The Power of Planning Series: Step Three – Locking it Down

Hello once again, my friends, and welcome to the third of six installments in this guest blog series titled The Power of Planning. Here are the links to the last two articles, “The Power of Planning Series: Step One – Strong Foundations” and “The Power of Planning Series: Step Two – Working the Plan.”

We are born. We then live the lives of children, learning, and experimenting and growing in our understanding and wisdom (hopefully). We move into our teenage years and then young adulthood where many land their first real job. We set about doing the things that we feel we should be doing. We might have a family, pursue career goals, try new hobbies, meet new people and communities. Days, turn into months, months into years and finally, years into decades until we find ourselves at the doorstep of a major, maybe the major transition of our lifetime – retirement.

This article is about the time period that we at Touchstone Capital call Pre-Retirement. Ideally, we define it as the 10-year period leading up to a person’s retirement and represents an incredibly important time of planning.

Down Periscope!

We often use the metaphor of a crew sealing the hatches and doors of a submarine prior to submerging when we speak about this period of planning. The hatch on top of the submarine is lowered and then sealed with several quick turns of the hatch wheel. It needs to be tight otherwise things are not going to go well for the crew. Water would flood the vessel and it would sink like a rock. This is the same concept we apply to our planning. If ‘things’ aren’t locked down, the proverbial financial sub could be headed toward a very intimate meeting with the ocean floor.

So, what does it look like to lock things down prior to retirement?

Establish Your Retirement Goals 

Many people may have already set up Goals in their plan. Or maybe they’ve simply been saving for the eventuality of retirement through a 401K plan. Or maybe they are just hopping on the planning train now and so need to start from square one. Whatever the case, Goals are essential.

We want to make sure your retirement isn’t something that just happens. We want it to be yours. So having the proper Goals set is paramount to this process.

How do you identify the right Goals? This is a question that is very personal in nature and is one that we often work through with our clients. Many times we need to help paint the picture of what it could look like first. Most of us are usually stuck in the weeds of life just living and reacting. Future planning can sometimes take backstage and it’s only when we have these types of discussions that we stick our head up and view the distance with any sort of deliberation. Well, during this next phase of life, do it more often. Force yourself to ask these questions so that when the time comes to set the proper Targets (more in the next section), you have set the proper Goals.

Identify Targets 

In order to identify the proper Targets, you need to have the right Goals set first. So one hand feeds the other. Once you have decided on what you want your retirement to look like, you can then determine what Targets need to be hit in order to make those Goals a reality.

For example, let’s say that you are ten years from retirement and you just had this conversation with your advisor. You identified four Goals at this ‘early’ stage of the process: travel, golf lifestyle, help with the care of your autistic grandson, and charitable giving to your church.

As your advisor, I might have several follow-up questions to each of these items:

  • Travel – I would need to know how often (how many times per year), for how long (for how many years into retirement) and for how much. These are the details that will allow us to establish the proper Targets.
  • Golf lifestyle – How often, how long and how much. There also might be the consideration of a club membership expense.
  • Care for autistic grandson – How often, how long and how much. In addition, there could also be potential estate planning needs to address being that your grandson is a special needs individual and what that could mean down the road. We would also like to get a better idea about your daughter’s situation so that we have an understanding of the family dynamic.
  • Charitable giving – How often, how long and how much. This one could become a very deep dive into estate planning and tax strategies. The solution could be very simple or it could be something for which much planning is in order.

This would be a great start but for this first stage conversation to be complete we need to discuss Lifestyle costs. What is it going to cost you to live your life in retirement? When we ask this question, clients often start talking about budgets. Our advice, especially at the early stage of the Pre-Retirement process is to keep it to round numbers. A somewhat accurate number is much better than no number at all.

Once we have asked and answered these questions, we have what we need to establish the proper Targets. Your Targets are essentially what you need to do between now and when you retire in order to achieve your stated Goals. They are specific milestone achievements. Things like saving an extra $10,000 a year or selling that timeshare and investing the money. Anything that would be specifically identifiable as contributing to the accomplishing of a stated Goal.

Maximize Savings and Growth 

I hope you noticed that I capitalized the Goals and Targets in the previous sections. This is to make sure you understand how essential they are to this process. Make sure not to skip these two steps!

Moving on, clients are typically in their prime earning years at this stage in life. Their kids are out on their own and they have climbed the corporate ladder, or their version of it, and they find themselves making more money than they have previously. At this point, we stress the need to make the most of this opportunity. The hour is late and the clock is about to strike midnight. Save! Save! Save!

Through your planning, you realize what you need to accomplish between now and retirement. No, you just have to determine what it will take to get it done. For some, this will be a relatively light lift. You continue what you’ve been doing and the numbers will work out. For others, this represents a significant change in their lifestyle. Do yourself a favor and listen to the numbers. If your plan says that you need to put aside an additional $2,000 every month on top of what you are doing, then find a way to do it. Otherwise, go back and make changes to your plan. The plan needs to be achievable.

Being that you are a relatively short time from taking your last paycheck, you need to be wise and discerning with the way you invest your money. This is where choosing the right advisor will pay dividends for the rest of your life. The majority of our clients are either in pre-retirement or already established retirees so we manage money with that in mind. We offer a number of different options for our clients and their accompanying risk profiles and we only choose securities that we feel will weather the storm. We understand the need for different types of investments at different stages in life, but also during different stages of the market. There are times when owning a certain investment just doesn’t make any sense and so frankly shouldn’t be owned. Then there are other times when it makes all the sense in the world. Knowing how to differentiate between the two is where a good financial planner will shine.

If you are trying to navigate these waters on your own, educate yourself and become very familiar with your Goals, Targets and risk tolerance and strike a balance between the three of these. You need to be aggressive enough to stay ahead of inflation and to also hit your Targets, but yet you also need to be able to sleep at night.

Address Financial Loose Ends 

This last one is a bit of a catch-all and will become more important as the retirement date draws closer. This is essentially you and your advisor asking the question “Have we missed anything?” This is the final stage of ‘locking it down.’

Once you have completed these four stages with deliberation and thoughtfulness, iterating on them as much as needed, you should be ready to step into retirement with a sigh on your lips and a light bounce to your step.

In my next guest blog, we will discuss the time period directly before and directly after retirement and what that looks like for many clients. I hope you will join me then.

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