Part four of a series about financial planning for retirement
I am preparing to retire. No, I am not retiring anytime soon. But I am a financial planner as well as an investment manager, so I plan and you should to, which is the reason for this little series. So far, we have talked about knowing what you spend, planning for big expenses, and evaluating guaranteed income; today we try to reconcile the three.
This is actually very easy: Just have enough investments to supplement your income. For those whom the last sentence is true, you can stop reading. Now for the rest of you…
Assuming you would like the investments to provide money across your retirement, you would first check if your investment pool is even close to what you need. I’ve mentioned the 4% rule in the past. Ignore that for now. Instead look at how much income the investments need to provide each year.
Is the income less than 3% of your total investments? I doubt you are in trouble. In your 60s and need 7% to survive? Trouble. In-between or late in life? It depends.
That’s the problem with writing this section. I have too many unknowns. If you need the investments to give you 10% each year and not run out regardless of market conditions, that can definitely work—if you’re 95.
How you invest can also make a difference. As you can imagine, having all your money in T-bills (short-term US government bonds) creates a very different scenario than having all your money in an S&P 500 (stock) index fund. Neither are optimum if you need to live off the investments.
Then, there is how flexible you are. Maybe your Social Security and pensions provide for all your needs. Your investments only exist to buy you a new car instead of used, a trip to the Bahamas instead of the Discovery Channel and eating out instead of cooking every night. In that case, if 6% draws from your investment portfolio are what you want, 0% draws will keep you comfortable.
On the other hand, if you need your investments to kick out that 6% or you cannot afford rice and beans or your electric bill, then you may have an issue.
All this to say, at this juncture, we must part company. You either need to get online and learn about financial planning, investments, and the like. Or you need to find someone to hire. Either way, you will have someone who knows you, your situation, your flexibility (budget, not yoga), your tax bracket, connections to those you need to support or who support you, your tolerance to market volatility…you get the idea.
Or you can ignore all this and just hope things work out. That is the most popular choice.
May Ukraine Stay Free.
Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.
