Introduction

You need to identify and prioritize four goals in your retirement:

1. What are your basic living expenses?
2. What are your discretionary expenses?
3. What is your contingency reserve?
4. What legacy do you wish to leave?

You also should be mindful of five types of risk that will affect your retirement goals:

1. Market risk,
2. Your health risk,
3. Your longevity  and mortality risk,
4. Event risk, and
5. Tax and policy risk.

Identifying Your Retirement Goals

You should divide your future expenses into those that are essential and those that are aspirational. Necessarily, you must consider how to pay for your basic living expenses including housing, utilities, food, transportation, and clothing. In addition to your essential expenses, you should add a contingency reserve for unexpected health care expenses and large, mandatory expenses (e.g. home or car repairs). Then, you should plan for discretionary expenses such as vacations, entertainment, dining out, electronic purchases. Last, you should consider your legacy: how much of your wealth do you plan to transfer to either your heirs or charitable causes?

Assessing Risks Affecting Your Retirement Goals

You Are Unique

You–like every investor–are unique. Your financial goals, resources, and circumstances are all different from other investors, including:

• Your current and projected future income (including pension and annuities),
• Your basic and discretionary living expenses (pre- and post-retirement),
• The amount of assets that you have acquired including contingency reserves,
• Your potential inheritance from others,
• The inheritance that you wish to leave for your dependents,
• Your philanthropic goals,
• Your investment experience and risk tolerance, and
• Depending on when you start saving and when you need to retire, your investment time horizon.

Investment Counseling from a Fiduciary

It is especially important to seek investment counseling from an advisor who owes you a fiduciary duty of care. Many financial consultants, going by many names, can work with you to define your savings and investment plans, your retirement objectives, as well as estate planning. However, the goals and compensation of a fiduciary are different from those of a stockbroker, insurance agent, financial analyst, financial adviser, financial consultant, investment consultant, or wealth manager.1

At all times, a fiduciary must act in your best interest and also place your interests ahead of their own. Frequently–but not always–a Certified Financial Planner (CFP) owes you a fiduciary duty of care.2 Tellingly, the financial industry has fought hard against governmental regulations that would have imposed a fiduciary duty of care. Most recently, this included litigation that overturned proposed Department of Labor standards for 401(k) plans.3 The comedian, John Oliver, presents an honest and entertaining look at the implications of having a fiduciary duty of care, here.

Seeking Legal Advice

Finally, you need to work with a lawyer to prepare the necessary legal documents for estate planning. At a minimum, these should include:

1. your will,
2. your powers of attorney,
3. guardianships for your underage children,
4. your living will or advanced directive, and
5. other documents related to your estate.

Ideally, you want as much of your estate as possible to bypass the probate process. This includes ensuring that amounts at your financial institutions and your insurance policies all automatically transfer on death to your designated  beneficiaries. I cover this in greater detail here.

Summary

Coming soon!

For More on this Topic

Updated on October 18th, 2019