As accounting and tax professionals helping clients with their challenges, we don’t often think about our own situation all that much. It’s the old “the cobbler’s children go shoeless” situation. And I find myself in that position now as I go into retirement.
If you don’t have a clear idea of what retirement actually means for you, then how could you possibly plan for it? And furthermore, if you are supposed to start “planning early” – like when you are a younger person starting to make money, how could you possibly plan for a stage of life that you can’t really even put your head around. I would admit to suffering from this difficulty right up to and including the present.
At the risk of being a little bit contrarian, I am going to suggest that we need new language around all of what professional advisors call “retirement planning”. The term is just not helpful and most of us can’t really get started on the planning. It seems there are two main components as I see it – financial aspects and life stage aspects. Unfortunately, the two aspects are intertwined, and this makes it messy.
On the financial side, I believe the objective is financial security and independence/freedom and the lingo should reflect that. And once the lingo reflects that, then perhaps we can be more settled in how to go about it. How about “Post Work Financial Model”? It’s a mouthful, but a financial model can be tweaked as the future real life events unfold, generally not according to plan. What you need is flexibility to re-set and re-forecast.
On the life stages side of things, you alone have to figure this out with relevant family members etc. How about calling this the “Post Work Lifestyles Plan”? If you are not clear on what this looks like (THAT WOULD BE ME!), you will not be in a position to bring data to the table that is a necessary part in completing the financial side. Most of us are a little fuzzy on what exactly our post working lifestyle will be and the related spending and costs through to “the end” (of your life!).
You have to figure out how much you are spending on an annual basis, and then plug in any major “out of the ordinary” expenditures like possible family weddings, and other major capital purchases you know are coming up or might come up.
From this point onward it’s easy sailing. Your advisor can make a calculation of the income you could expect in retirement based on pension income, investment income etc., and by making assumptions about rates of return, life expectancy and all sorts of other VERY SIGNIFICANT variables that can skew the financial model wildly back and forth. That’s the “dark art” component of the Post Work Financial Model. But at least the spending part of the model will be based in reality and can be tracked back to hard facts.
Then these income streams and rates of return are merged with the spending and bingo – you find out if and when you will be running out of money. How comforting is that? Hmmm, maybe that’s why few people have the stomach for this Post Work Financial Model/Post Work Lifestyles Plan exercise!
But those that are brave enough to give a good try are rewarded with a little bit of guidance and a really useful tool. It can easily be updated from time to time as better information comes in about that not-so-well-done Post Work Lifestyle Plan. If you can do some of the heavy lifting on this, you will no longer be running blind in an area of your life that really does require a little clarity!