Planning your retirement runway

A good financial planner can help you take stock of your options for retirement and plan for periods of economic turbulence during this time in life. (iStock.com/katleho Seisa)

No matter what your income, the key to making a financial success of retirement is to plan ahead, and that means making a comprehensive assessment of your assets and expectations.

That’s the advice from financial advisers, who note that far too many Americans approach their retirement years with too little money. A study released in October by the Stanford Center on Longevity underscored that reality with survey responses from retirees as well as people planning for upcoming retirement.

Of those surveyed, the median retirement savings were valued at $128,000. About 55% of respondents reported their financial situation as “fragile” or said they were able to just get by financially.

Before deciding at what age to retire with an arbitrary target in mind, said Michael Brown, “sit down with somebody to make sure you have realistic expectations of what your spending can be. Look at your sources of cash flow: rentals, investments, annuities, Social Security. When the market is doing very well and everything is going up, it’s easy to have the confidence that you have a good plan in place. But when the market does have a pullback, that’s when you get nervous.”

Brown, a Certified Financial Planner with The Murchison Group in Wilmington, uses an airplane analogy: the longer your preparatory runway toward retirement, the smoother your flight will be and the greater your ability to withstand periods of turbulence.

“It’s amazing what working an extra year or two can do to your portfolio,” he said.

Advisers at The Murchison Group typically run what they call “Monte Carlo” simulations to show clients how long their money will last in favorable, neutral and unfavorable market conditions and personal circumstances. David Shucavage, president of Carolina Retirement Planners, does that kind of modeling for his clients as well.

There are many decisions to make about financing your retirement, Shucavage noted.

“We look at things like different options for when to start Social Security. We look at your pension,” he said. “If you have a pension when you retire you have multiple options: you draw the most money if your spouse gets nothing when you die; you get less money if your spouse gets half the amount, or you get even less but your spouse continues to draw the same amount after your death.”

Then there’s the amount an individual or couple has saved.

“Your nest egg has to make up the spending for what’s not in your pension or Social Security payment,” Shucavage continued. “You’ve heard the term ROI. All the years you were working, it meant ‘return on investment.’ Now, in retirement, it’s ‘reliability of income.’ How long can you make the nest egg last without having to dip into the capital?”

Looking at the $128,000 in savings that, according to the Stanford Center report, powers the average American into retirement, the returns are small.

“Since most financial advisors suggest spending no more than 4% per year of invested savings, that equates to just $5,120 per year that the majority of retirees could safely withdraw from their investments to supplement other retirement income sources,” the report stated. 

Shucavage pointed out that most people experience three stages of life during retirement: the early years, when they’re on the go and spending more; a stage when they’re slowing down and spending less; and a “won’t go” final stage when they are far less mobile and may need to spend more in terms of health care.

Brown said the biggest benefit he or another financial adviser brings to clients is to help them take a hard look at their assets and make an informed decision about retirement plans.

“It’s ‘if we go down this road, this is what it means,’” he said.

Brown recommends sitting down with your financial adviser at least once a year for a check-up to see if you are on your planned path to retirement or, in retirement, you are still on track.

In the current market, investors – retirees in particular – are experiencing that turbulence Brown referenced.

“What impact does this have on your longer-term goals? Is there a short-term correction needed, or did we have unrealistic expectations?” he said. “Maybe this is the year we advise you to postpone that car purchase to allow the economy to recover. We are looking at a five- or ten-year horizon. Hopefully [you] have assets in place that are generating revenue and you are still collecting that income.”