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By Anthony Skvarka, CFP®, CPWA®, AIF® Senior Wealth Advisor at Halbert Hargrove

Over the past 30 years, I have had the privilege to help many clients move on to the next phase in their lives. For some, this meant a hard stop on collecting a 9-to-5 paycheck. For others, it meant giving their time to working for a cause, or working part time in a field they had always wanted to pursue before finally hanging up the suit for good.

Everyone’s journey to a well-lived retirement is unique, and the journey is typically filled with a surprise or two right around the bend. However, my clients who started planning for their next phase many years in advance all had one thing in common. They were better prepared and when life threw them the proverbial curve ball they all had a plan to pivot and course correct.

  1. Know how much income your investments will generate

If your goal is to sustain your existing lifestyle and live in your current home, as a rough rule of thumb, you’ll need to replace your annual salary to the tune of 75% to 90% of your pre-retirement income. The replacement sources will need to come from the money you’ve saved in your retirement and taxable accounts, and include other sources you may have such as income from a rental property, pensions, Social Security, etc.

Some work-related expenses will carry over into retirement such as fuel and food – but will more than likely be lower since you may not be travelling daily. Other factors to consider are your health status, current age, your family history of longevity, and at what age you plan on retiring.

You may be surprised at how much or how little your investment accounts could potentially provide in annual withdrawals over the course of retirement. Consider the simple example below that illustrates how much in retirement one might safely withdraw annually if retiring at age 65. The chart below does not factor in inflation (i.e., the cost of living) that, on average, can be assumed to go up by 2.5% annually. Note also that this chart does not factor in the fact that the 4% annual withdrawal amount will increase/decrease annually with fluctuations in the portfolio value.

Portfolio value at age 65               4% annual draw from portfolio*

$500,000                                             $20,000/year

$1,000,000                                          $40,000/year

$2,000,000                                          $80,000/year

For some, figuring all this out may seem daunting. Those who hire an experienced advisor skilled in assisting with retirement planning can benefit from their financial quarterbacking to get them to the goal line.

  1. Have a plan for your time

It’s critical to bear in mind that if your goal is to retire by age 65 and you are married or are in a long- term committed relationship, there is a very good chance that one of you will make it to at least 90. That’s 25 years – if not more – in retirement.

What will those 25 years look like?

Are you the kind of person who needs a bucket list of things to check off? Will this list fill up 25 years – or once these items are “checked off” what will you do next for the remaining years? Replacing the time and social interactions gained from a 9-to-5 job can be a tall order. Some people may still need to fill that void by working in some capacity. This might include working in a field that provides self-fulfillment vs an actual paycheck. It may mean a volunteer position working with a nonprofit that supports a cause that is important to you. Many find it helpful to work part time initially to help with the transition.

Twenty-five years is a long time. Having a plan can help to ease anxiety – plus once you get there you will have the initial framework to help kick things off!

Need more help in coming up with a plan? HH has invested time firm wide in using and implementing life-planning teachings from noted Stanford professors and authors Bill Burnett and Dave Evans. Their book, Designing Your Life, is an easy read and can be used by anyone – no matter what age or phase of life you happen to be in.

  1. You need a big-picture plan for your spending and resources

Have you saved enough now for a possible shift up or down in your retirement date? Critical to figuring this out is to accurately track your income and expenses. Start by using a budget worksheet. A quick online search or your bank’s website will point you in the right direction. Or, if you use an account aggregation tool like Mint, you may be just one or two clicks away from knowing how much you spend monthly/annually.

With an accurate budget in hand, creating and revisiting this at least annually, a financial goal plan can help! Ten years before retirement you may need to start saving more and/or spending less to prepare for such a possible shift. Perhaps there’s an uptick in your workload and accompanying stress. Work can change, and stress and anxiety can increase, just when you may be expecting things to start winding down. Or your company might downsize – and the thought of having to find another job and start over may not be appealing.

Here are two examples:

I recently had a conversation with a client experiencing an increase in stress. He works for a Fortune 500 company and no longer wanted to continue to work in that environment. He asked me if I could help him to explore retiring at age 62, three years earlier than originally anticipated. Fortunately for him the answer was yes! He had amassed a significant level of assets, with zero debt and a frugal lifestyle that he does not expect to change. His relief was palpable. Further, he still intended to work part time as a small business startup consultant.

Conversely, another client who originally intended to retire at 65 now plans to extend her career until she reaches 70. She came to this conclusion after we worked on her financial goal plan. At age 65, she was not comfortable with the results – she wanted to have the opportunity to leave a larger estate to her heirs. By extending her working life to 70 and continuing to collect a paycheck, she would also be able to maximize her Social Security benefits by deferring until 70 too. At age 70 with the higher SS benefits, her goal plan projections were favorable and appear to meet her goals.

In both cases, financial planning played a significant role in the decision-making process to either retire early or to defer.

Most of us, when reflecting on our own ideal retirement, will have a vision of what that may look like.    For many that vision can and does shift as we age, gain life experiences and new additions to our families, travel, and accumulate wealth. Bottom line is, the path is not set in stone. Early planning and preparation will often also uncover that goals once considered unattainable are actually within grasp now – or with a little additional planning! Budget in hand, and with an advisor you trust to assist with your financial plan, you too can enjoy a well-lived retirement.

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Disclaimer:

Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.

The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without previous notice. There is no guarantee any forward-looking statement will come to pass. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. This material should not be relied upon by you in evaluating the merits of investing in any securities or products mentioned herein. In addition, the Investor should make an independent assessment of the legal, regulatory, tax, credit, and accounting and determine, together with their own professional advisers if any of the investments mentioned herein are suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield may not be a reliable guide to future performance. Any reference to a market index is included for illustrative purposes only as it is not possible to directly invest in an index.

Sources:

* Assumes the portfolio earns an annual rate of return of 6%, with an annual 4% withdrawal. Returns will vary annually and there is no guarantee that an annual return of 6% will be attained. The variability of returns will impact the viability of sustaining a 4% withdrawal rate through retirement.

 

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