Reinventing the Wheel - Carroll Financial
March 4, 2015

Reinventing the Wheel

In the first two editions of Common Sense Retirement Income I took a look at what I believe is the most important question in retirement income planning: What is a safe withdrawal rate from a pool of retirement investments?  Hopefully, you have read that there isn’t one answer.  Like most difficult questions the answer begins with, “It depends…” In the last edition we discussed some of the variables that can affect the safe withdrawal rate. In this piece, I’d like to build out a framework for how we think about retirement income with hopes that we can use this to move forward and go deeper into more specific aspects of retirement income planning.

Last fall I took a class in research methods.  Sounds exciting, right?  Jay, who is a member of my study group, manages a financial planning practice in Connecticut.  Jay tried to put together a framework for retirement income planning.  He started writing down all of the different decisions and variables that go into a retirement income plan.  After a few weeks of tweaking it, he had a full page that showed a great list of about 50 issues that affect a retirement plan.  I thought about including it in this, but to be honest it was a mess.  One of the things I learned from my father is to avoid trying to reinvent the wheel.  So instead, I took Jay’s idea and turned it into one.

All of these categories are interdependent, so the wheel is connected everywhere.  We need to get to know our clients and understand how they think about these different issues when we are putting together a retirement plan.  I like to think of the outside spokes of the wheel as small conversations that an advisor has with his or her clients.  Once we have gathered the information, we can put all of the pieces together into a retirement income plan.

The four major categories (interior spokes) are Goals, Resources, Strategies and Attitudes.  We then break each of these categories down into eight discussion points, which are the outside spokes.  Here is a brief description of each:

Goals – Legacy:  The things, both tangible and intangible, that you want to leave behind at the end of your life.

Goals – Spending:  The amount of money you want to spend annually throughout retirement to sustain your lifestyle or to check off items on your “bucket list.”

Resources – Investment:  Financial capital that has accumulated, typically over long periods of time, and can be used to create income or systematically liquidated to create income during retirement.

Resources – Non-Investment:  Other resources available to help during retirement, such as Social Security, part-time work or an employer-sponsored pension.

Strategy – Pre-Retirement:  Decisions such as:  When will you retire? How much will you save? Where will you keep your savings? How else are you planning for the great shift into retirement? 

Strategy – Post-Retirement:  When and how will you make use of your retirement resources? How and where will you invest those resources? How will you or will you adjust your goals over time?

Attitudes – Risks:  The possibility that something beyond your control will or will not happen that creates an outcome you do not want. How do you think and feel about investment risk? How will you react if markets move against you?

Attitudes – Trade-Offs:  The ability to weigh options and make decisions that are deemed to be in your best interest, given a world of limited resources. How will you decide between the safety of your retirement income and the level of your retirement income? Which goals are absolute and which are flexible?

Some of you may be reading this and thinking, “Wait a minute, we never talked about my attitude towards trade-offs?!?!”  Or maybe you’re thinking, “Last month he wrote about Leonard Nimoy and he recently passed away, so I wonder how this Jay guy is feeling?”  Both are good questions, but I just reinvented the wheel, so let me catch my breath.

As advisors we usually look for simple strategies for our clients’ retirement income plans.  This wheel is just a structure for how we think about the many issues that can affect your retirement. I hope that this framework can guide our future discussions and I will try to make sure that I address issues from the entire wheel over time. If you would like to sit down and discuss your overall retirement income plan, please let us know.  If there is someone you care about, be it a friend or family member that is trying to put this puzzle together, we’d be happy to help.

Bottom Line: There are many dimensions to retirement income planning.  The wheel is a framework for thinking through the variables.

From the desk of Kris Carroll

Special thanks to Jay Cruise at Cruise Financial

Retirement Income, Retirement Planning
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