Ryan M. Vogel, CFP®
Retirement Plans That Grow with You
Updated: Oct 27, 2022
As you approach retirement, it is important to have an integrated cash flow, tax, and investment plan.
Determining how you’ll spend your time post-work is just as important as how you’ll replace your paycheck.
Stress-test your plan for a wide range of financial and economic scenarios so you can retire confidently.
With inflation, rising interest rates and a big stock market drop weighing heavily on people’s minds, many retirees are seeing their account values drop. Add that to diminished spending power and some retirees are asking themselves if they may need to go back to work. I’m sure you’ve seen countless news reports about 60- and 70-somethings trudging back to the work force.
While some of our clients continue doing some work in retirement, they do so by choice, not out of economic necessity. In fact, this scenario is one of the first things we talk about with new clients, especially since many join us in their mid-50s when they’re starting to think about early retirement.
Never Too Early to Start Planning
Even if clients are 10 years away from retirement, we encourage them to start thinking more specifically about how they plan to spend their time post-work. Many successful people have been so busy building their businesses or careers, and squeezing in time for family, they haven’t had much time for themselves. That’s why I like to plant the seed 10 years out. Many highly driven people must find an outlet for all the energy they formerly channeled into work. It doesn’t happen overnight.
That being said, retirement planning doesn’t have to be a big, all-consuming project. You just need to put some thought into how you plan to spend all your newfound free time. One of the first questions I ask new clients is: “When you were younger and had more free time, what did you enjoy doing?” This simple question often takes them aback, but it gets the wheels turning. People tend to get so swept up in their work routine that they don’t realize how much they’ve saved or all the possibilities they now have before them.
Real-World Example Several of our clients are passionate about giving to charity. I have seen many people transition from a demanding career to volunteering as a way to begin their retirement. They are often able to leverage their professional knowledge, expertise and contacts for the benefit of their favorite charity. Serving on a charitable board takes a fair amount of time that they probably didn’t have in the peak of their working years. Now that they’re retired, volunteering is a personally rewarding way to utilize their time.
Stress Testing Your Plan
As clients get closer to their target retirement date, we always examine how well their financial plan will hold up under a variety of adverse conditions. For instance, it could be a stock market decline hitting right before they hoped to retire. If you’re still working, a bear market is not that serious because you’re still in your accumulation phase and have some flexibility. You can keep your target retirement date if you’re willing to save a little more. We could also make adjustments to your spending plan in retirement.
For recently retired clients, we discuss how to prioritize their expenses. If they were planning an expensive trip five years into retirement, perhaps delaying it a year makes sense. If they still want to travel at the original date, we discuss other options for increasing their retirement income, such as taking on more investment risk.
Financial planning is about understanding the tradeoffs inherent in each decision you make and then discussing what works best for your personal situation. It's very comforting for clients to know they can withstand a bear market and not have to delay retirement indefinitely or run out of money once retired.
That’s Where I Transition to Having the Cash Flow and Tax Plan. The two biggest questions we get from clients are:
Do I have enough to retire?
Where is it going to come from?
We lay that out for them very clearly:
When you stop working, here are the accounts we’re going to draw from first.
This is when we’re going to take Social Security.
This is what we expect your tax rate to be.
Let’s consider some Roth conversions or other tax planning strategies to maximize your wealth.
Providing these specifics about how their paycheck will be replaced and how their withdrawal strategy impacts their tax plan gives them confidence in their plan and reassures them they’ll be okay.
Big market drops early in retirement can have a more significant impact on your situation than drops later in retirement. These are the kinds of conversations we’re having with people right now. A common mistake people make is getting caught up in the short-term numbers – inflation, interest rates, portfolio returns, etc. When we run our retirement planning scenarios for clients, we’re looking at a 20 to 30-year time horizon and how it impacts your finances over that period. It is easy to get caught up in day-to-day emotions when the stock market is volatile and when world news is so unsettling. Our perspective provides comfort to clients because it allows them to take a step back and see the big picture.
Integrating your investment strategy to your retirement plan and cash flow plan will give you the confidence that you’re going to be okay. If you or someone close to you has concerns about market volatility or your retirement readiness, please don’t hesitate to reach out. We are happy to review it for you.
RYAN M. VOGEL, CFP® is the CHIEF PLANNING OFFICER, PARTNER at Novi Wealth