Anticipating retirement can evoke concern and uneasiness. You’ve focused on your career or the business you own, with the goal of achieving a comfortable lifestyle during retirement. Now you can look to the future with a sense of accomplishment and confidence as you consider new possibilities. This is the time to take steps toward a secure retirement path and avoid long stretches of financial stagnation or depletion. As Benjamin Franklin advised, “An ounce of prevention is worth a pound of cure.” This article is a guide to how to optimize your finances during the critical three-year period before and during your retirement.
Time To Retire?
With longevity on the rise, the road to a secure retirement can be a long one, involving many market ups and downs along the way. You can’t control market fluctuations, but you can control your financial path. It is important to know where you are and where you want to go — now that you are transitioning to retirement.
The Stages of Financial Freedom® is a roadmap to help you think about your path and possibilities for your future. Your goal is to keep your finances on track and to enjoy strength, vitality, and endurance as you begin to live off of your assets and benefits. You emerged from the Foundation Stage to Early Growth Stage to Peak Growth Stage over many years, and likely experienced both fortunate and challenging periods. You are now in a place to examine your entire financial picture so you can look to the future with clarity and confidence.
The Transition Stage is the three-year period before and after full or partial retirement. This is a critical time to make the most of what you have. Important checkpoints, decisions and adjustments can be made during this stage.
The Security Stage is when you will live off the assets and benefits you accumulated and set the stage to enjoy a high level of perpetual financial freedom.
What is the ideal first step as you test the waters to begin a three, two, one year countdown to retirement?
Start with a Lifestyle Protection Analysis™ (LPA), which simulates your retirement. The LPA stress tests your financial plan, including your balance sheet, cash flow, liquid savings, brokerage and retirement account balances, portfolio risk levels, social security income and pension benefits. The data is analyzed against various market environments to reveal strengths and weaknesses. The goal is zero probability of depletion when tested against every 40-year period since 1900, such as the Great Depression (1929-1939), Great Recession (2007-2009), Lost Decades (long periods of slow growth and flat markets) and periods of hyperinflation. If your finances are too fragile to withstand worst-case scenarios, the Lifestyle Protection Analysis™ will help identify weak links that need to be adjusted to ensure that your retirement plan is solid.
Finally, as you transition into retirement, it is good to have plenty of room for continual tweaks and adjustments.
To maintain your desired standard of living with no dependence on earned income, your balance sheet must align with your goals and means. The key is to balance the three categories of assets with your standard of living goals and our financial strength, agility, flexibility, and endurance (SAFE) standards.
Your assets are broken down into three buckets:
- Safety Assets are highly liquid holdings like bank accounts, CDs, money market accounts and/or U.S. Treasuries. Goal: 1x to 5x your annual spending target, grossed up 25% or more for taxes.
- Market Assets are globally diversified investment portfolio holdings like stocks and bonds (or mutual funds and ETFs that own them). Goal: 25x to 40x your grossed up targeted spending amount.
- Aspirational Assets are concentrated, leveraged and oftentimes illiquid holdings like real estate, businesses, or stocks in an executive stock option plan. These assets are sometimes sold (liquidated) and moved into Safety and Market buckets for greater financial control and stability. Goal: 0x to 40x your grossed-up spending level. During retirement, Aspirational Assets are “icing on the cake,” as long as Safety and Market asset targets are reached or exceeded.
Similarly, examine your spending. What proportion of your expenses are non-discretionary, discretionary, and extraordinary? Optimizing, with room to spare, is what will help you enjoy your retirement to the fullest.
You have three levers: your balance sheet, your portfolio and your cash flow (spending level) to adjust as needed. Technically, if you have not yet stopped working, a fourth lever is your actual retirement date. This fine-tuning process often demonstrates whether an earlier or later retirement date is advisable.
“Elastic limit” is an engineering term that is a measurement of the amount of stress something can withstand before being irreparably damaged. The elastic limit of your wealth is important to measure and optimize as you transition to retirement.
The art and science of Strength Based Wealth Management®, enables you to enjoy clarity about your Elastic Limit Threshold. On a single page, consisting of “35 Essential Strengths®” are, we believe, the most important strength, agility, flexibility, and endurance measurements. Confidence and clarity come from achieving at least 30 of the 35 Essential Strengths by your desired retirement date. For more details on Strength Based Wealth Management®, the 35 Essential Strengths®, and our proprietary Wealth Optimization Dashboard™, click here.
The final step to properly prepare for retirement is to make sure your accumulated assets are prudently managed. You’ll want your investment team to use a robust trading and monitoring system that tailors your portfolio with precision and sophistication.
Align – It’s All About You
Your investment portfolio needs to be aligned with your objectives, needs, time horizon, risk temperament and circumstances.
Intelligent – Escape the Chaos and Complexity
A portfolio manager who utilizes an intelligent, common sense investment approach can help you escape noise, hype, and complexity.
Disciplined – Let Markets Work for You
Select a seasoned portfolio manager that stays disciplined to sound, long-term approaches and avoids short-term approaches based upon emotions or hunches.
Evidence Driven – Quality Academic, Economic and Investment Research
A portfolio manager who applies strategies based upon sound research and data may add to your probability of success.
Tax Sensitive – Tax-sensitive Strategies can add Great Value
Seek to maximize the after-tax return of your portfolio by selecting a manager that utilizes a variety of tax-sensitive strategies.
Cost Conscious Investing – Lean Portfolio
The net, after-cost performance of your portfolio could be maximized by scrutinizing the expense ratios associated with underlying holdings and trading.
Integrated – Your Wealth Is Like Symphony
Your balance sheet and portfolio are assets (instruments); those instruments need to be finely tuned and played together in harmony with your life. Work with a portfolio manager who practices integrated wealth and investment management.
Independent – 100% Fiduciary. 100% of the Time
Work with an advisor who has your best interest in mind all of the time; avoid salespeople (brokers/agents) who give “advice” incidental to selling products.
Properly preparing for retirement involves quite a bit of expertise and diligence. The good news is that you need not learn or be involved with all this detail and complexity on your own. Rather, you can select to work with a highly reputable wealth management firm that specializes in such matters.
See more information at janiczek.com.
- Founded in 1990, now celebrating 32 years of service to high ($1 to $20 million) and ultra-high ($20 to $200 million) net worth individuals and families.
- Named as a top financial advisor 9 years in a row by Barron’s and 3 consecutive years by Forbes, along with top advisor recognition from many additional publications.
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