George D. Marron, BridgeTower Media Newswires
Retirement is complex and different for everyone. Most of us worry about investment and spending plans, the emotions of life changes, health and health care costs, family needs, and legacy. Despite these similar concerns, each of us has different priorities, needs, and definitions of success when it comes to these issues. As a result, there really isn’t a simple, one-size fits all retirement plan. Rather, it is essential for you to have a personalized planning framework to help you find ‘success’ in retirement.
For starters, here is an example of a good planning framework: (1) determine your needs and goals, (2) define the risks, (3) assess your resources, and (4) develop and implement a plan to meet your goals and manage the risks. This framework may be applied to any number of decisions in retirement — investments and spending, health needs, retirement activities, estate and legacy planning, etc.
Let’s take retirement spending as an example. Many people talk about retirement spending as a single goal. The reality is that retirement spending (like most other aspects of retirement) is composed of multiple needs and goals. The first step is to determine your retirement spending needs and goals by breaking it down into:
• Basic living expenses (needs);
• Emergency fund (needs);
• Discretionary spending (goals); and
• Gifts and legacy (goals).
Listing these items and assigning relative importance will naturally filter out needs, goals and stretch goals.
Next, you need to understand your risks. The most obvious risk is running out of money. If you are like most people, you will need to invest your money in order to meet your goals. Your investment portfolio should be designed to meet your goals while lowering your overall market risk. This would include the risk of loss of purchasing power due to: interest rates, inflation, poor investment returns and poor investment decisions (chasing returns, selling low and buying high, etc.). If you find yourself needing to take on more risk than you can tolerate, it is time to reassess those goals. In addition to market risk, you should also take into account health risk (personal health, insurance coverages, etc.), longevity risk (outliving your assets) and tax risks (managing the portfolio for taxes and adapting to a changing tax environment, if necessary).
The third step in the decision matrix is to assess your resources. With retirement spending, we would look at your guaranteed income, liquid assets and additional resources. Guaranteed income includes social security, pensions and income annuities. Liquid assets would be your personal accounts should consider the asset allocation and tax treatment of those accounts. Lastly, your other resources might include insurance, non-liquid assets, real estate, etc.
The last step is to build out and implement an investment and spending plan which is tailored to your goals, reduces risk and makes best use of your resources.
This planning framework is useful for non-investment needs as well. Imagine what it would look like with personal health, retirement activities, or travel as the topic. By using this framework and repeating the process, you should have increased confidence in your decisions and be on the road to your successful retirement.
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George D. Marron, JD, CFP is vice president for Karpus Investment Management, a local independent, registered investment advisor managing assets for individuals, businesses, non-profits and trustees. Offices are located at 183 Sully’s Trail, Pittsford, NY 14534, (585) 586-4680.
