A 100% Chance of the Unexpected in Retirement Planning
The “unexpected” in my life truly began on October 25, 1975. I returned to my desk and found two guards standing in my way. They told me they were not allowed to let me near my desk, and I was to report to a senior manager the following Monday morning.
At that meeting, I was summarily fired.
On that day, I had not made the 2nd mortgage payment on my first home. Additionally, I hadn’t even made the first payment on my new car.
Unexpected, to say the least. My next step was to head to the unemployment office and once again, I made a mistake. As a former trust officer, I walked in, in a three-piece suit and the place broke out in laughter. When I told them I was a trust officer looking for a position in a trust department, the employment specialist had no idea what a trust officer was.
I knew that at some point in the future, I would have to go out of my own as a self-employed individual. It took me six-years, but I was finally able to do it and I opened my practice on February 1, 1982. And then more uncertainty.
So, with this background, why do people approach a specialist within 2 to 5 years of retirement? The answer is uncertainty, and they are seeking guidance to determine whether in fact retirement is a reality and if so, when can they afford to do so?
In researching the client information, a planner may be fortunate to discover that the client comes to them with long-term care insurance, life insurance that may or may not still be needed, qualified and nonqualified retirement plans, deferred compensation and very often, a series of illiquid assets.
Most clients are not necessarily unprepared or unorganized. But they’re looking for objective advice and this can be best achieved without the sale of product, during the planning process.
Our goal is to do what we can to remove the uncertainty of the initial plan to retire. Our approach is to put together a projection of the next twenty-five years and its various cash flows taking into consideration all sources of income including, dividends, interest, retirement plan withdrawals, Social Security, and every other source a client can bring to the table.
>We will calculate, with our client’s assistance, their fixed and discretionary expenses and a rough calculation of all the taxes that will be due in each of the next twenty-five years.
One of the most memorable plans we put together was for a corporate executive and his wife. After 3 to 5 months of putting together the information necessary to prepare the plan, I presented the plan to the clients. The client’s wife very quickly noted that they were going to run a money when husband reaches age eighty-seven.
Her next question was what would happen at that point in time, and I told her that the two of them would obviously, have to die. The good news is that they both broke out laughing and immediately suggested that maybe some of their assumptions may have to change.
We were able to finish the planning to the delight of the clients and changes were made to extend the plan for a number of additional years.
I suggested at the conclusion of our engagement that they consider the possibility of updating the plan every 3 to 5 years. It was not intended to be self-promotion or looking for an additional source of income.
It’s just that things change, and the “uncertainty” of those changes is almost guaranteed over longer periods of time. For this reason alone, the plan should not be a one-shot deal and although the clients can do a significant amount of their own updating, we would remain available if they sought additional assistance.