Retirement planning is a mystery to most. No wonder, it’s not like it’s something you do everyday…
Transitioning from your working years to retirement life comes with its challenges.
Ranging from how you are going to spend your days and weeks. How are you going to pay for your retirement lifestyle? Don’t forget long term planning.
All this, so you don’t spend your retirement years worrying about running out of money.
With so many moving parts combined with the complexity of the retirement system. There’s no wonder most are confused and lost at sea.
As we work through the 7 steps for a seven figure retirement. We’re going to look at John and Suzie’s journey to a seven figure retirement. A recent client we worked with.
Meet John & Susie…
John is aged 60 and Suzie 58. While they are in a strong financial position, they suffered some financial setbacks along the way.
Now at a stage where they are earning good income (circu $300k between them).
They have made a few mistakes along the way and want to make the most of what they have before retirement.
John & Suzie are planning on retiring in 7 years time. While they may not fully retire. Any work they undertake will be on their terms.
They want to spend their early years in retirement caravanning around Australia and a few overseas trips.
As we work through John & Suzie’s situation you’ll uncover what it takes to achieve a six figure retirement.
Note: As you read through this case study, please forget about the dollar’s involved. It’s easy to think, “this doesn’t apply to me”. The fact is everyone’s retirement is different. Whether you have a lot of money, not so much money or somewhere between. The key is the process and thinking to achieve your comfortable retirement.
Let’s get to it…
What Activities And Interests Are Going To Keep You Motivated In Retirement?
If you are planning on living a long and comfortable retirement, you need to have a vision. Even a vague one is a start.
Making sure you are retiring too something rather than from something.
Just because you hit retirement age doesn’t mean you need to stop working.
For John and Suzie, they wanted to retire to a more comfortable and relaxed location.
Somewhere near a beach and plenty of sunny weather.
One of the first activities we took John & Suzie through was a retirement visioning exercise. Made up of 32 activities and interests of which we got them to choose 6 each.
While travel was a joint activity they both wanted.
John wanted to learn a new skill. As he was handy with his hands.
As they were looking at relocating at retirement. John expected there would be some home projects to keep him busy…
Both were keen to keep their brain matter working and wanted to keep working in some form or another. Something a little less stressful and on their own terms, but not full time.
Susie wanted a relaxed lifestyle while volunteering in her area of expertise.
Both wanted to allocate more time to keeping fit and healthy.
Spending more time with family and grandkids was also important for them.
Before you start looking at your numbers, investments or financial products. You need to have a good handle of the lifestyle you want in retirement.
My guess…it’s no less than you have now.
Your Enough Number Will Set Free…
Freedom and confidence in retirement comes from knowing your numbers.
The amount of money you need to fund your next 30 or 40 years without fear of running out of money.
For John & Suzie, they were not at their seven figure retirement number just yet.
They were on their way…needed to pay down debt and use the income they had to boost their retirement nest egg prior to retirement.
This is an area they had been struggling with, working out what their ENOUGH number.
Problem was every calculator they used spat out a different number, leading to total confusion.
Problem was they didn’t have the right process and structure to work through all the components of figuring out their number.
The fact was what they were reading was general and confused the heck out of them.
After working through the lifestyle they wanted and what it was going to cost. Along with the cost of a caravan and overseas holidays to boot.
Using prudent assumptions, we worked out approx $1.4m would see them through comfortably.
At this stage, they had a retirement GAP of just over $500k they needed to bridge.
Lucky time was on their side…
Find The Balance, Retiring Too Early Or Too Late…
The thought of retirement freedom can be tempting. There are emotional and financial reasons not to jump the gun.
The last thing you want is retirement boredom. It’s important to make sure you have a life outside of work.
Sleeping in every day and becoming a couch potato is not the key to a happy retirement.
Retiring too early can be financially devastating. To put it simply, every year in retirement means one more year of spending and one year less of saving.
Take John & Susie, while they had a loose retirement date of 7 years time. They definitely could not retire today.
Like most people, there was no real thought about 7 years time for John and Susie, it just sounded good.
So, we used our sophisticated cashflow software to work through their current path. We do this to find any hidden GAPS clients are unaware of.
Given their excess cashflow they were going to have more than ENOUGH. In fact if they worked for another 7 years they would end up with just over $2m in their retirement kitty.
In fact, knowing this information, John & Susie could consider retirement much earlier than they anticipated.
Rather than retire in 7 years time, they were in the position to bring their retirement forward.
Life is not a rehearsal…
For John & Susie, they were in the privileged position. They could make that important decision and bring forward their retirement.
They were clear on what life looked like after work…
Watch your withdrawal rates…
If you’ve been scrolling the web for retirement information, you’ve probably come across the 4% rule.
A guy by the name of William Bengen in 1994 penned the phrase, “the 4% rule”.
In simple terms, it’s the amount of money you can safely withdraw from your investments to last through retirement.
For example if you have $1.5m in super, you could potentially withdraw $60k pa safely. Based on an investment strategy of 50% shares/50% fixed income.
It’s been argued more recently that this number should be higher. Given low interest rates and the highs of recent markets. This number is closer to 3% to see you safely through worst case scenarios.
While this is useful information. In reality people spend more money in their active years in retirement. In our experience the first 10-15 years, termed the go-go years.
In reality your withdrawal rates in early retirement are going to be wide and varied. Some years less and some years more. This is why cashflow modeling is your saving grace.
In John & Susie’s case, their keen interest in travel and caravanning are going to push their withdrawal rates up in the early part of their retirement.
Once they get through their go-go years and transition to the slow-go years, they will spend less.
This is why it’s so important to focus on your cash flow requirements and not some standard withdrawal rate.
Relying on these types of rules and thumb could see you missing out on experiences in retirement.
Have a Plan…
In today’s fast paced world, a worrying trend we are seeing is people are struggling to put their own plan together.
Like John and Susie, they had a good handle on things. Were doing some things right, but there were hidden GAPS they were unaware of.
The saying, “you don’t know what you don’t know” was very true for John and Susie.
But they were also smart enough to know they needed a plan, some sort of plan and some help.
We worked with John and Susie in creating their retirement roadmap.
We uncovered they were not using super to it’s full potential. We devised a plan to take advantage of all the benefits that were available to them.
We bolstered their investment strategy to meet their specific needs.
Ensuring that when they decided to retire they would not be at the mercy of investment markets.
They’d be able to retire no matter what the investment markets were doing.
These changes would see them better off to the tune of $500k in 10 years time. Leaving them with more than ENOUGH money to see them through retirement.
We’d also discovered they would be exposing their estate to potential taxes of just over $150k.
We implemented a longer term strategy to minimise this as quickly and as much as possible given the current regulations.
All up, John & Susie had a roadmap to achieving their retirement lifestyle much earlier than expected. With more than ENOUGH money to see them through.
Remain Agile in your retirement planning…
Eisenhower once quoted, “plans are worthless, but planning is everything”.
This quote is so relevant when it comes to your retirement plan. A plan is better than nothing, but regular planning is critical to your successful retirement.
Regular planning demands thorough exploration of options and contingencies. Something that should be done on a periodical basis at the very least.
The reality is…
Your life will change…
Investment markets don’t perform the way you thought…
Inflation could be higher or lower than you thought…
Your assumptions are wrong.
There are so many aspects of your life and more specifically retirement planning that could change.
Regular review of the landscape ahead as more information becomes available is key to successful retirement.
It’s a little like a pilot. They have detailed flight plans. But a flight rarely goes according to the flight plan. Just ask a pilot…
They have to continuously course correct based on the conditions they encounter.
That’s why they need pilots to pilot a plane.
Do Consult a Financial Professional…
Sure, I’m a little biased here. I don’t recall ever seeing anyone with the perfect plan.
There’s always something missing.
As you can see from this list, there’s lot of complex decisions to make. Quite often there’s one financial decision that can impact other aspects of your financial plan.
It’s a little like someone trying to pilot their own plane, just without the expertise and training of how to fly the plane and course correct when the plan doesn’t go according to plan.
Firstly, “life is not a rehearsal”.
You have better things to do than manage your super and retirement plan.
A financial planner will help you create and manage your retirement roadmap. Help you understand your numbers. The numbers you need to hit for a comfortable retirement.
Help you understand your cashflow needs and model potential scenarios based on your changing needs.
Most importantly help you design and maintain a plan to deliver your retirement income safely so you don’t risk running out of money.
These are the critical steps if you want to achieve and maintain a seven figure retirement.
Retirement Clarity Call…
This all started with a Retirement Clarity call for John & Susie. They were a little skeptical at first but realised after our discussion they needed some help.
Like John and Susie, we’ll have a chat about your retirement plans. The challenges you’re facing, to help provide some clarity on where you focus needs to be.
Maybe even provide you a roadmap on how you can answer all your retirement questions once and for all.
So you can have confidence in your financial decisions which ultimately deliver your comfortable retirement lifestyle.
Email me at firstname.lastname@example.org or request a call by clicking here:
Glenn Doherty – CFP – Financial Planner | Helping people within 10 years of retirement achieve a successful retirement