There are numerous retirement calculators available at no cost on the internet. They are interesting and fun to play with but do they illustrate true clarity?
In my opinion, they don’t. They can be manipulated by historical returns, unrealistic expectations, the time period before retirement and they don’t anticipate unforeseen events. They are simply a calculator and there are too many variables not accounted for them to be considered a true financial planning process.
What Retirement Calculators Don’t Factor
As a rule of thumb, everyone is unique within their lifestyle, earned income, savings, emergency reserves, retirement accounts, brokerage accounts, hard assets, Social Security benefits, pension benefits and insurances.
Financial calculators just aren’t financial planners. Although as a part of the financial planning process, conservative calculations for wealth accumulation should be used in both pre and post retirement, there are other considerations to take into consideration.
Let’s take a look at a few of the major factors that could change your financial situation and should be thought through as a part of your retirement plan.
Loss of a Spouse —
This can be a catastrophic event both emotionally and financially. It would most likely change financial projections in a large way, especially with the death of a breadwinner Life insurance should be considered early to plan for such an event. Buying it at a younger age is more cost effective than buying it in retirement. It makes sense for most to transfer unforeseen death risk to a life insurance company to replace the decedent’s income protecting the spouse and family.
Post-retirement income should also be considered when planning for the possible death of a spouse. Reduction in Social Security and Pension income can take a huge toll in retirement. Planning for this in advance is your best option. Although it is not something anyone likes to think about, considering it in advance as a part of your comprehensive financial plan can provide a level of comfort.
Volatile Stock Markets —
All markets expand and contract. Imagine if you had retired prior to the last huge correction during 2007-2008 relying heavily on your investments to subsidize retirement income. For most, it would have been devastating.
Comprehensive wealth management should really account for where you are pre and post retirement. Portfolio management should include a variation of investment options tailored to your goals, needs, objectives and dreams. Most importantly they should be realistic and clear. Evaluating portfolio structure as retirement nears is important. Many reduce risk as those years approach.
Proper investment planning should be structured based upon where one is in their retirement timeline. A mixture of different investments based on one’s uniqueness may eliminate worry when structured properly. No one wants to lose sleep taking too much risk on retirement assets needed for income.
Unforeseen Retirement Risks —
Health risks are often missed in retirement. One might consider the cost of assisted living or the need for long term care as they can be extremely expensive. Planning for this in advance can eliminate worry.
Living Longer —
People are living longer and being realistic with retirement duration is critical. Planning to live to age 100 may be a great place to start. This could really provide clarity on how much you need during your retirement years. It can illustrate whether you can maintain your retirement at your current standard of living or a need to reduce it.
Estate Planning —
Retirement calculators don’t account for the risk and expense of not having proper estate planning documents in place. A basic will package may provide great protection to your spouse and family. Will packages should include a Basic Will, Durable Power of Attorney, Health Care Surrogate, Living Will and Guardianship and possibly a Trust. Not having one in place can cause a financial disaster.
There are many other risks not listed such as divorce, loss of a job or disability. Your personal situation may have its own risks, challenges and future obstacles.
True Retirement Planning —
Remember, retirement calculators can be a great resource but they just don’t cover comprehensive financial planning. They do not ask questions to uncover what needs to be added to your financial planning process to cover unforeseen risks.
Don’t take on the retirement process alone. Seek out the advice of a reputable financial advisor that will take the time to listen, ask questions and uncover all the factors that may change your retirement picture and necessitate prior planning.
If you feel lost, confused or unclear on if you are prepared for what you may face in the future please feel free to contact me. Second opinions and consults are always no cost and no obligation. You may have so much to lose if you don’t take the time now to ensure your plan is properly structured.
This is not intended to give specific legal, tax or investment advice. Advisory Services offered through Nepsis Advisor Services, Inc.; An SEC Registered Investment Advisor.