Allworth Co-CEO Scott Hanson shares the seven key components to a comprehensive retirement plan.
Retired? Almost there? Still several years away?
Where you are in the process greatly impacts the type of guidance you receive.
If you are a long-time client of Allworth Financial, you have almost certainly seen how your plan, and our advice in support of your plan, evolves with you over time.
Over a nearly 30-year span that has seen Allworth recently named as one of the fastest growing advisory firms in the country,1 we’ve developed a process which determines a person’s retirement readiness, but which also financially guides them into and through retirement.
It’s based on each person’s unique '7 Personal Decision Points.'
What follows is a quick introduction to the process. These are the seven key steps that everyone should aspire to master to get the most out of retirement.
Retirement Income Needs
“How much money do I need to retire?”
-Practically everyone’s first question
When I get asked “How much money do I need to retire?” I often answer: “There is no set number.”
What I do then is turn the question on its head, and ask: “Once you retire, where will the money come from to pay your bills?”
The answer to that question is usually that they intend to live off their savings and Social Security.
And that’s understandable.
But while understandable, it’s not the very best thing a person can do, and here’s why: First, you have no idea how long you are going to live. Second, it’s impossible to know precisely how much money you’ll spend, or need, during retirement.
Think of your money as a tank that contains your drinking water. Every time you take a drink, there’s less in the tank.
Now, what if your drinking water came from a pristine reservoir and, after each sip you take, the rain appears and replaces the water you consume?
While savings goals are admirable, instead of making the goal to save a certain amount, wherein you drink it down, day-by-day, the way we like to approach helping you meet your retirement income needs is by creating a plan that has your money work for you so that your reservoir of savings is continually being replenished.
Expenses and Debt Management
“Money not going out is the same as money coming in.”
-Allworth Co-CEO Pat McClain
My 30-year business partner, Allworth Co-CEO Pat McClain, likes to say, “Money not going out is the same as money coming in.”
The second Personal Decision Point is concerned with debt, expenses, and maintaining a healthy post-work income versus outflow equilibrium.
That’s because debt and excess expenses are the killers of retirement dreams.
Knowing precisely where your money is going, paying off debt, and learning how to limit or eliminate needless or repetitive outflows, is a big part of any solid retirement plan.
Our goal is to create a plan that enables you to pay all your fixed expenses (recurring expenses) with fixed income (income you receive from investments or, say, a pension).
If you can get to this place, you’ll not only eliminate a lot of stress, you’ll have increased financial flexibility so that when you want to take that dream vacation, you aren’t borrowing or spending down your savings principal to do it.
Tax Planning
“Your tax planning deserves as much care as your investing.”
-Allworth Co-CEO Scott Hanson
Do you want to know why tax planning is one of my favorite decision points? Because most people are absolutely gobsmacked by how much money they can save by forward-thinking tax planning.
Forward-thinking tax planning has nothing to do with filing your taxes. It’s not write-offs or tax breaks.
Not at all.
Proper retirement transition tax planning considers all the different parts of your financial life, the when, where and how of your income. This includes:
- When distributions are taken
- When major purchases are made
- What amounts are taken
- What types of accounts are used
- Which types of investments are chosen (taxable and non-taxable)
- And even where you live
We’ve had people come to us who had spent down retirement accounts in a sequence that needlessly cost them tens of thousands of dollars extra in taxes.
The fact is, that forward-thinking tax planning is just as important as investment management and could save you serious money over the course of your retirement.
Investment Management
“How do you respond to volatility?”
-Allworth Co-CEO Scott Hanson
If there is one area that is the most likely to derail your retirement dreams, aside from too much debt, it’s probably poor investment management.
While there are numerous other considerations, the two biggest focuses here are:
- What is your risk tolerance?
- What is your time horizon?
Risk tolerance is the degree of variability in the investment returns that an individual is willing to withstand. Knowing your risk tolerance (comfort level) will make the process smoother and enable you to enjoy the outcome.
Your time horizon is the length of time over which an investment is held before you might need the money.
Knowing these two things will limit emotional investment mistakes and should save you money and stress down the line.
Risk Management
“If controlled, risk will help you. If uncontrolled, it will rise up and destroy you.”
-Theodore Roosevelt
Risk management is the process of identification, analysis, and either the acceptance or the mitigation of the uncertainty in your investment and insurance needs decision making.
Over time, your risks evolve. For instance, when you are younger with a family, as a bread winner, an early death would leave your family financially vulnerable.
Later, as your children strike out on their own and you’ve accumulated more assets (maybe you’ve even retired), while tragic, your death probably wouldn’t impact the income your partner needs to live.
Simply, as you get older, your need for certain types of insurance lessens. Simultaneously, as you get older, your need and willingness to expose yourself to larger investment risks in search of greater returns will also likely lessen.
What proper risk management does is to help provide you with the opportunity to both protect and prolong the life of your money.
Estate and Legacy Planning
“In this world, nothing can be said to be certain, except death and taxes.”
-Benjamin Franklin
The importance of an estate plan is to ensure that your wishes are met in the transfer of assets to your beneficiaries in the event of your death.
A well-conceived estate plan will save the estate money and time and will lessen the stress and hardship of your passing on your heirs.
Distributions and Income Sources
“The question isn’t at what age do I want to retire, it’s at what income.”
-George Foreman
When it comes to retirement, understanding which investments and retirement accounts are the best sources from which to derive your income—and in what sequence—can prolong (and even preserve) your savings principal, helping you to enjoy your retirement to the fullest.
So, there you have it. Allworth's '7 Personal Decision Points' process. It's something I—and we—deeply believe in, and hope you take to heart as well. If you aren’t yet a client and would like to learn more, please contact us today.
1 https://www.fa-mag.com/news/fa-s-top-10-fastest-growing-rias-57532.html
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