Uncertainty surrounding the answer to the question, “Will I have enough?” is a large source of anxiety for many people nearing retirement age. Even exceptional savers often wonder if they will have enough, if their level of spending is sustainable, and how they can maximize their tax efficiency. In short, many are seeking some level reassurance that the numbers have been run and their retirement plan is situated on solid ground.
While the general objective of most investment portfolios is the growth of capital, portfolio returns don’t always clearly translate into a feeling of financial security. Financial planning helps bridge the gap between investing in order to grow wealth and understanding how that growth specifically translates to accomplishing retirement goals down the road.
At AMM, we have the ability to develop a roadmap showing how that accumulated wealth is going to translate into your future retirement lifestyle.
Goals-based Planning
Financial Planner and CPA, Rana Davidson, has recently joined the AMM team to assist our clients in the development of their unique retirement roadmap. Each roadmap is customized and includes visually understandable reporting, and an interactive portal where adjustments can be made in real time.
The development of each retirement roadmap begins with our 5-step retirement planning process:
- Envision Your Goals
- Determine Your Investment Strategy
- Model Various “What if” Scenarios
- Finalize Plan
- Monitor the Plan
Envision your goals: Once you have engaged us for a financial plan, we will send you a detailed questionnaire so that we may understand your complete financial situation. The questionnaire is comprehensive and covers investment assets, liabilities, budgeting, goals for the future (e.g. travel, home-improvement etc.), risk tolerance, and risk management. We will meet to build a vision of your individual retirement lifestyle and outline goals that reflect your needs and wants for the future. Because we use a goals-based planning approach, detailing goals that accurately reflect your desired retirement lifestyle is critical to developing a plan that makes sense for you.
Determine Your Investment Strategy: We will then discuss your risk tolerance and capacity and confirm that the portfolio management strategy you are currently deploying continues to align with your retirement goals and concerns for the future.
Using Monte Carlo simulation technology, we will then run 1,000 simulations of your expected portfolio returns to determine if your asset base will be sufficient to fund all of your goals. Each simulation is either “successful” in that you will not run out of money in retirement, or “unsuccessful” in that your goals would not be able to be completely funded. By summing up the successful simulations we can determine the probability of success. For example, if 900 of the 1,000 simulations are determined to be successful, then we would have a 90% confidence level that your plan will be sufficient to fund your goals.
What if Scenarios: Using the probability of success as a baseline, we will analyze several different scenarios using your priorities as a guide and compare the levels of success of each to answer the question “What if?” It is possible that we determine that you will need to decrease your travel budget, or maybe you could be spending much more. Maybe you should start taking social security at age 70 instead of 67, or possibly we find that you can retire earlier than you expected. Through this process we will help you better align your expectations with your financial reality so that you don’t run out of money in retirement, or over-save. You’ve worked hard for your money, and we believe you should have the opportunity and confidence to live well.
We provide strategic advice and expertise in the following areas:
- Retirement Income planning
- Investments and portfolio management
- Tax-efficient planning
- Social Security benefit timing
- Employer stock plans and equity awards
- Roth conversion strategies
- Intergenerational planning and wealth transfer
- Estate planning needs identification
- Education savings plans
- Medicare and other healthcare coverage options
- Debt reduction including student loan forgiveness strategies
- Financial statement creation and analysis
Go Confidently in the Direction of Your Dreams
Finalize and Monitor the Plan: Through discussions of your goals, risk tolerance, needs, and wishes, we will help you to create a retirement plan that you can feel confident in. Additionally, we will be there to provide guidance and make updates as your plan changes. Anytime life takes a turn, or at least annually, we will update your plan and track your progress so that your plan matures as you do.
Please give our office a call at (858) 755-0909 or contact us through the form below if you are interested in our financial planning services. As always, we look forward providing the highest level of service and to helping you develop a plan that contributes to your peace of mind.
Written by:
Rana Davidson, CPA
Associate Financial Planner, American Money Management
