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Retirement has always been an important and emotional life transition. It marks the end of a long and significant chapter in your life and the beginning of a new stage filled with both anticipation and uncertainty. That uncertainty is increased if you are retiring in the current tumultuous times. And if the timing of the transition is not entirely of your choosing, the anxiety is likely to be greater. Below are strategies for refining your retirement blueprint in the face of present and future uncertainties.

Review and validate or revise your financial goals for retirement.
Make sure that you are clear about your financial and lifestyle goals for your retirement – identify, quantify, prioritize and put a time frame around your goals. If you have done this before, consider what, if anything, in your life has changed and impacted your goals. Are you considering relocating to a more expensive area to be closer to family? Have you received an unexpected medical diagnosis? Changes such as these can upend your plans. If you haven’t defined your goals and you are nearing retirement, time is of the essence. Clarifying your goals can be difficult but is well worth investing the time and effort. You cannot have confidence in a financial wealth plan if you haven’t determined its purpose. 

Reassess your retirement projections.
You may have been anticipating retirement for years. If retirement is on your horizon, now is the time to sit down and review your retirement projections with your wealth planning team. It is important that you understand the key assumptions that drive the results of the analysis. You do not need to have in-depth knowledge of every number, but you do need sufficient understanding so that you have confidence in the plan and its projected results.

Get real about your spending.
Spending is a key driver in retirement funding success . This is particularly true during the first five years of retirement. A recent study by the Consumer Financial Protection Bureau revealed that most retirees spend more money in their first five years of retirement than at other times . Before you retire, take a close look at your current spending levels and make an informed estimate of your spending in retirement. You may be surprised at the level of your current spending. You may also find that your projected spending in retirement, with more time for travel and recreation, may be higher than you anticipated.

Retirement is often the beginning of the distribution phase of your portfolio. Withdraw too much too soon and you will run the risk of a retiree’s greatest fear – outliving your money. 

Healthcare spending is also a major consideration in retirement – both medical and long-term care. On average, a 65-year-old couple can expect to pay about $285,000 in out of pocket medical expenses.. Nationally, the average private room in a nursing home is about $102,000 annually . Work with your advisors to understand medical insurance and long-term care costs and funding alternatives. Model scenarios and create a plan for anticipated expenses.

Determine how you will replace your paycheck to fund your annual lifestyle spending.
Understand how your various accounts and cash flows will make up your “paycheck” in retirement. When looking at retirement during times of market volatility, cash flow planning becomes even more important. You may receive multiple streams of income when you retire. Social Security, deferred compensation, a pension, an annuity, non-qualified retirement plan payments, or income from an encore career or board work are several income streams you may receive and need to make sure are working in consort with your portfolio as you build your wealth plan.

Required minimum distributions can play a big part of your retirement cash flow. You have been contributing to retirement accounts , 403, 457, etc.) for many years, and now it is time to flip the mental switch to taking distributions. Although RMDs have been waived for 2020, in most cases you must start withdrawing from these accounts at age 72 . There is an IRS formula that you must follow to make sure that you are taking out at least the minimum required amount every year. Generally, the larger the account, the larger the distribution. If you choose, you can start to withdraw from these accounts beginning at age 59½ without penalty. Work with your financial planning team to make sure that you are most effectively managing your RMDs in light of the SECURE Act, CARES Act and IRS guidance. This is an area of wealth planning where income taxes, wealth transfer goals and investment management all intersect.

Test your comfort level with your “safety net”.
A key feature of your wealth plan to examine, especially in times of market volatility, is how much you have set aside in your Portfolio Reserve, in safe assets. Your Portfolio Reserve is an expression of your risk tolerance. This figure is particularly important as this is what you will be using to fund your retirement lifestyle in a down market, rather than other parts of your portfolio. This is the cushion that will enable you to weather the storm. Make sure you understand and feel comfortable with that amount. There is no right answer. It varies for everybody.  

Consider your alternatives.
When you look at retirement projections during times of market volatility, the result may not look too appealing. If this is your situation, change key variables in your retirement plan and note their impact on the outcome in order to generate choices.

Delaying your retirement by a few years may be the lever that changes your projected result from failure to success. Working a little longer, even if it is in a part-time capacity, or in a less lucrative job or industry, creates two positive benefits. First, you are not actively withdrawing from your portfolio for a couple of years. Secondly, you are adding to your investment accounts and allowing them more time to grow. Combining these two actions, if for only a few years, can have a material impact on the projected results of your retirement plan.  

Spending less in retirement is another option to consider. Spending is a key driver in the success of a retirement plan. If you have some flexibility in your spending, especially if it is in the crucial first several years of retirement, that may be enough of a difference to change the trajectory of your projection.

Understandably, retirement is a complicated life transition. There are many choices and options available. Knowing what they are and how they would potentially affect your retirement projection is essential in crafting a retirement plan that works for you and your family. Make sure that you collaborate with your wealth management team to create a plan that meets your needs and sets you on a path for achieving your most important financial goals. A well-defined retirement plan will provide a clear source of direction. Having that source of direction will enable you to retire with more confidence.

Footnotes:

1, 2020 Consumer Financial Protection Bureau: Retirement Security and Financial Decision-Making Research
2, 2019 Fidelity Retiree Health Care Cost Estimate
3, 2019 Genworth Cost Of Care Survey