Retirement Cash Flow Planning

Retirement plans play a crucial role in providing a source of income in our later years. Planning for retirement is often difficult to do. This is why it is important that you work with a professional to ensure that the planning you do will meet the needs of you and your family. With all of the different investment options available these days, it is important that you understand how each of them will affect your ability to retire comfortably.

A pioneer in the financial services industry, John Savage, often said “If your outgo exceeds your income, your upkeep will be your downfall”  With people living longer and in combination with the difficulties in traditional investments since the beginning of the current Secular Bear Market in 2000, the most common concern we hear from folks that are approaching or are already in retirement is “Will we run out of money before we run out of time?”.  For years, we have used a retirement cash flow modeling program, Wealthy & Wise (click for executive summary) which provides a snapshot and financial projection of what retirement will look like, using very conservative assumptions as a “baseline”.  From there, we utilize more complex modeling software to further calibrate cash flows and expenses to see that potentially optimized outcomes are realized.

Wealthy and Wise is the first part of our ongoing "Stress Tests" regarding clients retirement cash flow and portfolio income potential.  Stress tests allow us to help you to confront your  financial fears and demonstrate how adjustments can solve address some of your fears and concerns.

You’re probably familiar with medical stress tests. They are usually performed by doctors to determine the amount of stress the heart can manage before developing abnormal rhythms or evidence that not enough blood is flowing into the muscle. A retirement stress test is similar. It looks at your existing assets and simulates possible future economic changes and outcomes. The study measures how the portfolio reacts to the simulated events. It them makes it easier to determine the adjustments that can be made today for unexpected events tomorrow.

To put a retirement plan through a stress test, you need to be able to play “What If?” We subject the current retirement plan to changing variables and evaluate the resulting impact on a portfolio.  For example, what if a five percent return was earned instead of the eight percent you originally anticipated? Another example would be to look at whether the long-term strategy would change if inflation increased by one or two percent.

Six variables which are critical to a proper retirement stress tests are:

• Inflation
• Investment return
• Social security
• An increase in taxes
• A prolonged bear market
• Unforeseen change in expenses (medical)

The insights gained from the stress test can help you determine adjustments that can be made to improve retirement positioning. For example, with the proper social security election, asset allocation or guaranteed income vehicle, your retirement may be more resistant to unexpected changes.

Today is the best day for planning your retirement. We will help you increase your understanding of the common retirement plan components:

Retiring comfortably is as much a state of mind as it is a financial state.  Let us help you tune out the noise and listen to the facts by conducting a stress test on your retirement plans.  A retirement plan designed with facts and data is far better than one overshadowed with uncertainty and doubt.