Retirement planning may sound simple on the surface, you just save as much money as you can and then pull it back out when you’re done working, right? Ehhh not so much.
The decision to retire might be the hardest financial decision you ever have to make.
Sticking the landing in retirement is like landing a plane on a one lane bridge during a storm.
With so many moving parts, and so much nuance involved in this decision, we decided to make things simple and focus on 3 retirement planning principles:
- The life you envision living (and the income needed to support it)
- Your money
- The future unknowns
Retirement Principle #1: The life you envision living (the bridge)
Being able to live life how you want is the purpose of retirement planning.
This is the most important principle.
This is why you save and invest your money.
So you have the flexibility to, #1 stop working at some point, and #2 know that you will have enough to do the things you want to do.
Do you want to continue living the life you already live? Do you want to travel and see the world while you still can? Do you want to move somewhere warmer? Or closer to family? Do you want to continue working, but in a less stressful environment?
It’s important to think about these things before you decide to retire. That’s not to say you are locked into your decisions. But some assumptions and projections need to be made in order to make the decision.
Retirement planning can only be as good as the information put into it. So if you’re just guessing and winging it, you won’t ever have a “good” answer of whether or not those plans are feasible.
Retirement Principle #2: Your money (the plane)
Your monthly cash flow, investment accounts, retirement assets, future Social Security, and tax situation make up the “plane” of your retirement. This is what we have to “land” on the “bridge”.
If we take this analogy a little bit further, your monthly cash flow is the “engine” of your retirement plane.
It makes all of the other parts go. And when it isn’t quite right, the rest of the jet doesn’t function as well.
What amount of monthly income will you need to live on?
This is best answered by looking at how much you spend today.
The answer to this question will guide the withdrawal strategy from your investments. And it will impact your Social Security decision as well.
Most planes have backup engines in case one fails. And you should have a backup plan too, except yours is called an emergency fund. This money should have absolutely no risk involved and should act as a fail-safe if something were to go completely wrong.
Your investments are the “wings”. They will keep your retirement plan “in the air”. And while I know we are focused on landing this plane, I mean more that the role of your investments is to keep up with and (hopefully outpace) inflation. The idea is to keep a portion of your money growing for the future. While using another portion of your assets as income to live on.
Retirement Principle #3: The future (the storm)
The hardest part about planning for retirement is that nobody can predict the future.
Unexpected life events, stock market volatility, changing technology, and the rising cost of living can make conditions quite treacherous. Not to mention the largest question mark of all, how long will I need this money to last?
Financial flexibility is key in retirement.
Good financial planning, and therefore retirement planning, balances living for today while not neglecting your future needs. You don’t want to run out of money later in life, but you also, probably, don’t want a large sum of money sitting in the bank unspent either.
We don’t know what the future will entail. But, we CAN always make sure our “bridge” is sturdy and our “plane” is functioning properly. If we do that, there is no storm we can’t navigate through.
There is much more nuance that goes into financial planning and retirement planning. But in order to “stick” the retirement “landing”, we to need to plan around and focus on these three retirement principles.