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Retirement articles often start (and end) by discussing the markets. I’m going to start with your mornings.
Do you wake up most days feeling good about your money and your future? Or do you frequently fret about your financial security and whether your savings can last and provide the lifestyle you worked so hard for?
If you lack confidence in your retirement future, you need a better retirement plan. And that’s about so much more than the markets.
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Because retirement isn’t about growth — it’s more about control. And control doesn’t come from an adviser; it comes from your goals and the retirement plan you assemble. Beating the markets sounds good, but it’s a tiring, stress-inducing and unmaintainable goal.
However, controlling your income, taxes, risk-taking and decision-making is possible.
Most people don’t need another pitch or product to improve their chances of achieving retirement success. They need a clear and comprehensive roadmap for what could be a long journey.
So how do you build that plan?
1. Start by finding your ‘dignity number’
This isn’t the amount in your portfolio — the $1 million, $2 million or more you’ve been told you’ll need to have invested when you retire. It’s the reliable monthly income that will protect your lifestyle and your financial confidence.
Before chasing returns, it’s essential to lock in the resources that will pay the bills — keeping the lights on, literally and emotionally. Your retirement income has to be thoughtfully designed to serve as a replacement for your paycheck.
That means decisions must be made about Social Security timing, pensions, annuity or bond ladders, where appropriate, and a realistic portfolio withdrawal strategy that protects your nest egg’s longevity.
When these essentials are secured, market volatility becomes background noise.
2. Next, turn your attention to taxes
For many retirees, taxes will be the largest lifetime expense. Proactive Roth conversions, smart withdrawal sequencing and bracket management often add more to net worth than a few extra basis points of performance.
The markets give, and the markets take. Taxes can take only if you let them.
Your plan can help you avoid stealth costs such as taxes on your Social Security benefits, the Medicare surcharge that penalizes savers for their financial success or a one-time spike from a Roth conversion or the sale of your business.
3. Prepare for inflation, medical and long-term care costs and other common retirement risks
You’ll need to plan for a retirement that could last 30 years or more. And that requires transitioning to a portfolio that balances safety and growth.
Safety is the shock absorber that keeps everything else intact when life or the market takes an unexpected turn. With the right amount of liquidity (think Treasury bills, notes and bonds; Treasury inflation-protected securities (TIPS); certificates of deposit; high-yield savings), you won’t ever feel forced to sell during a downturn or delay a critical decision.
Growth must be purposeful, tax-aware and aligned with your comfort level — because the best strategy is the one you can actually stick with. Without growth, purchasing power erodes and options shrink. Which is why it makes sense for many retirees to keep some risk in their portfolio (such as stocks, exchange-traded funds and mutual funds).
In retirement, it’s important to feel certain about where you stand. You don’t want to be either too conservative or too aggressive with risk-taking.
Talk to a financial adviser about stress-testing your portfolio to see how it would hold up under various scenarios, such as a prolonged period of inflation or a serious market downturn, early in retirement.
Many soon-to-be retirees I meet think they have a moderate or conservative portfolio. They don’t.
4. Finally, look at your legacy as a living system, not just your final documents
Your beneficiaries matter. So do your values. Your money can outlive you — and tell the right story when it does.
And remember …
Your portfolio is not a plan.
Neither is panic selling, chasing last year’s winner or scattering your money across multiple accounts without knowing why you have what you have. That’s called “winging it.”
Putting together a comprehensive retirement plan doesn’t have to be super complicated. Complex plans may look sophisticated in a binder, but it’s the simple plans that are followed.
Look for rules you can stick with on your worst day, not just your best day. Automate as much as possible so that discipline isn’t a daily test of willpower.
Because when control shows up, anxiety checks out. And that’s the real return retirees are after.
Kim Franke-Folstad contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
