There has been much written about how much savings each person will need to retire.  You’ve seen the ads with the “What’s your number?” tagline and advisor websites with “Retirement Calculators” where you plug in a few numbers and VOILA, your retirement is figured out!  While these articles, advertisements and calculators are useful in getting you to think about the subject of saving and investing for retirement which clearly most Americans would prefer not to do, they are overly simplified and don’t really ask for what’s needed to paint a clear picture.

Let’s start with where money will come from.   How long will you work and from where will you receive retirement income?  Do you know what your social security income will be (we’ll leave alone the subject of the fund’s long-term solvency or potential insolvency for now) and when is the optimal time to start taking it?  What about pensions and lump-sum payout offers from employers?  It may be an uncomfortable subject to discuss, but maybe you are in line for an inheritance or are the beneficiary of a trust.  We’d like to think our financial situation at retirement will be less complicated, but there is much to consider and the timing and risk to each source of income needs to be thoughtfully considered.

How about your expenses during retirement?  Many advisors will tell you and their calculators will estimate that you will spend some fixed percentage of what you spent during your working life.  Unfortunately, it is not that simple as there are so many variables to consider.  Shouldn’t you factor in when your house will be paid off, as mortgage principal and interest is the biggest, single cash outflow for most people?  Your situation will be significantly different if you continue to pay $2,000 or $3,000 a month for the first 20 years of retirement than if your mortgage was fully paid up before you stopped working.

What are you going to do to fill the extra time you’ll have during retirement?  Cruises, tennis and golf clubs, a condo in a warm weather locale and month-long trips to Europe with the grandchildren aren’t free.  Perhaps you want a simpler life with more time gardening and reading.

What about the risks to achieving that comfortable retirement?  Accidents and illnesses happen. Does your employer provide long-term disability insurance?  Do you and your spouse have life insurance?  When you retire, should you consider a Medicare Supplement policy to cover gaps in Medicare coverage?  Will you have to care for children, parents or other relatives?  What happens if you lose your job and can’t find a new one with a comparable level of compensation?  Life throws us many curveballs and analyzing and preparing for every scenario is impossible and can be psychologically unproductive, but anything that has a reasonable probability of happening or may be a path you’d like to pursue, take an intelligent look at how it will affect your financial picture.  The point is, you may spend more in retirement or you may spend less, but you should be asked the right questions to arrive at the right solutions.

The last issue we will touch upon is your investment performance.  What if the stock market does a 2008 redux?   October’s volatility and losses may have reminded you that markets  go down too.  Should you hide under your mattress with your life savings in a shoebox?  When you plan to retire, your financial needs and general attitude about risk will go a long way to determining how you should build your portfolio.  There are many bright people that took huge financial losses during the internet bubble and/or the financial crisis (great recession) and who determined they had suffered enough and missed the subsequent stock market rallies that would have made them whole and then some.  While experiencing losses like those leave deep scars, you should understand that there is considerable risk to your retirement by not being invested at all.  Inflation rolls on and bills roll in no matter what investment decisions you make.

If you’d like to better understand your situation, we are here to help.  Please email or call to set up an appointment.

Stephen Lulla
Founder, Chief Investment Officer
steve@maidstone-wm.com
518 350-4877 (o)
10 West Main Street
Cambridge, NY 12816