Protecting Your Retirement

The key to protecting your retirement is to have a plan!

Your bills don’t disappear just because you retired.  Your car won’t suddenly run forever just because you no longer have a paycheck.  Your hot water heater will still break, the kids and grandkids will still want birthday presents, and the IRS will still expect your regular and significant contributions.

So how do you replace your paycheck?  What rate of return do your investments need to earn over time so you can outpace inflation and maintain your budget?  Is that rate of return realistic and, if so, what investments will get you there?  If you need extra money for a cruise or to deal with a household emergency, is there a tax free place to get it?

There are more items in the planning process than this space will allow, but at a high level, you have to know your budget, you have to know how much income you need from your investments, and you have to know how often you need to receive that income.  Then you need a plan for how your investments will produce that income and you need to know how long your money will last based on those assumptions and some realistic assumptions about inflation.

Planning must drive all of your financial decisions in retirement.  A solid plan should drive your investment decisions. It should drive your budget. And it should drive your estate planning.  Planning also has to remain evergreen.  Your plan needs to be reviewed at least annually and certainly upon the occurrence of any major events. 

In terms of protecting your retirement from the risks of investing, there are generally two investment strategies you can employ. The better one is what we call ‘the faucet.’ The idea is that your nest egg can be invested in such a way that you can live from the income/returns without diving into the principal. Done properly, your nest egg’s principal will grow to protect you from inflation over time and you will retain the nest egg as emergency or opportunity funds or you can use it as a legacy for your heirs.

Of course, not everyone has a large enough nest egg to protect their retirement income through the faucet model. The good news is there is another tried and true way and that is through a ‘spend down’ model. The idea is to know going in you will spend down your nest egg over time. The idea isn’t to spend your last dollar on your last day, but to stretch your investments out to sustain your income over your reasonable life expectancy. We take a ‘bucket’ approach to this sort of planning which is a model very similar to that used by large pension funds. Through careful planning, we can set out a sustainable plan to protect your retirement.