RETIREMENT PLANNING: Know your numbers
BY DARREN VILARDO January 25, 2014; 06:01 PM
Do you know exactly how much money you will need in retirement? Do you know exactly how much you spent last month? Do you know exactly how much you will spend every month once you are retired? Do you know where your retirement income will come from? I mean really know, not just assumptions about Social Security or a pension.
Often, I sit with couples as they approach retirement, and I am presented with what I call the “cocktail napkin retirement plan.” It is simply a series of assumptions, beliefs, even hopes, about a dollar amount that will be the expenses on day one of retirement.
Accompanying those assumptions about expenses is an equally hopeful assessment of income from various sources. So much from Social Security, another bit from a previous employer’s pension, and finally some withdrawals from that 401(k) at the current employer.
Voila! A retirement plan! No real numbers, no basis for the withdrawal rate, no expected rates of return, no inflation adjustments, no consideration for extraordinary expenses, no market fluctuation, no accounting for rising health-care costs, no money for travel in the active years, no descriptions of lifelong dreams being fulfilled.
It is merely a description of one possible, albeit boring scenario of a retirement.
In order to truly plan for a realistic and fulfilling retirement, one has to dig a bit deeper. Sadly, surveys have shown that most folks spend more time planning this year’s big vacation than they do planning for what is essentially a 30-year vacation that comes at the end of our lives. My experience tells me that the task is so daunting, so full of variables and what if’s that many just choose to ignore it.
There are so many moving parts, so many different variables that it’s easy to be overwhelmed. What are the most important things to consider? Is it the timing of when I will retire? Is it the mix of investment assets? Is it what I will be doing in retirement? Should I focus on the income or the expenses?
Perhaps you are afraid of what the “real” numbers will show. Maybe you may have to work longer, or that your lifestyle in retirement won’t quite measure up to your expectations. What if you must face the distasteful fact that you need to delay gratification, and gasp! Save more money?
Wouldn’t you want to know that now, rather than later?
So how can you know what your spending needs will be in 5 years, or 10 for that matter? How can you really ever “know” with certainty and clarity the source of each and every dollar of retirement income?
The answer is your retirement lifestyle, your independence and your dignity dictate that you sit down with an experienced retirement planner. Note this is not simply a “stockbroker” or a “financial adviser.” Planning for retirement, for the income needs of a 65-year-old, as well as a 95-year-old, is really a very specific skill set. It requires a different mindset, and a different toolbox.
The issues in retirement income planning are much different than planning for growth while we are working. Retirement income planning requires a definitive outcome. The need for a regular paycheck each and every month, to meet expenses. Planning for growth simply requires the probabilities to work over time.
You will have homework. Budgets, information about your Social Security benefits, your retirement assets, your tax situation, your mortgage, life insurance benefits, health insurance, and on and on, but you must know your numbers if you are to enjoy your retirement, rather than simply endure your retirement.
Darren Vilardo is an independent financial adviser specializing in retirement income planning, and the owner of Inland Retirement Advisors in Rancho Cucamonga. Vilardo can be heard weekdays at 9 a.m. on AM 1510. Vilardo can be reached at (888) 944-6266 or at DarrenVilardo.com