For a state that receives 58 inches of rain every year, Florida, the state where I live, may seem to be impervious to drought. But 2006-2007 were the driest back-to-back calendar years Florida has experienced, based on data dating back to 1932. Weather records since 1900 reveals that in every decade there has been at least one severe and widespread drought somewhere within Florida.
During the 2006-2007 drought, we began paying attention to every drop that ran from our faucets. We didn’t wash our cars or water our lawns and took shorter showers and folks who had a social consciousness would even chastise those they saw wasting this precious resource. I remember thinking during one of those soap-up and rinse-off showers how much we take water for granted when there is a free flow of it and how much we waste when there is plenty to go around.
It’s a little like that with our money. When we are working and there is a free flow of income, we don’t hesitate to blow a few hundred here on a vacation or a few hundred there on some toy that catches our eye. But when we enter the retirement zone, and we are living on the money we saved for that purpose, the income pipeline becomes very personal. We guard the outflow, realizing that the supply is finite and could be threatened by any number of financial predators.
That’s why when you shift from living on the income and benefits available to you through work to living on a retirement and benefits, you start seeing your money differently. I observe that most financial planning today seems designed primarily to help you build your retirement savings. But as you transition to and live in retirement, your needs and challenges can be very different. The goal of retirees, more often than not, shifts to properly managing money and making smart decisions that use resources more efficiently.
Retirement planning is personal. It is all about you and your family, not the average family or anyone else. You are unique. No one, regardless of how similar to yours their circumstances may be, is exactly like you. So when it comes to a plan for transitioning to and living in retirement, these individual differences make a huge difference. You are no longer in the saving and accumulating mode. You are now in the preservation and distribution mode. There may be issues relative to health care. Decisions made in retirement must be different from those made during your working years for many reasons. Medicare and Social Security move to the forefront. Should you work part-time in retirement? That depends on several factors.
How will one income stream affect another? Do you have a few years left on a mortgage or have other debt? All of these factors make your situation unique. You need specialized retirement income planning. There are no cookie-cutter solutions that fit. Any recommendations from a professional simply must be built around your personal and unique situation. The key ingredient in all of this is to make sure that your money lasts as long as you do! Any financial plan that does not guarantee this is not a plan at all. It is a wish and a hope.
Build the Foundation First
When you are building a house, I sincerely doubt that you start on the roof first and when work down to the windows and the sashes. First you build the foundation. Then comes the floor. Determining where you stand financially is usually the first order of business. Then comes the matter of ensuring that you have a lifetime safety net that is a “floor,” so to speak – your basic needs – covered throughout retirement.
When I was taking the courses required to become a retirement management analyst (RMA), I remember thinking how much sound financial planning is like constructing a well-made house. The first thing you do is establish the building budget. What are the sources of income available to you in retirement? If you are like most people, there may be several sources of income that you need to manage. An RMA will start by looking at your entire household and listing what you’ll be getting from Social Security, any pensions that you may be entitled to, plus any income that you or your spouse are planning to get through part-time work or a business that you may own.
If you’re just about to retire, knowing when to “turn on” your Social Security or pension income can make a big difference in the monthly amount that you get, a competent retirement management analyst will help you make those decisions, not emotionally, but mathematically.
How much you spend is a personal decision. But if you know where you stand and can make intelligent choices, you will be much better prepared for life in retirement. Your expenses will change dramatically when you make that change from working full time to a new retirement lifestyle. They may change again as the years of retirement roll by. For some, simplifying their lifestyle to reduce expenses may be in order. For others, they may wish to finally begin taking those trips they have been dreaming about for years. Or still others may have plans to start a new career or business, now that they have finished their “first career.” Others may be planning to change locations. That may change the ball game considerably. Ordinary household expenses may change with the new location, and there are tax considerations to take into account. What about the overall cost of living and health care costs? When it comes to health care for those over 65, choosing the most appropriate plan available to them can be a daunting task without proper guidance. You will want to know how to get the most cost-effective Medicare benefits and how to best provide for what Medicare doesn’t cover.
When you are doing your balance sheet prior to retirement, and you have added up all your expenses, and you realize they add up to more than your income, what do you do? I call this the “moment of truth” in retirement planning. Something has to give, of course. You have to “right-size” your expenses to give you the proper amount of cash flow every month so that you can continue to live a comfortable life. Once you’ve added up all your expenses, you may realize that they add up to more than your income, so you start to figure out how you’re going to right-size your expenses to give you the right amount of cash flow every month to live a comfortable life.
Discuss the Upside
Making every dollar count in retirement has to do with managing expenses, true. But one of the most vital pieces to the retirement planning puzzle is working with the retirement nest egg to make sure that you make the most efficient use of those funds. Money needs to be put to work in retirement. Those dollars are like soldiers and they all need to be busy working in the most efficient manner possible, each doing their job of promoting your financial comfort once you are in the distribution phase of life. I call this “working with the upside.” Some individuals may wish to leave a substantial legacy to their heirs. But that doesn’t mean that you wrap the cash in plastic bags and bury it in a safe in the back yard. That “legacy money” needs to be put to work in a safe and efficient manner. A competent retirement management analyst can help you figure out how to create a “discretionary” fund within your investment assets to accomplish this.
The Retirement Financial Check-Up
Modern homes that are energy efficient make the energy used to heat and cool the structure go further. Insulation is thicker and windows are of double-wall construction so as not to waste one single British thermal unit (BTU) of energy. The cost savings of these “smart homes” is substantial.
Everyone who is actively thinking about retiring, or who is already enjoying retirement, could benefit from a retirement financial “check-up” to see if there are ways that that he or she could make his or her money work harder and last longer. An RMASM has the specialized training to provide you with this type of planning, personalized to your unique situation and goals. If you are choosing a guide to take you on Safari, for example, you will more than likely want one who knows the jungle and is familiar with the lay of the land. Choosing a financial advisor who will help you create a secure retirement may be one of the most critical decisions you will ever make. Your advisor can play a pivotal role in ensuring your financial well-being and retirement income throughout many years in retirement. That’s why it is so important to work with an advisor who has the specialized knowledge, education, and ethical training related to effective retirement income planning and management. Professionals who have earned the RMASM certification have made the commitment to the advanced education that prepares them to help you achieve your goals and financial security in retirement. Advisors who hold the RMASM designation are also subject to continuing education requirements to make sure they stay on top of the latest research, products and trends in retirement income planning and management.