Broker Check

Transition – Preparing for Your Retirement

The “Planning for Retirement” stage is a transitional one (from Accumulation to Decumulation), and there are several activities that clients will perform only once in their lifetimes. We focus significant planning effort on those activities – Social Security and Medicare decisions, leaving a profession or career that might not be available to re-enter at a later date, putting into place lifetime income solutions that can be cost-prohibitive to unwind, etc.

To help guide clients through this important stage, we work with clients planning for retirement in the following manner:

  • We will perform the initial/upfront work to construct the initial plan
    • We have conversations around values (especially as related to money, spending, etc.), leading to the development of a clients’ Statement of Financial Purpose
    • We obtain documents from clients required to build an initial household balance sheet
      • This will include documents related to the following accounts/sources:
        • Bank accounts (checking, savings, etc.)
        • Investment accounts, including individual retirement accounts (IRAs, etc.)
        • Retirement accounts (controlled by employers or “held away”)
        • Other investments (including physical real estate, 529 plans, and others)
        • Residences (primary, secondary, etc.), including acquisition information (date, purchase price, etc.), ongoing property tax and HOA/community obligations, any current mortgage or related indebtedness, etc.
        • Information on any/all debt currently held, including mortgages
          • Should include institution, current balance, interest rate, original amount (if applicable), any other important terms and conditions
        • Recent (last 2 years) federal and state income tax returns
        • Recent (last 2 years) business tax returns, if business owner
        • Recent paycheck “stubs” (at least 2 pay periods, if currently working)
        • Social Security benefit estimates from Social Security administration
        • Medicare information if already enrolled (65+), and expectations if not yet enrolled in Medicare (<= 64 years old)
        • Public- or private-sector pension accounts and related information
        • Other documents, as needed, and as relevant to specific client situation
    • We obtain additional documents required to build a financial retirement plan, and conduct reviews of other documents to identify strengths, weaknesses, risks and opportunities. 
      • This will include documents related to the following accounts/sources:
        • Current employment benefits information, including health benefits and retirement-plan related documents
        • Any information related to employer stock-based compensation (options, grants, RSUs, ESPP, etc.)
        • Health Savings Accounts, if applicable
        • All insurance policies, including any health, disability, long-term care, life, auto, home, umbrella (comprehensive liability), etc.
        • Copy of any estate planning documents currently held and/or in place
        • Other documents, as needed, and as relevant to specific client situation
    • We review and analyze the documents we’ve received, sometimes using software to extrapolate key information, and streamline the identification of existing and outstanding risks
    • Based on client specifics, we will build the initial financial retirement plan “model”
    • After the initial financial retirement plan model is built, we will review it with clients, discuss the significant components, and get clients consent to go forward
      • This step is as interactive and iterative as required
    • We will update and maintain the model using specialized financial planning software tools 
      • (e.g. eMoney, Libretto, Elements, etc.)
    • Using the “base” financial retirement plan model and using specialized software tools, we will subject the model to stress-testing in an effort to discover the model’s exposure to possible risks including: higher-than expected inflation, economic recessions, poor market returns over short and extended periods, health-related events, other spending “shocks”, unexpected premature death or disability, unilateral changes to government retirement plans (Social Security and/or Medicare), unplanned-for income tax law changes, etc.
    • We will review the results of the stress tests and make additional recommendations and strategies as appropriate to the clients’ situation and to address exposures
      • We use an additional tool that builds a psychometric profile, based on clients’ responses to survey questions, that helps us understand client preferences for funding their retirement spending needs
    • After agreeing on specific tools and “products” to address any of the particular risk exposures, we will develop a plan for the remainder of the investment portfolio, that is designed to achieve the goals of retirement plan. This will involve:
      • Ensuring that cash flows are available as identified in the retirement plan
      • Determining a target asset allocation, to achieve target risk and cash-flow objectives
      • Account-level “tax location” optimization, to minimize income taxes paid throughout clients’ lifetimes, while in the decumulation stage
      • Achieving investment portfolio “best practices” – widely diversified investment vehicles, highly liquid, low explicit and implicit costs, optimized for expected investment time horizon, and an ongoing schedule for portfolio rebalancing
    • We will document, implement, and begin managing and monitoring the investment portfolio and any related products, as described above
  • We perform ongoing evaluation and analysis that might support adjustments to the plan
    • We will meet with clients, usually twice per year, to discuss, evaluate, and modify the current implementation of the plan in the following areas:
      • Discussion around clients’ Statement of Financial Purpose, and whether modifications are needed in the context of any changing goals and objectives
      • Annual cash-flow planning – this will usually occur in the early part of the year (winter months) and is designed to coordinate the clients’ expected spending needs for the year, any external income sources (SS, pensions, etc.), any required account activities (RMDs, etc.), expected annual tax brackets and rates (based on tax returns and expected level of current year taxable income activities), and any other account activities designed to address future needs (for tax location and tax management)
      • Estate planning and insurance review meetings – these are optional or can be asynchronous. They would be warranted primarily on “new developments”, either material changes in the clients’ situation or changes to the rules and regulations that govern income taxes, estate tax and planning activities, etc.
      • Q3-Q4 “check-in” meeting, where we update clients with their current financial condition (updated household balance sheet and account balances and expected changes through the remainder of the year)
        • We seek feedback from the clients’ perspective on any changes that we’ve requested or are warranted by circumstances
    • We will respond to any questions from clients in these meetings, as well as throughout the year. Phone calls, emails, and impromptu meetings are encouraged and welcomed.
    • If any aspect of your ongoing plan requires or warrants adjustment, in our opinion, we will reach out to clients and present our recommendations through email or in-person meetings, as appropriate.
  • Any additional meetings and recommendations as circumstances warrant, such as a windfall inheritance, a dramatic change in the clients’ health needs or living circumstances, or upon the pending or sudden death of one or both clients
    • Throughout these times we will walk with clients, and their families, to provide our professional guidance and assistance in these challenging and difficult circumstances
  • Finally, any time that clients wish to engage with us as their financial advisors, to discuss, debate or “brainstorm” regarding financial questions, opportunities, etc., we will be available for you.

Within any clients’ lifespan, the following areas of financial planning will have greater or lesser importance at any given time:

  • Can include debt management issues, cash flow and spending management needs, creating systems for systematics savings and investing, etc.

  • Might include various forms of insurance, such as health, disability, life, property and casualty (home, auto, liability/umbrella), etc. Could also include setting up and maintain an Emergency Spending fund to provide “time” to adjust to unforeseen circumstances.

  • Usually includes at least a will for each client, an advanced directive for health matters, possibly includes powers of attorney (POAs). Depending on other circumstances, this might also include the use of revocable and irrevocable trusts, guardianship agreements (for young children), etc.

  • This is relevant for all individuals and couples, and takes on additional importance with increased wealth, savings and investments; for business owners and self-employed individuals, this becomes more complex due to the interactions between taxation of income at the business entity level versus the individual taxpayer level, and the amount of control available to shift income legally to its more advantageous “tax filing” location. In a similar vein, wise tax planning will also include understanding and optimizing the “tax location” of the components within an investment portfolio, as well as “time shifting” income to “lower tax” years during the clients’ lifetime, especially in retirement.

  • key concepts in selecting individual investments and building investment portfolios include risk and expected returns, diversification, fees (explicitly stated and implicit costs, usually related to turnover), the process of rebalancing to manage risk levels, “markets efficiency” and recognizing the inherent limits of “market timing, forecasts, and stock picking”, understanding “tax location” and the impact of managing investment selection aware of an account’s tax status, etc. Depending on a client’s occupation and situation, there might be significant portions of employer stock-based compensation (grants, options, RSUs, etc) that should be planned and optimized for, including the regular and alternative minimum tax systems.

  • Standard components might include understanding Social Security and optimal claiming strategies; understanding Medicare rules, requirements and choices, along with the timelines for choosing and making changes. Other components can include understanding public- and private-sector pensions and other sources of retirement income. Depending on the life stage, clients might need help making decisions about saving and investment retirement in 401(k) plans, 403(b) plans, 457 and other deferred-compensation plans, etc. Also, there are many non-financial aspects of retirement planning that should be considered and addressed prior to beginning retirement such as: Where will you live? What will you with your “extra time” each day? Are there new pursuits that interest you – educational, skills-based and hobbies, paid or volunteer work, travel, etc.? Finally, the term “retirement” itself is also undergoing a rethinking of sorts – will it be a “linear” process (e.g. work, then retire, then …), or will there be “cycles” of mini-retirements going forward (e.g. education/learning, work/vocation, retire/rest/break, followed by more or new learning, a new vocation, another rest/break, etc.)?

  • This can include understanding the above-average costs of higher education and planning for paying for that education; it can include understanding what financial aid is and isn’t in the current era; it might include how much parental vs. student (vs. grandparent?) contribution will be expected; it might include how to save and pay for education in the future, in the most efficient manner possible, whether for grandparents, parents, or parents-to-be.

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