| – Dividends and Interest | |
| – Annuity Payments | |
| – Part-Time Work | |
| – Other Regular Payments | |
| – Health Savings Accounts (HSAs) | |
| – Government Assistance Programs |
| Category – ASSETS | Examples |
|---|---|
| Assets are anything that you own for investment | – 401(k) |
| purposes for the sake of this categorization. | – IRA (Traditional and Roth) |
| – Brokerage Accounts | |
| – Real Estate Investments (e.g., rental properties) | |
| – Dividend-Paying Stocks | |
| – Bonds | |
| – Mutual Funds | |
| – Equity in Companies or Businesses | |
| – Other Investment Vehicles | |
| – Cash and Savings |
| Category – LIABILITIES | Examples |
|---|---|
| Liabilities must be included because they will need | – Mortgages |
| to be paid off either regularly or by a given date | – Home Equity Loans |
| and must be addressed with the planning. | – Car Loans |
| – Credit Card Debt | |
| – Other Loans and Debts | |
| – Outstanding Liabilities |
| Category – INSURANCE | Examples |
|---|---|
| Insurance may be expiring at this part of your | – Life Insurance |
| financial journey if you bought term insurance | – Health Insurance |
| at a younger age. It’s important to stay on top of | – Long-Term Care Insurance |
| what insurance you do have. | – Property Insurance (Homeowners, Renters) |
| – Disability Insurance | |
| – Other Insurance Policies |
Now I know this process might take some time to assemble, so we’ll pause here for today. Join us next week for Step 2 of this journey, which we’ll title “How to Retire: Part II (Find What You Need).”
In this upcoming session, our focus will shift towards leveraging the data you’ve collected. We’ll delve into the methodology of determining the annual amount you’ll require in retirement. Whether or not you decide to consult with us for your retirement needs, I want to highlight a few crucial aspects that many individuals within earshot of retirement often overlook in their pre-planning. Stay tuned for valuable insights that could make a significant difference in your retirement strategy.
For direct questions or clarification please reach out to me at Jordan@chapwoodinvestments.com.
Disclosure:
Chapwood Investments, LLC is a SEC Registered Investment Advisory Firm. No mention of a particular security, index, derivative or other instruments in this material constitutes an opinion on suitability of any security. The information and data in this material were obtained from sources deemed reliable. Their accuracy and completeness are not guaranteed. At any given time, principals at Chapwood Investments, LLC may or may not have a financial interest in any or all of the securities or instruments discussed in this material. The guests appearing in material do not receive compensation or provide endorsements or testimonials. Past performance is not indicative of any future results.