One of my favorite personal finance books is “The Millionaire Next Door” by Thomas Stanley. This timeless book identified seven common traits that are most prevalent in those who have accumulated wealth.
While you can become a famous actor or professional sports athlete to become rich, most wealthy individuals become wealthy by living within their means, not buying houses or cars they can’t afford and consistently saving for many years.
However, when it comes time to retirement, these wealthy individuals never feel wealthy because it took decades of steady, frugal habits to get there. It is these habits that can cause some retirees to constantly worry about outliving their assets, even if they have accumulated 1, 2 or even 3+ million dollars.
So how do you avoid outliving your assets and feel confident you can enjoy your retirement?
Step 1: Understand What “Retirement” Truly Means for You
Retirees should have an honest dialogue with themselves, their spouse and their advisor about what retirement will truly mean and more importantly, what will make them feel fulfilled.
Does retirement mean buying a second vacation home, flying around the world and buying that Tesla you always dreamed of or does it involve working around the house, helping your children and volunteering with your favorite charity?
Step 2: Make Safe Assumptions in your Financial Plan
Retirement planning is not a “one and done” proposition. It involves regularly updating your plan based on life’s events. To plan properly we must make assumptions around the following:
- When to take Social Security
- Inflation rates
- Investment rates of return
- Will you live to 85, 90 or even 100.
- And more…
To feel secure, it helps to make more conservative assumptions instead of hoping for 15% annual returns and no inflation!
Step 3: Plan for the “What-If’s” and the Unexpected
Life is full of twists and turns. It is important to plan for the “what-if’s” that you are contemplating and the unexpected events that can happen.
What-If planning will help you make decisions today that can impact your future, so you feel confident about your choices.
- What if I buy a vacation home?
- What if I travel more today knowing that I will sell my vacation home in the future?
- What does the added cost of weddings for 2 daughters do to my plan?
Unexpected events are things out of our control:
- Tax rates will change
- Inflation will change
- We will enter recession
- We may need a nursing home in the future.
Your financial planner should be having conversations about future healthcare needs and making sure you have the proper estate documents to make sure your children are taken care of.
Financial Planning is not just about managing investment portfolios. More importantly it is about having someone you trust to guide you when the unexpected occurs and to make sure your family has a trusted resource to rely on.
At Abel Financial Management, we are independent, fiduciary financial planners with a mission to help you make smart decisions with your money. If you or someone you know are faced with decisions like these, we invite you to come have a conversation with us.
Steve is a CERTIFIED FINANCIAL PLANNERTM and Partner at Abel-Financial Management. He can be reached at firstname.lastname@example.org or at 410-307-1202.