Retirement Planning

Decades ago, retirement planning was a straightforward task. An employer pension would usually cover many of your expenses in retirement. Once you stopped working, you’d roll your stocks into bonds that paid a reliable interest rate. Additional retirement savings or social security provided a cherry on top.

What Does Retirement Planning Look Like Today?

Today things look very different. Employer pensions are rare. You can get a social security check once you reach retirement age, but it typically doesn’t cover everything. Meanwhile, living costs are skyrocketing while your investments might be experiencing more significant swings than ever. With so much uncertainty, how can you ever be sure you’ll have enough to live the way you want to?

Fortunately, there is an answer. You can work towards a more secure future with proper retirement planning. But the key is income planning, and most people don’t do enough of it.

When Can You Retire?

With inflation, changing interest rates and volatile markets, it can be nerve-wracking to consider retiring. But here’s the key: time is your ally. The earlier you start planning, the sooner you can figure out when you can retire.

This is important even if you’re still wanting to quit working entirely. Your goal should be reaching financial independence at a specific date. Then you can choose whether to continue working, cut back or retire altogether.

So how do you arrive at that date?

The Retirement Planning Process

Retirement planning is not a one-time event and has different application based on a person’s timeline relative to making the retirement transition. In our opinion, it involves three phases.

Phase 1: Retirement Saving

When applied to younger investors, retirement planning is the process of saving for retirement. Those far away from retirement have little understanding about what their needs will be for retirement, when they plan to retire, what they plan to do, etc. Instead they focus on saving sufficiently to be ready to hone in their actual retirement plans. Phase one of retirement planning is focused on savings. How much to save, how to invest those savings, and the tax implications for how they’re saved.

Phase 2: Retirement Transition Planning

For those further along in the retirement planning journey, their planning looks much different. Phase two of retirement planning is what we call retirement transition planning. This process begins to uncover the practical and logistical elements of retirement all with the goal of determining a monthly income amount needed to meet expenses. Retirement transition planning considers things like:

Retirement transition planning is an in-depth process that is reserved for those seriously considering when and how they will retire.

Phase 3: Retirement Income Planning

The final phase, phase three, is retirement income planning. This crucial phase involves matching the cost of your monthly retirement lifestyle with a retirement income strategy that can consistently and efficiently provide for it.

We use the 4Buckets Retirement Income Strategy℠ to build retirement income plans that retirees can feel confident about. The 4Buckets℠ process has a simple goal: to align your retirement assets to reliably meet your lifestyle. Each bucket serves a particular purpose for common goals in retirement: reserves for everyday use, lifetime income that is secure, and growth for the future. It’s a simple yet sophisticated approach to the retirement journey.

4Buckets^℠ Framework

After envisioning how your retirement lifestyle could look, we then begin building a custom strategy to meet it. The 4Buckets℠ uniquely combines a retiree’s preference for certainty and risk to develop a plan for retirement income and investment allocation. Along this journey, we’ll also tackle other key topics related to healthcare and long-term care expenses, tax efficiency, social security claiming strategies and estate planning. It’s comprehensive planning centered around the main thing – you and your retirement lifestyle.

Can You Retire with $1.5 Million Comfortably?

Simplistic retirement plans often center around a certain amount of money. For example, people wonder if they can comfortably retire on $1.5 million, $3 million, or some other number. Without solid retirement planning, there is no fixed answer to that question. How long that money lasts will vary based on interest rates, inflation and taxes, as well as your spending patterns. Those who seek to achieve a specific number base a big part of their future on hope, not reality. If other variables in the economy don’t do what you expect, you may come up short.

While having a number in mind as an asset accumulation goal is fine, your income strategy will make or break your retirement plan. Our goal with our income planning process is to determine your monthly lifestyle expenses and develop an income strategy where the majority of that monthly income need is guaranteed. Only then will you be comfortable investing the balance in the stock market, which is needed to keep up with inflation.

How to Invest for Retirement?

Investing in retirement boils down to allocating resources to meet specific needs.

If you have a workplace retirement plan, that will also factor in. If you’re blessed to have a defined benefit plan, you’ll have a monthly benefit you can count on. Or, if you’re like most people with defined contribution plans, you will need to convert assets into a reliable income stream.

What Investment Accounts Should You Use?

Because you’ll have separate investments for each purpose, you’ll have multiple accounts. Then, staying tax efficient is another critical goal to ensure you keep more of what you earn. So you’ll want a mix of taxable and non-taxable accounts, too. That will likely include the following:

With multiple accounts, you have more control over your annual taxable income, so you can strive to minimize tax liability when possible.

Especially while you’re still working, you’ll want to maximize your tax-advantaged accounts. So that should mean prioritizing your annual contribution limits on your 401(k) and Individual Retirement Account (IRA). And whatever you do, make sure you contribute enough to get the full match contributions from your employer, if available.

If you’re self-employed, that may mean using different types of retirement accounts, such as a Solo 401(k) or a Simple IRA.

It’s beneficial to have a good mix of taxable and non-taxable accounts, so you have some ability to control your taxable income each year. Roth accounts are ideal for that since your withdrawals in retirement will be completely tax-free. With Roth accounts, you contribute after-tax dollars. While you give up the upfront tax deduction that a pre-tax contribution gives you, the tax-free income source in retirement reduces future tax liability. It also gives you that flexibility to help control your tax liability in some years.

How Does Social Security affect Retirement Planning?

While many doubt that the social security system will stay around in the future, it has successfully paid benefits since 1940. i

So, while some cuts or changes will likely keep the system running, it is not expected to go away entirely.

You should factor in social security in your retirement planning. Social security often makes up more than half of many retirees’ monthly income. That then leaves your money to continue compounding for you.

Should you Include Social Security in Retirement Planning?

So while Social security should never be seen as a standalone retirement plan, it still significantly impacts financial planning. In fact, it is an initial step in seeing how we can meet monthly expenses through guaranteed sources. Supplemental retirement income is then needed to fill in the gaps in the monthly budget.

Is it Better to Take Social Security at 62 or 67?

There are pros and cons to taking social security early or delaying it. While many people will say it’s best to forecast how long you’ll live, it is more practical to decide based on your timeline.

Do you want to retire completely at 62 or earlier? It may make sense to start that benefit sooner rather than later. Or, if you plan on transitioning to semi-retirement, you’ll still have an income. In that case, it can make the most sense to delay benefits.

How Long Should you Plan for Retirement?

Another area for improvement is forecasting how long a retirement you should plan for. We’ll never know the answer to this. But for planning purposes, we believe shooting for a 30 to 35-year horizon is a practical choice that aligns with aging trends.

Real Retirement Planning: What do Retired People do all Day?

Another critical point is that there’s more to retirement planning than money. There’s another side: preparing for the emotional transition to retirement.

It’s easy to think that no more alarm clocks and an open schedule will mean complete freedom and happiness. Surveys show the opposite: one study found that 60% of retirees grow bored after just one year of retirement. ii

Many then seek the comfort of returning to work in a part-time manner. While there’s nothing wrong with working in retirement, the real key is to plan, so it becomes a choice and not a harsh realization that you’re bored.

Here’s some planning to do now to help create a smooth transition:

Those who have successfully retired cite taking up hobbies, focusing on increasing fitness, and joining in on enjoyable new activities like pickleball can help. Or volunteering can provide a combination of purpose and socialization, too.

If you think you might get bored, it’s better to look at your options before you cut ties with your industry. Perhaps establishing a consulting practice can keep you stimulated without overloading your schedule again.

Regardless, remember to prioritize this planning, too, which can be done without the help of a financial advisor.

Our Retirement Planning Approach

At Lohr & Company, our specialty is helping our clients retire with confidence. That’s very different from retiring but feeling afraid to spend since your income is generated from a volatile portfolio.

Instead, we have a unique process that gives you more long-term certainty.

Our process considers what your ideal retirement will look like day to day. Once that is defined, we’ll help you provide an income strategy so you can enjoy it.

This process is more intensive, but the outcome is worth it. With our 4 Buckets Strategy, you will develop clarity and, most importantly, create an income stream to meet your monthly needs. That will free you to keep your money invested in keeping up with inflation. Instead of fearing stock market downturns, you can take advantage of them.

The payoff? You can create a retirement filled with confidence and optimism.

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This communication is strictly intended for individuals residing in the states of DC, FL, GA, MD, NC, OH, VA. No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services. Investments are not FDIC- or NCUA-insured, are not guaranteed by a bank/financial institution, and are subject to risks, including possible loss of the principal invested. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.

Retirement Planning:

What Does Retirement Planning Look Like Today?

When Can You Retire?