The BIG Retirement Planning Mistake…
Have you thought about your retirement plan lately? Do you even have one in place? Is it in writing? For most, the answer is no.
For one thing, it can be daunting to think about. It’s that time you now have to start thinking about your next phase in life. What’s it going to look like? Will I be ok?
You’ve got face the fact you are getting older.
You’ve got to face head on any bad financial decisions that you have made in the past that may impact your future.
It’s complex and can seem overwhelming, too hard.
These are completely normal reactions as retirement is one of the most stressful events in people’s lives.
It’s as stressful as moving house and marriage.
It’s interesting that we tend to put more time and effort into planning a holiday than we do with planning our retirement.
Go figure, a holiday is a short period of enjoyment yet retirement can last 30yrs or more.
When was the last time you planned a Holiday?
You pick the type of experience you’re looking for. It could be lazing around on a beach or on the go everyday European adventure.
A date is chosen and you book the flights and accommodation.
You choose the activities and experiences you want and in most cases book them ahead of time.
You get the general idea. There is a significant amount of time and effort that goes into planning your holiday.
It’s interesting that you don’t just roll up to the airport without any planning, right? That would be ridiculous, although could be an interesting experience…
So why would you treat your retirement with less care and preparation that your holiday planning?
We’re going to run through the framework we use for clients so that you can successfully plan out your retirement and go ROCK IT with less stress and more confidence. Sound good?
Fail to Plan, Plan to Fail
You’ve most probably heard of this time and time again, right?
I find it interesting that we spend so much time and effort planning our holidays yet the majority spend much less time planning our retirement.
In the majority of the survey’s that were completed on retiree’s, the number one regret that comes up is “they wished they had started their planning earlier”.
Yet, we continue to avoid the whole retirement planning thing altogether.
Continue down this path at your own risk…
What’s not Retirement Planning?
While many tend to think that their investment portfolio is their retirement plan, it is not.
While it forms part of what I call the tactics, it’s what funds your retirement lifestyle but is not a retirement plan by itself. Sure, it’s an important part but still not a retirement plan on its own.
Many put all their focus on their investment portfolio without really thinking about the makeup of a great retirement plan.
Following your Family’s Recommendations
Many do use the wisdom and knowledge of their family to assist with financial decisions and rightly so, their family after all. If you can’t trust your family then who can you trust? As must as you think this is a plan it is not a retirement plan.
Here’s the thing, what if they are leading you up the garden path. Sure, they may be doing well but what works for them will not necessarily work you.
While they are family they may not know your intimate financial details. Every retirement plan I’ve been involved with is very unique. While we may use similar tactics no two retirement plans are ever the same.
You are unique, therefore your retirement plan needs to reflect your uniqueness.
Besides, your family has not been where you are about to go. Have they lived 30yrs plus in retirement? Do they know how to protect your retirement lifestyle? Do they have the skills to determine where things could go wrong and implement strategies to negate the possible pitfalls?
Retirement Planning today is very different than your parents, therefore, requiring you to be more dynamic in your approach.
She’ll be right Attitude
It’s interesting that we, as Australian’s still have this type of attitude, that it’ll work itself out eventually.
I have to say, I have never seen an athlete ever make it without a plan on how they are going to make it. They don’t wake up with the gift of being a great athlete. It takes a lot of hard work and commitment and not to mention the meticulous planning involved.
If this is the way you are thinking, keep going at your own risk…
I’ll leave it till later
In a similar vain sometimes it’s the enormity of planning for 30yrs plus can be overwhelming. You have a long time to plan it out, so you focus on more perceived important activities, what’s right in front of you.
While sometimes it’s not knowing where to start, after all, they don’t teach this stuff in school or university.
Thinking you’re the expert
Let’s consider a brain surgeon here for a minute. They are specialist in their field, that’s all they do.
So, if you’re requiring brain surgery, are you going to do this yourself? Of course not, your going to go to an expert who has many years of experience in brain surgery and does this type of surgery day in day out, right?
You may be the expert in your own field of expertise, but not in the field of retirement planning. Sure, you might be smart, you might know a little about shares or a lot, but from my experience, this is where this type of thinking gets you into trouble and will lead to big mistakes.
Many people who manage their own money still get it wrong, they just won’t admit it…
It’s time to admit you don’t know everything and find someone who is an expert in retirement planning (aka Jigsaw Private Wealth for example or someone else who specialises in retirement planning) and work with them to refine your plan, take out the individual emotional connection that can send you back many years with your plan.
I’m not saying you need to hand all the decision making over here. It’s about collaborating with someone that can help you nail your retirement plan, to ensure you don’t make the costly mistakes many have made before you.
Relying on Google
Using and relying on Google for your retirement plan can lead to you blowing up your retirement.
Sure, Google has lots of information on retirement planning, how much you need to save for instance but’s it’s all general information.
Most of the time it leads to no action, you’re overwhelmed by the information. Who do you believe? And yes, even my stuff is out there.
Once again you are unique and Google does not cater for your uniqueness.
Granted, it will assist you with making some decisions, but the problem lies with you siding with information that matches your thinking.
This could be fatal when using this to form your retirement plan, it’s what we call confirmation bias.
It’s when we are drawn to information that supports our thinking. What if it is all wrong? Quite a common problem particularly when there’s an industry that’s built to take money out of your wallet. It’s what term “Financial Pornography”…
Ok, so we’ve talked about some of the things people consider to be retirement planning, but what do we really mean by a real retirement plan?
When you consider the research in how people achieve goals it all comes down to it all being in writing and breaking the big goal into little achievable actions, one step at a time. If you do this, it doesn’t look so daunting anymore.
Now, I’m not saying that it has to be set in concrete. None of my client’s retirement plan is ever set in stone. We start with an educated guess on what they want and help them evolve and iterate their plan over time. After all, life changes and guarantee you are going to change your plans…
But, what do we mean by Planning?
The funny thing when you roll into retirement the money is not going to just appear in your bank account, it is now? If you know how to make this happen, let me know…
The right planning is going through the process of working out what type of lifestyle you are wanting for yourself and working out the costs of it, how you are going to achieve it and safeguard it.
It’s answering the below questions:-
- What type of retirement do I want?
- How much do I need to fund my lifestyle?
- Will I run out of money?
- When can I retire?
- How do I protect my retirement lifestyle?
- How do I transition from a regular paycheck to an income in retirement?
While this list is not exhaustive, they are the main questions that need to be answered in a written retirement plan.
So, when we bring this all together what does it look like?
What’s Your Retirement Lifestyle…
What is it that you want to achieve in retirement, the lifestyle you want?
Here are some of the questions that we ask our clients before we start any planning:-
- What are you doing on a regular basis and if you needed to trim it back what would that look like? It’s the day to day lifestyle you are wanting. It’s different for everyone.
- What are your once-off capital expenses? Are you going to be buying a caravan and 4wd to discover Australia? Are you going to be changing homes or undertaking some renovations to your current home?
- What travel are you looking to undertake? Are you looking at regular overseas holidays or are you planning off adventures you want to experience? Or do you want a travel fund where you can decide year to year what experiences you want and how much you spend on them?
- How often are you looking to change your cars? Is it once every 10yrs or once every 5 yrs and how long would you be looking at maintaining this schedule?
- Are there any special celebrations you are wanting to finance? Is it a child’s wedding, a special celebration or a special birthday?
- Are you wanting to help the family out? Do you want to help finance your grandchildren’s education? Do you want to help fund a child’s house purchase?
- Are you wanting to leave a legacy? What does this look like?
- Is there anything else that’s not covered in the above questions that would involve a lump sum?
While not exhaustive these are some of the questions we ask our clients to gain a clear understanding of what type of retirement they want. It’s the starting point which will no doubt change as you go through the process and the years pass as priorities change.
Let’s be honest though, most don’t know exactly what they want in retirement, although there are a few who have this mapped out to the smallest details.
Here, I ask to put any misconceptions aside, what you think you can’t do. Be a kid again and dream a little. You can always prioritise and pare it back.
It’s an opportunity to get it all on paper and give you the power to make changes based on some of the results below.
What’s all this going to cost?
Once you have a good guestimate of the above you are now able to work through the numbers. What is this retirement lifestyle of yours going to cost?
Given you now have an idea you are able to calculate the cost of your retirement, what you need to fund it.
However, the biggest mistake is thinking you are going to live till your life expectancy (ie. when the government thinks you’re going to die).
These are the government tables that tell you how long people are going live based on your age. These are the numbers that most retirement calculators use.
Don’t be fooled by these numbers. It’s likely you are going to live longer or less than these numbers dependant on your family history and current health.
For most of our clients when calculating how long they live we take this number to at least 100. The current stats are that there is a 50% chance that one in the couple will live into their 90’s. Best to err on the side of caution here.
How do you protect your retirement lifestyle?
Not only do you need to know what your retirement looks like, at best a good guestimate, know how much it is going to cost but also to know how you are going to protect your lifestyle.
You would not believe the number of people that miss this step and regret it when things go wrong.
Don’t forget retirement is not the time be maximising your return ( and this is what the majority of planners still do, hell, the industry is built around this), it’s all about achieving the lifestyle and experiences you had planned. What’s the minimum dosage of risk you need to take to get the job done? You may find you don’t need to take as much risk as you think…
Let me ask this question:-
“If you never ever beat the market but you were able to achieve everything you set out to achieve?” Would you be ok with that?
I’m being a little presumptuous here, but I’m pretty sure your answer is yes. Let me know if its something different, I’d really like to know.
So how do you do this?
Here’s our shortened version of what we do…
It’s all about preparing for the worst.
For our clients, we look to hold 3-6mths of income in an emergency account.
We then look at the capital expenses that are going to occur in the next 12-36mths and hold this in very conservative investments.
Then we look at their investment structure and for most, they have account-based pensions. So we look to hold around 2-3yrs worth of income in cash or very conservative assets.
But hey Glenn, that’s way too much in cash.
You’ll be thanking me when the next correction comes. Just ask anyone who was retired when the Global Financial Crisis hit, this saved our clients from the headache of sacrificing their lifestyle in a time of great distress. The power is in your hands, not the market…
The real power of this strategy is that you have levers to pull when things aren’t going too well. The power to make changes based on your terms, not the market or other external factors happening at that point in time.
Although you may be getting the maximum return, you have peace of mind and can stress less about money and worry more about ROCKING your RETIREMENT, not downsizing it…
Stress test your numbers…
This is the number one thing I see most planners not do. It’s just not in their nature. They do the standard calculations and never stress test it against certain scenarios.
But what do you mean by stress testing the numbers Glenn?
While we don’t know what the future is going to hold, we can at least stress test based on past history.
We use a tool to complete this stress test based on our client’s retirement plans. Based on real numbers and investment portfolios we use now. The tool is able to generate a base case, pessimistic case, and an optimistic case, giving our clients more clarity about the decisions they can make.
It gives us the information to make informed decisions by stress testing our client’s numbers.
What we find is we are able to play around with these scenarios, make changes to retirement plans and run the numbers based on different return scenarios.
You can stress test front-loading expenses in the most active years of your retirement and work out whether you will still have enough.
You’re able to make more informed decisions about the amount of risk you take.
You may find that taking less risk will still allow you to achieve the retirement you are aiming for but with less risk and movement in your investment portfolio. How powerful is that?
Do you have your Retirement Plan in writing?
While we have covered a lot in this post, I’ll think you’ll find there is a lot more to securing your retirement lifestyle than what you thought.
You see the majority of the financial planning industry focuses on maximising your risk, not giving you the best opportunity to live your retirement lifestyle.
We’re more concerned with our client’s living a great retirement, making the most of the only life they have and making sure they have every avenue covered so they have more than one lever they can pull if and when they need too.
The key here is having a written plan that covers that. It outlines the retirement you want, what it’s going to cost, what you need to do to achieve it and a strategy to safeguard your retirement lifestyle.
What’s in your retirement Plan?
Do you actually have one?
Are you just winging it or do you really want to get this stuff sorted so you know what the options are and know what’s possible?
So, what are you going to do about your retirement plan?
Lucky for you, we have opened up a number of times in our diary to help you with this.
So, if you’re looking to self fund your retirement and want some help book a 30 minute Rock Retirement Call here now>>
We only have a limited amount of time in our diary and given the in-depth information we go into we have to limit them. Once the times are gone you will need to wait until next month.
In these calls, we’ll help you define your cost of retirement. We’ll look at where you currently stand.
We’ll provide you with a report 1-3 days post this phone call with your retirement assessment.
In your report, we’ll summarise your retirement goals, where you are and the gap, if one exists.
We’ll provide you with strategies to optimise your position.
We’ll also stress test your plan for you and provide you with these results.
As a bonus, we’ll give you access to our interactive risk profile interactive. This will help you to determine the amount of risk you are comfortable taking in your investment portfolio.
But aren’t you going to sell us something on this call?
I want to be completely honest with you. Yes, we’ll get clients from these calls but first, there must be a good fit, we don’t take on just anyone and we’ll both know if there is a good fit.
If we think there’s a good fit we’ll put an offer on the table, if not then we won’t and what you have is great information to take and implement yourself.
I want to make this a no brainer for you. So, if you think if after this call and providing a massive amount of value, you think we have wasted your time, let me know and I’ll donate $100 to your favorite charity, no questions asked.
Now, go ROCK RETIREMENT…
Ps. This post is all about nailing your retirement plan. Critical to your success is following the right process and having it in writing. Having it in writing gives you a greater probability it will be achieved. We’ve talked about what retirement planning is not and what retirement planning is. Follow this process and you will achieve your desired retirement lifestyle with more clarity, more confidence with less stress.
Want to know more or want to take up on our 30 minute Rock Retirement Strategy Call where we will help get crystal clear on your retirement along with ways to optimise it CLICK HERE to book now>> These calls are limited.
Know someone that would gain benefit from the information, feel free to forward on.
Make it a great Life!
Challenging the Status Quo!
Glenn Doherty – CFP – Founder & Financial Organiser at Jigsaw Private Wealth
Mob: 0401 253 729