Retirement planning means something different for every person.  Some people say they don't want to retire.  Others think of retirement as a new exciting phase of life, affording them the ability to more of the things they'd like to do.  Whatever you feel about retirement, one thing is for sure, some meanings of individual words take on new understanding.  New priorities surface too.

New meaning to common words

Return on investment (ROI) shifts to feel more like “reliability of income.”

When you are no longer working, you are usually engaged in spending your lifetime saved money.  Your focus shifts away from the return towards the stability of that return.  Most people don't want their income to go up and down based on the market.  Steady, smooth income is necessary if you're to enjoy this new phase of life.  Your review time with your Advisor should be dedicating more time to your income sources and less time towards your returns.  Returns are significant, but there are many ways to talk and learn about them.  It seems like talking around the actual income plan and where those distributions will be coming from is lacking in much of what is offered at the status quo firms.


Up to this point in life, we are familiar with identifying how much risk we have.  Usually, the way to determine risk is to talk about how likely your investments could lose money.  The focus is on how risk-weighted you are.  In other words, how much risk do I have in relation to lesser risky investments?

Risk should be looked at from a different angle for a person preparing to spend their money (think seven or fewer years).  Look more closely at the time horizon.  How long before I need that money for income?  People often underestimate how much time is required for riskier investments to increase positive returns.  

A Morningstar study looking at growth equities between 1928-2018 shows that a positive return happens 73% of the time if looking at only one year, 87% of the time when looking at 5-year returns, and 100% of the time when looking at 15 year annualized returns.  There could be five year periods with zero or negative returns 13% of the time.

Your Advisor team should be pointing out where your income will be coming from for the next several years.  The goal is to help ensure you reduce the negative sequence of returns from your income plan.  This balance between risky money versus less risky money needs to be kept in balance.  Every plan is different because every family has a different spending demand.  

The important thing is never to expect absolute returns from things like growth holdings in a short (think three to seven-year) time frame.  Sadly, it is not uncommon for someone to roll off the tongue an expected return assuming that to happen in a short period of time.  It might or might not happen.  If a person would give it more time, it's more certain to happen.  Expectations are often in need of a better perspective.

Saving vs. Spending

The next change near the retiree's encounter is a theme change from saving to spending.  We leave the world of saving and enter the world of distributing the savings (spending.)  This new season has mathematical as well as psychological ramifications.  It requires a shift in financial advice that is specific for retirees.  If a person successfully saved during their entire life, they might find it challenging to face doing the opposite, spending.  

Managing Money vs. Managing the Plan

Lastly, much advice has likely focused on managing money.  It's safe to say that managing money is a very commoditized service, and it is available in many places.  Managing money needs to shift to executing the income plan for a near retiree.  The next phase is all about updating and informing on the plan.

More financial advisory firms are focusing on managing the plan than just a few years ago.  But, it's a small drop in the ocean of financial planning firms compared to those that do not.  Near retirees need to realize that a new level of service will be required for the non-working years.  

We are happy to be one of those firms that focuses on this much-needed service.

Be sure to reach out to one of our team if we can be of service.

Retirement Planning