Retirement Planning

At Patina Wealth, we provide retirement planning as part of our core service. The retirement planning process can yield dramatically different results, depending on who the client is and what stage of their life they are in. Patina has done retirement planning for clients who are several decades away from retirement and for new clients who are already in retirement. As you can imagine, most clients are trying to answer the same question: “Am I on the right track for my savings to outlast me.” That may sound like a strange concept but in the end, that’s what we all need. We need our money to allow us to live a desired lifestyle after our peak income earning years are behind us.

In this article, we will explore the various inputs that are used when determining the probability of long-term financial success. Some of the variables you (the client) will have control over, and others you will not. It is important to remember that once a retirement plan is in place, these variables will inevitably change, and, when they do, it is important to adapt to these changes and consider updating your plan.

First, when we go through the planning process, it often requires a little homework on the part of the client. Important inputs into the retirement planning process that we use in creating a retirement plan are the amount you are currently saving in a workplace retirement plan, or brokerage account, the current balances in these plans, your projected or current social security income (anyone can establish a social security account and see their projected social security income), your future or current pension income and, if applicable, current mortgage expenses, among others.

The one variable that clients have the greatest control over is spending. When thinking about how spending will impact your retirement plan, it is important to try and get a good idea of what that spending number will be once your earned income stops, while also factoring in lifestyle changes and inflation. As you can imagine, this number is easier to estimate as you near retirement. We always like to ask clients to break out their spending by “needs” and “wants”. Needs are typically what a client can’t live without, such as utility bills, mortgage payments, insurance premiums, personal property tax, healthcare costs, groceries, etc. Examples of “wants” could be a certain amount for an annual vacation, a second home or an annual amount for charitable donations.

Another big variable in the planning process is when a client wants to stop working. This decision has a major impact on the retirement plan as that is when earned income most likely stops. At this point, the planning software will begin to calculate when the client is likely to start making withdrawals from their investment accounts. Leading up to that point, it is assumed that all spending is covered by earned income.

Life expectancy is of course a variable that we do not have control over. But, when putting together a financial plan, we can consider a client’s family history. Did their parents and grandparents live long, healthy lives? Or, does the client currently live a healthy and active lifestyle? I think it’s always a good idea to err on the side of assuming a client will live longer than is generally estimated in order to minimize any chance of financial challenges.

Another variable that we don’t have control over is what the future returns of the market will be. This is an important part of the long-term success of a client’s retirement plan. Whether a client is still in their savings years, or if a client is retired, they still need their investment portfolio “working for them.” For example, if a client retires at the age of 65 and then lives until they are 95, they will need their portfolio to help cover living expenses for 30 years (!!) after their earned income has stopped. It is important to keep the client’s portfolio invested in a way that is in line with their risk profile while also achieving goals and maintaining purchasing power.

I like to remind clients that it is important to update their retirement plan when, and if, they have major life changes. One major adjustment would be a job change as this move typically affects not only income but also savings amounts going into retirement accounts. Also, a physical move can be substantial as house or rent payments are typically one of the largest expense items.

In summary, it is important to remember that no part of a retirement plan is set in stone. Things will change either on the path to retirement, or once you are in retirement. The market will inevitably fluctuate, or your spending habits may change. Perhaps you want to take your family on a big vacation or buy that Porsche 911 you always wanted. Having a plan in place makes it all the easier to update and see how these changes will impact your chances of long-term success.  As always, we are here to help with your investment management and retirement planning needs.