When most folks worry about retirement, the biggest concern seems to be having enough money to sustain their current lifestyle.
- Will my assets be sufficient to supplement income sources like pensions and Social Security?
- Will I outlive my money?
- Will my investment returns keep up with inflation?
- What will be left for my kids?
While daunting, retirement planning appears to be straightforward.
- Save enough (this seems like the daunting part for many).
- Invest wisely (this is actually harder than it looks).
- Spend carefully in retirement (planning— this is where most folks completely miss the boat).
All it seems you need to do is make a few assumptions:
- How long you and your spouse will live
- What your investment returns will be
- What tax rates you’ll pay
- How high inflation will be
- How much you need to spend
Effective retirement planning, though, is actually much more complicated than these simple steps. Even for budgeting retirement lifestyle – assuming tax, inflation, and return assumptions are right – is much more complicated than it looks.
The sequence of returns matters a lot, for instance. If a bear market hits near when you retire and start spending money, you may never recover from the losses, even if returns soar later in retirement.
How long will you and your spouse live? Probably much longer then imagined, meaning you will need more money.
What about budgeting for the stages of retirement? Costs are different when first retiring and more active, and later when healthcare and assisted living expenses can skyrocket.
Most financial plans and retirement calculators use the simplistic approach outlined above. Relying on this method can be playing with fire, as nobody wants to run out of money in retirement.
Camarda Wealth believes an effective retirement plan needs to take many, many variables into consideration, and be regularly updated to stay on track since everything is changing all the time. Our One Money View™ program allows our clients to quickly see if they are on track.