11 Dec Rethinking Retirement: The 5-Step Process
by Jerry Lynch, CFP, JFL Total Wealth Management
Generally we work with two different types of individuals in our financial planning firm: pre-retirees who are planning on retiring within the next three to five years, and retirees ranging from 60 to 90 years old. Seeing life through the eyes of an 85-year-old retiree really helps us in our planning with pre-retirees as we know what to expect for them. So when they come to our office and ask, “What do we need to do to prepare for retirement?” my response is always the same. You need to change your mindset!
The skills needed to get you to a point where you can retire can actually hurt you when you retire. The rules of the game have now changed and unless you change with them, things will get a little tough. There is a term I learned a while ago called a “Paradigm Shift,” which means a radical change in underlying beliefs or theory. The investment rules and principals that you hold to as your bible of success need to be changed.
Here are five items you need to do now to successfully prepare for this transition.
1) It’s not about rates of return, it’s about cash-flow. Investments that generate high rates of return have the ability to drop just as quickly. Think of 2008 as an example. If you have to sell the securities you had in 2008 because you had to support your lifestyle, you never gave the securities the opportunity to rebound from 2009 through today. Developing consistent income strategies is critical for a successful retirement so you do not need to sell investments that are down.
2) Take it down a notch! For the past 40-plus years, your goal has been to get the highest rates of return. It is not about that anymore. The focus needs to be on not losing big. If you have an 80 percent stock portfolio, you have the ability to lose a third of your money. If that happens, you are going back to work. Do you know how hard my conversations are with clients who have always looked to outpace the index, when we are doing half that because we are 50 percent stock? The investment goals need to change.
3) Live at your target retirement income today. If you are planning on retiring with $10,000 of income per month, and are retiring in two years, live the next two years at that income level. Sure, you can spend much more as the kids are out and you are probably are at one of the highest income levels of your life, but you need the discipline to see if there numbers really work. If you cannot live on that income today, it is very unlikely that you can live on it in retirement. If the numbers do not work, figure out a “Plan B,” which may mean waiting a few more years.
4) Try longer vacations at your potential retirement spot, but during the worst possible times. Yeah, Florida is great in the winter when it is snowy in the northeast, however, for an Irish guy with fair skin, Florida summers could kill me. Go to the places that you may potentially live for several weeks at a time, in the off-season, so that you can see what it is really like to be there. Even a stopped clock is right twice per day but you don’t want to set your watch to it. You don’t want to move to an area because it is nice part of the year.
5) Think grandkids! When you are looking for that next home, think about what a place where your kids and grandkids will want to stay for weeks at a time without you begging them to visit. Think beaches, ski areas and lake resorts, water parks, snowboarding, mini-golf and ice cream shops. If the grandkids like to come because these things are there, your kids will bring them and you will have a lot of great times with your family. A home that is not convenient to kid-friendly attractions will limit the visits to one-day holidays (Thanksgiving and Christmas) as opposed to several week visits.
The best way to plan for your retirement is speak to people who are 15 years older than you because they have just gone through this. Understanding what these people would do differently today if they could do it again is very helpful in planning out a successful retirement strategy. I think most of us feel much wiser than we were 20 year ago. Retirement does not come with an owner’s manual that tells you what do, so asking people who have been through this will help you make less costly mistakes and better choices for your retirement.
Jerry Lynch is a Certified Financial Planner with JFL Total Wealth Management in Boonton. He may be reached at or (973) 439-1190.
This story was first posted in December 2014.
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