The end of the year is synonymous with holiday spirit, time off with family and, of course, reflecting on your retirement goals. Wait… EVERYONE doesn’t think about retirement objectives at the end of every year?  SHOCKING! The reason we suggest this now is because you can work with your advisors to clearly assess the coming year and gather the most accurate projected spending figures for the year ahead to better understand your financial futures, which is especially critical if you’re deciding how to retire.

Learn more about securing your family’s financial future

Step 1: Allow yourself to dream 

There is no substitute for thinking about what retirement means to you. Does it mean working fewer hours at your current job? Does it mean selling your business? Perhaps retirement translates into starting your dream business.  Or, maybe it means not working at all. The point is, we encourage you to dream a little – envision your current circumstances and think about what retirement might look like for you and your family. This first step brings to light basic assumptions on how much income you may or may not make and sets the table to forecast your long-term needs.

Step 2: Take stock of your current financial situation

There is no substitute for accurate, timely financial data to begin the planning process. Utilize aggregation software to wrap your arms around your current situation. If your financial advisor doesn’t have this aggregation service, you need to go out and get one on your own. There are so many to choose from. We aren’t recommending one of these solutions over another, but we do suggest you invest your effort in a quality platform because entering your username and password from a variety of financial institutions is a risk and safety is a PREMIUM. Check out this website for a list of aggregation vendors for consideration.

Once this step is complete, you should have a full view of your balance sheet with a view of your assets and any liability on your personal books.

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Step 3: Review your cash flow 

Analyzing the ins and outs of your present situation is the ultimate window to helping solve the riddle of how much you might need in the future. In fact, there is no better determining factor of future spending needs than understanding current spending habits. Over and over again, and across thousands of retirement plans, this step is usually the most difficult to get right. Often clients find themselves justifying prior expenses and trying to convince themselves, and us, that they can live off less. One-time, large expenses will be written off as expenses that will never happen again. Yet, life is full of “one-time” expenses that come up repeatedly. For instance, you won’t need to buy a new air conditioner for a long time, but you will have other appliances go down in the future. Yes, home insurance programs can help provide some protection with those expenses, but the ongoing costs are still a factor.

Step 4: Run the numbers 

Now that you know what you own, and you know what is coming in and going out the door, you are ready to run the numbers into the future. Again, you need a nice comprehensive software to manage this critical step. As with the aggregation software, if your financial advisor doesn’t have a system of their own, we suggest inputting your data into a program for an accurate plan. So, even though we aren’t endorsing any of these particular solutions because we use our own software, here are a few to review and consider.

Once this is done, there are a few areas that are particularly important to consider:

• What is the projected rate of return in your plan?
• Is that sustainable?
• Are your assets projected to grow through retirement until death? You will want to have a liquid asset base that is growing through retirement to help provide a buffer in the event of a market dislocation.
• Have you examined how much life insurance you need in the event of an untimely passing?
• Have you maximized your tax deductions?

If you have any challenge with answering these questions – be sure to reach out to your advisor for support.

Step 5: Repeat, repeat and repeat again! 

Just because you did your plan and answered some questions doesn’t mean your work is done! Your plan needs constant updating – at least annually. Life will change a bit with raises, new jobs, births, inheritances and a host of other real-life events that tend to happen each year. It’s a good idea to look into how your plan changes if large distributions come out and how it improves if large investments are deposited into the plan.

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When the market moves – as it did in December 2018 – it’s a perfect time to log in to your plan to see how your long-term projections are working and decipher if your plan is still on track. The point is, the monitoring doesn’t stop with the plan, but rather it’s a long-term work in progress.

So, no matter what retirement looks like to you, the plan is the same. Data is your friend and projections are necessary. Figuring out what you need to do with your job/business and how to navigate your financial life between now and your vision of retirement is critical. If you haven’t done so already, get out there and start planning today!

Michael Carlin, AIF®