Over the years, I have watched many of our clients retire. Now that I am retiring, I can relate to the angst and the excitement that I’m sure many of you felt when you walked out the door of your employer for the last time. Although the excitement is bubbling below the surface (and some of my co-workers would say too close to the surface), I worry if all the planning we have done throughout the years is going to “work out” for my husband and me. Did we get all the numbers on our cash flow projections correct? Did we run enough long-term retirement planning scenarios? Do we have enough long- term care insurance? Although I’m a financial planner, I too have the same anxieties you have or you may face when you reach retirement.
Then I brush off those anxieties and find comfort that the approach Foster & Motley takes to comprehensive financial planning and investment management has helped us reach our goals. Applying those principals of this comprehensive approach to our personal planning has brought us to the place we are today – ready for retirement.
The first thing we did to prepare for retirement was to make sure we fully understood our cash flow needs. How much do we spend on both fixed and discretionary expenses? What can we do to reduce our taxes? Understanding our cash flow helped us to determine how much income we need during retirement. It also gives us a good idea of where we can cut expenses if needed during a downturn in the market.
Next we took those cash flow numbers and projected them out into the future (inflation adjusted) to make sure the pension income we have and the assets we have accumulated, will last our lifetimes. This was another important part of the planning process to make sure the asset allocation we chose for our investments matched the income needs we determined through our cash flow analysis. The Monte Carlo simulation software we use at Foster & Motley, applies 1000 potential return scenarios against the assumptions we put into the software. This allowed us to see the likelihood of success (or failure) of our retirement plan. When we first started these projections years ago, the plan projected failure, but this process gave us the information we needed to make the necessary changes. Generally that meant we either had to save more and/or spend less.
Of course, throughout the years, we had to be vigilant with our investments to make sure the asset allocation we used was appropriate for our circumstance. We had to consistently rebalance our portfolio back to our target allocations in order to take advantage of trimming in areas that had gains and buying in areas that were down. We applied the same philosophy Foster & Motley uses with clients. As you know, this isn’t always easy. Sometimes it’s just as hard to do this to our own portfolios as it is to do it to yours. While at times it can be painful – it works.
Comprehensive planning does not stop there. We had to look at the possibility of long-term care costs and measure that against our pension income and assets, to determine whether we could assume that risk. Could we self-insure or did we need to get long-term care policies? Then we looked at our life insurance coverage. Were we adequately insured or were we over insured?
Once we felt those areas had been covered, we met with an estate planning attorney to get our documents in order. We wanted to make sure the assets we had accumulated during the years would pass to our heirs in the manner that was important to us. Even though our eyes were on the future, none of us knows how long that future may be, so it’s important to plan for our deaths while hoping it’s still decades away.
Financial planning is a lifelong process. Although we will be retired, we will need to continue to look at each area of our plan to make sure it is updated with our current circumstances, which can change over time.
My tenure with Foster & Motley has been very fulfilling, but it won’t be long before I am walking out the door and into retirement. As I leave this part of my life behind and begin anew, I will miss all the relationships I’ve had with our clients throughout the years and I will truly miss the daily kinship I’ve experienced with my co-workers. To each of you, I wish you good health, fun times with your families and friends and financial success for your future. Take care!