Ten thousand Americans turn 65 every day, many of them transitioning out of the workforce and into retirement. Due to the decreased use of pensions, baby boomers are the first generation in history with the freedom — and responsibility — to fund their own retirement, which could last upwards of 30 years. The question of how to make your money work for you after you stop working for it has never been more crucial.
Retirement income planning is a distinct niche within financial planning that requires coordination of your entire financial picture. It’s not as simple as choosing your stock versus bond allocations or ensuring that you have a diversified portfolio to achieve returns on par with an external benchmark. No, retirement income planning is, figuratively speaking, climbing a financial Mount Everest. And unfortunately, the hardest part is not reaching the summit ꟷ accumulating enough for retirement ꟷ but making it back down to base camp, meaning enjoying your retirement without running out of money.
If you want to maximize your chances of avoiding the potential retirement pitfalls that everyone faces and descend your financial mountain safely, I always recommend working with a CERTIFIED FINANCIAL PLANNER™ professional who specializes in retirement income planning.
Here are three questions to ask when you are looking for the right financial planning professional:
- Are you a CFP® professional?
As part of their certification, CFP® professionals have undergone rigorous training and passed a comprehensive exam. A CFP® professional also commits to CFP Board to act as a fiduciary — which means to act in the best interests of the client at all times when providing financial advice and financial planning. Ask the CFP® professional you’re considering to explain how acting as a fiduciary would influence their work with you. Make sure you get a written statement of engagement that requires them to have a fiduciary obligation to you.
Your planner should explain how they will consider your best interest when they recommend various products and services. Ask if they are limited in the types of products and strategies they can recommend or if they are free to look at all asset classes and product categories to find the best fit for you. - What approach or strategy do you use to provide stable, predictable income for retirees?
According to Dr. Wade Pfau, there are three distinct approaches a planner can use to structure retirement income: (1) the safe withdrawal rate, (2) the flooring approach and (3) the bucket strategy.
The safe withdrawal rate, also known as the 4% rule, is the assumption that you can use your investment portfolio to provide supplemental retirement income. The flooring approach looks at creating a sustained floor of income to support one’s basic living expenses in retirement. The bucket strategy involves segmenting one’s investment portfolio based on the time horizon in which they plan to spend their retirement assets. Whichever strategy they use, the financial planner must be able to explain it in a simple way that you understand and could explain to a friend. - Will you provide planning and guidance on all of my assets and financial decisions? Or only a selection of them?
Planning for retirement is complex, with lots of moving parts and pieces, and you don’t want to mess it up. Put another way, you want to retire only once. You don't want to be forced to return to work because your plan is not sustaining your lifestyle.
Not only is planning for retirement financially complex but there is also a mental and emotional health aspect to it. The American work ethic is strong, making retirement one of the most emotionally jarring experiences for older Americans. Suddenly, your life is no longer dedicated to a profession. You have significantly more free time. You’re trying to figure out what to do with the rest of your life.
And the rest of your life requires so many decisions that you’ve never even considered, such as when to claim Social Security, how to choose a survivor option on your pension, which assets to spend first and which ones to leave for the next generation … and more!
You need a planner who will look at your entire financial picture. You want to leverage a planner’s experience in dealing with all of these issues so that you can maximize your greatest asset: time. That's when hiring a CERTIFIED FINANCIAL PLANNER™ professional specializing in retirement income can be most beneficial.
Picture your perfect retirement. What do you need to achieve that vision? A knowledgeable and experienced CFP® professional will help you connect your vision with a real plan. They’ll be your guide as you descend your financial Mount Everest. Find your CFP® professional today.
Get started on securing your financial future today
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