I'm not saying that you will completely slip mentally. But, some slippage is inevitable for all of us.
This eventual "mental slipping" (I believe) should be accounted for in your retirement income plan.
This is one reason why you need a simple to understand Retirement Income Plan!
Transitioning to Retirement will be much harder than you think.
You've spent 30+ years building a set of financial habits.
A set of habits that Retirement will turn completely on it's head.
Retiring is one of the biggest life changes that you'll go through.
I believe that the key to a successful retirement transition is allowing you to continue to keep your bank account and your investments separate.
Pre-Retirement
Make Money
Save Money
Invest Money
DON'T TOUCH that money
DON'T TOUCH!
Post-Retirement
Is it okay to spend money?
DO
TOUCH!
What about losses?
Do you still save when you're retired?
How do I get paid?
Based on my experience, this transition to a new set of habits is probably going to be much more difficult than you may be thinking.
Because the retirement transition can be so overwhelming, I believe simplicity is key to a manageable retirement income plan.
Ponder this questionfor a minute:
How many times have you heard a pensioner complain about retirement?
My recommended Retirement Income Plan
I believe pensioners have the best retirements.
Income is regular, predictable and often times enough to (or close enough) to cover the monthly bills.
If you've been a diligent saver for retirement and you live within your means, you can likely comfortably survive off of Social Security and a small draw from your investments.
You don't need a large investment account if Social Security and pensions cover most or all of your monthly expenses.
But what if I don't have a pension?
You make it yourself with an Annuity.
Did he say annuity?
If this is your reaction, let's first dispel a few myths.
Proper understanding of annuities will help you understand the basis of this recommendation.
First of all, there are three main types of annuities.
1) Variable annuities are tied to the stock market. Typically these annuities:
can be costly
can be complicated
can carry a large commission.
2) Fixed (Fixed Indexed) annuitieseither give you a fixed rate of return, or a return tied to the stock market (that doesn't go negative). Typically these annuities:
can be less costly than a variable annuity
can be less complicated than a variable annuity
can have commissions similar to variable annuities.
3) Income annuitiesare setup to start paying you income immediately, or at a predetermined time (deferred). Typically these annuities:
have much lower fees than options 1 & 2.
are fairly simple to understand since they just pay you income.
have commissions that are usually less than half of options 1 &2.
An Income annuity is what you'll use to create your "pension"
Academic research suggests that the Income Annuity offers one of the most stable and predictable sources of retirement income.1
Back to the strategy
High level how this strategy works.
Step 1to any retirement income plan is to MAXIMIZE your SOCIAL SECURITY.
Step 2is to buy an income annuity to fill the "gap" between your Social Security income and your essential expenses.
This is purchased from the Bond portion of your portfolio.
If you're in the above 70/30 portfolio, typically an income annuity will pay you a higher rate of return than the bond portion of your portfolio.
Step 3:Mange your monthly budgets as you always have. The money you need to pay essential expenses is deposited into your bank account just like your previous paycheck.
What this actually looks like
I find it helpful to segment your finances into two high level categories.
Your Income (day to day)
Your Investments (long term)
Similar to how you thought of finances pre-retirement, right?
Your Income
Your Investments
Social Security = $2,500
Income Annuity = $1,500
Total reliable income = $4,000
Prior to purchasing the income annuity, you had a $1 Million portfolio, split 70/30 or:
$700,000 in stocks
$300,000 in bonds
After purchasing the income annuity, you still have a $1 Million portfolio, but we used the bond portion to buy the income annuity.
Now you have:
$700,000 in stocks
$300,000 used to buy income
Note:This is overly simplified to show high level how this strategy works.
The income annuity could cost more or less than shown.
Your leftover portfolio could still be rebalanced to add more bonds.
There are a number of other variables that could be adjusted for your specific situation.
Where this strategy shines
The market will have it's inevitable downturns, even during your retirement years.
While the value of your investment portfolio will suffer and decline, your income does not.
This, I believe, is the the most important component of this strategy.
Do a google search on the "value of working with a financial advisor."
You will find a number of studies. Most of the studies rank "behavioral coaching" or "retirement spending plan" as the largest value adds from working with an advisor.
Imagine your emotional response, your comfort vs. fear response when the market drops by 30% during retirement.
When your income is not tied to the stock market
.png "Why your retirement income plan should be simple... (4)")
When your income is tied to the stock market
You may have 30+ years of investment experience at this point. But, I'm betting that this is your first intersection of:
not working for a paycheck
using your investments to create a paycheck
a large drop in the stock market
This is where the Behavioral Coaching and Retirement Spending Plan are important.
When your income is not tied to the stock market
You tend to feel:
safer
more confident
less worried
When your income is tied to the stock market
You tend to feel:
exposed to "what if's"
less confident in the market
more worried
By having income that is stable and predictable, I believe you are better able to manage a stock market drop because you aren't "forced" to make any lifestyle changes during badmarkets.
I believe that the way we think about our finances is a key driver to our financial success.
I love this retirement income plan because:
It's simple and predictable.
It still makes sense when you're 90 years old.
It allows you to continue to have a mental separation between your bank account and your investment account.
Every month, your Social Security is deposited into your account.
Every month your annuity "pension" income is deposited into your account.
Your day to day budgeting remains the same as it always has. Your "paycheck" is direct deposited and you budget the same way you always have.
Your stock market investments still remain as a "separate" thing in your head which allows you compartmentalize your thoughts and make wiser investment decisions.
To sum it all up:
If you are interested in learning more about creating a retirement income plan, but don't know how to get started feel free to schedule a phone call. We're happy to help...
We're a different kind of financial firm than you may be used to.
Introduction to Retirement Income Planning
As an experienced financial advisor with a deep understanding of retirement income planning, I can provide valuable insights into creating a solid financial strategy for your retirement years. My expertise is based on years of working with clients to develop personalized retirement income plans that prioritize stability, predictability, and long-term financial security.
Concepts Related to Retirement Income Planning
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Public Speaking: Public speaking is a crucial skill for effectively communicating ideas, persuading others, and entertaining audiences. It involves face-to-face attempts to inform, persuade, or entertain a group of people through words, physical delivery, and visual or audio aids .
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Speech Writing and Types of Speeches: Speech writing encompasses the creation of various types of speeches, each tailored to specific purposes such as informing, persuading, entertaining, or commemorating. Understanding the different types of speeches and their structures is essential for effective communication ,.
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Methods of Speech Delivery: Effective speech delivery methods are vital for engaging and captivating audiences. These methods include attention-grabbing techniques, topic introductions, establishing credibility, and structuring speeches for clarity and effectiveness.
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Informative Speeches: Informative speeches aim to educate and provide valuable information to the audience. They often include personal stories, connections to the topic, and interactive demonstrations to engage the audience .
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Introduction to Public Speaking: This involves learning the fundamentals of public speaking, including the development of essential skills, effective preparation, and the ability to connect with the audience.
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Structuring the Speech: Organizing speeches is crucial for improving clarity of thought and increasing the likelihood of the speech being effective. Well-organized speeches enhance audience understanding and establish the speaker's reliability and credibility .
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The Dunning-Kruger Effect: Understanding cognitive biases such as the Dunning-Kruger effect is important in recognizing the limitations of one's abilities. This cognitive bias highlights the challenge of recognizing one's own incompetence due to a lack of skills and cognitive abilities .
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Retirement Income Planning: Developing a retirement income plan involves maximizing social security benefits, purchasing income annuities to bridge income gaps, and managing monthly budgets. This strategy aims to provide stable and predictable income during retirement, reducing the impact of market downturns.
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Financial Firm Services: Seeking assistance from a financial firm that offers sustainable investments, charges lower fees, and donates a portion of its profits can provide valuable support in creating a comprehensive retirement income plan.
In conclusion, understanding the concepts related to public speaking, speech writing, and retirement income planning is essential for effective communication and financial preparedness for retirement. If you're interested in learning more about creating a retirement income plan, seeking guidance from a reputable financial firm can provide valuable insights and support.
