3 Questions your Financial Advisor Should Answer for you

Graduations, Career Advancements, Marriage, Buying a home, Children, Vacations, Grand-Children, Retirement. All major life milestones with various amounts of certainty and uncertainty. No matter how much planning one does there are some things in life that no amount of preparation can prepare one for. Retirement, however, is not one of them.

Thorough, successful retirement planning requires addressing numerous areas of one’s financial, medical, and personal life. But, at a basic level a retirement planner should clearly and simply answer 3 questions for any retiree or pre-retiree:

1. When Can I retire?

2. How much money can I spend?

3. Will I outlive my money?

Answering all of these questions requires several in-depth, intimate discussions that ultimately lead to the creation of a customized retirement plan.

1. When Can I Retire?

For most folks, addressing a retirement date involves an evaluation of their expense needs, wants, and wishes. Some expenses, life health insurance coverage, don’t have much flexibility. Others, like purchasing a camping trailer, could potentially be adjusted. Of course, this evaluation must be done within the context of portfolio value, amount of income from Social Security and other sources, life expectancy, and legacy wishes. Once expense needs have been carefully outlined and prioritized the question of when does one no longer need a paycheck can be answered.

2. How much money can I spend?

While working, this question is much easier to answer: spend less than you make. But in retirement your portfolio distributions plus other sources of income make-up are now what makes up your monthly budget. The key factor in this equation is what are prudent, sustainable distributions from the portfolio?

Your advisor should not only answer what dollar amount is a sustainable withdrawal pattern from a portfolio, your advisor should also clearly outline a tax-efficient method for which types of accounts to take the withdrawals from. The types of accounts withdrawals are taken from can have significant impact on taxes, and a retirement plan could involve withdrawals from different accounts in different years. Again, a comprehensive evaluation of expense needs and priorities is required to confidently advise clients on how much they can spend each month/year.

3. Will I Outlive My Money?

This is perhaps the biggest fear for many retirees: balancing the enjoyment of retirement while making sure one doesn’t face a major unwanted financial change later in life. Of course, there is only so much planning anyone can do. And, as we all know, life has a tendency to throw curve balls. One thing is absolutely true: the markets will fluctuate and a portfolio will experience periods of negative returns during retirement.

Your advisor should be able to test and illustrate why your distribution strategy will not lead to the aforementioned unwanted lifestyle change through any type of negative market scenario. Your advisor should also clearly outline your distribution plan, and how it might change during the inevitable down markets in retirement. As you’ve heard before: it’s easier to have a fire drill before there is smoke in the room.

At The Retirement Planning Group we combine our years of experience, expertise, and first-hand knowledge of retirement to help all our clients confidently answer these 3 questions and many more.