Your Abundant Life

Today was set to be a follow up to last week’s newsletter – embracing the unknown unknowns in your financial planning – but The Wall Street Journal beat me to it.

Yesterday’s Journal article titled “Retiring on Less Than $1 Million: Stretching a Smaller Nest Egg,” detailed story after story of new retirees trying to navigate the dual challenges of bear markets and unexpected health care costs.

As I have written in this space, retiring into a bear market is not for the faint of heart. You are dealing with one type of risk few investors contemplate, called “sequence of returns risk,” explained here.

Sequence of return risk is magnified when you haven’t planned for the inevitable portfolio declines AND have to draw out additional funds to cover unexpected health care costs. According to a 2020 report by the National Council on Aging and UMass Boston, long-term care costs represent “the single largest financial risk facing seniors and their families.”

After reading the WSJ article and 2020 Aging report, it got me to thinking how many of those retirees failed to create a financial plan to help them navigate life’s unknown unknowns.  Get a head start on addressing your unknown unknowns by creating a financial plan. By doing so, you’ll discover that:    

1. Developing a financial plan consists of much more than owning six different index funds. Your plan starts by identifying your monthly financial needs (burn rate) which drives your allocation between stocks and bonds to minimize sequence of returns risk – and offers clarity on the sustainability of your portfolio later in life. 
2. Developing a financial plan allows you to address unexpected healthcare costs. As people age, their healthcare needs tend to increase, and unexpected healthcare costs can become a significant expense in retirement. It is important to consider how you will cover these costs – either through additional insurance or self-funding – when planning for retirement. 
3. Developing a financial plan allows you to create a tax-intelligent withdrawal strategy when pulling money out of your portfolio to cover your burn rate. Not surprisingly, for most retirees with significant tax-deferred accounts, taxes will be the biggest drain on portfolios throughout retirement. Thoughtful analysis of Social Security claiming options, Roth conversions, and tax-efficient investing can play a significant role in withdrawal strategies at the lowest possible tax bracket.

Your retirement years shouldn’t be about “Stretching a Smaller Nest Egg.” This chapter of your life should allow you to embrace the abundance you so richly deserve.

Retire With Peace of Mind

If you have generated $1 million or more of investible assets and are in or close to retirement, build a plan with me that covers your unknowns and extends throughout your retirement.