Charlie Jordan, CPA, CFP®, CeFT® | Partner | Lead Advisor
Back in the glory days of high school and college, I was fortunate to play football. As anyone who has played the sport will tell you, you eventually have a bad stretch of play. Things aren't clicking, and your team is struggling. It's usually about that time that your coach has the "back to basics" practice. Regardless of where you are in the season, you spend the entire session doing the most basic drills: blocking and tackling. They are elementary and annoying. You feel this is a waste of time. You could be preparing for the next opponent or running actual plays. Instead, you toil and sweat over the building blocks of the sport. Without fail, however, you improve.
For those planning for retirement, the events of 2020 have been especially worrisome and disruptive. We can't control pandemics, market fluctuations, or social unrest. But, we can focus on the blocking and tackling of retirement planning. Here are the three drills you can run:
Assess your Retirement Date
No one likes changes in plans. But, an adjustment that often creates the most leverage in a retirement plan is changing the retirement date. The obvious benefits include an additional year of income (usually some of your highest-paid years), delaying your portfolio's need to supplement your cash flow, and another year of retirement plan contributions. Even if another year in your current role is out of the question, finding a part-time job or a "side gig" can make a difference.
For some, they may need to retire earlier. The job is killing them, literally and figuratively. This pandemic time has caused many to reevaluate a lot of areas of life. You may need to rerun the numbers to see if you can retire earlier or take a new role with a reduced income.
Review your Investment Allocation
Finding the "sweet spot" for your portfolio allocation requires an understanding of your financial plan's need for long-term growth and your psychological ability to endure short-term fluctuations (often called risk tolerance). For planning purposes, it is prudent to be conservative with the return assumptions in your financial projections. Likewise, increasing your equity exposure in your planning to "make the plan work" is not recommended. However, I see situations where the financial projections do not require as high an investment return to accomplish their objectives. They would love to see growth in their plan, but they realize that they struggled mightily in 2020 with their risk level. In those cases, making small adjustments to your equity allocation could lower your anxiety level while remaining positioned appropriately for your goals.
Focus on Cash Flow Management
While it may not be ideal, scaling back your lifestyle or limiting expenses is another way to ensure you don't run out of money in retirement. Spending, both before and during retirement, has an exponential impact on your wealth. Less spending before retirement means more savings. Less spending in retirement leads to lower withdrawals. Even making small tweaks over a long time can make a huge difference.
At the same time, you have to balance the drive to build wealth and the need to enjoy life. Imbalance on either side is rarely "successful." Some people really should spend more than they do now. They are often consumed with the what-if, saving for every potential risk. This can have real impacts on relationships and robs that person of the joy of being generous with their wealth.
Sometimes, we need to get back to the basics. While these all revolve around the strategic side of money, don't miss your decisions' real personal implications with your wealth. Our mission at Brightworth is "to empower our clients to focus on what matters most”. The last drill I will mention is to do just that. Take the time to evaluate what matters most to you. Does your financial plan help you with these priorities? Have your goals changed? How can we help?
Have more questions about retirement planning? Click here