Wrapping your head around your retirement plan can be overwhelming, stressful, and complicated, but it doesn’t have to be.
We will walk you through the high-level structure of a retirement plan, and what you need to know in order to dive deeper into the details later on.
This post is not only for those who are close to retirement, it also can be useful for those who are years away from retiring, like millennials.
The first step to crafting a successful retirement plan is to get everything organized. Gather all of your key financial documents like tax returns, social security benefit statements, pension statements, insurance documents, your budget, estate planning documents, your balance sheet and more.
Anything you have that could impact your retirement or financial future, get it organized. You can start by using a physical filing folder. After doing this, you can upload your documents to a robust wealth management portal like eMoney. We use their planning software at MICAPITAL for each of our clients. It’s only available through financial advisors, and is a secure way to get all of your important financial and legal documents organized in digital format.
It also allows you to link all of your financial accounts and input your financial data so your advisor can generate very detailed reports for your retirement plan. Another great FREE tool that DIYers might appreciate is the Personal Capital finance app.
After all of your financial information is organized, you can begin to run the numbers. These are the key factors that will determine most of your retirement success.
Assets Liabilities Income Expenses Retirement date
How much are your assets increasing or decreasing? How are your liabilities increasing or decreasing? What are your income sources? What are your living expenses? When would you like to retire?
Once you determine the numbers and retirement date above, the rest is simply calculating the numbers based on what we know today, and making projections into the future.
Here is a sample of what this can look like after running the numbers:
As you might be able to see above, this individual looks like they will run out of money in retirement. Right now, their appreciation in assets and income sources will not keep up with their distributions throughout retirement, causing them to drain their portfolio.
One thing they could consider would be to retire later or spend less money throughout retirement. Here is what the chart looks like after modifying their retirement date to just 3 years later:
Much better than the first chart! The green area is the amount of their portfolio they were able to protect by delaying retirement. It’s amazing how just a few years can make such a big difference in your retirement success. While this isn’t a guarantee of their success, it’s much better than not knowing this information on the front-end.
Summary: Planning for retirement doesn’t have to be complicated. By focusing on a few key factors, you can quickly determine the best scenario for your situation. You should use wealth management technology to organize your entire financial life and to generate accurate retirement illustrations, which should be provided by your financial advisor.
Trent Grzegorczyk is the founder and principal of MICAPITAL, a registered investment advisor. Trent works with business owners, professionals, and high-net-worth individuals. Over the past 9 plus years, he and his colleagues have advised on over $3 billion in client assets. Trent enjoys cross country cycling, traveling, hiking, and resides in Traverse City, Michigan with his wife Alayna.