Have you ever felt fully prepared for something, only to realize that you approached it the wrong way? It's a feeling no one ever wants to experience, especially when it comes to retirement planning. In this video, we'll explore a real client example, where a couple named Tim and Jennifer were initially on track for traditional retirement planning. However, they came to realize that there's more to retirement than just maximizing your portfolio's value. Let's dive into this eye-opening client case and discover what we should do differently.
A Fresh Perspective on Retirement Planning Traditional retirement planning often centers around achieving a 100% probability of financial success. But, that may not be the best way to approach your golden years. Instead, focus on living your life to the fullest during retirement. To illustrate this shift in perspective, let's look at Tim and Jennifer's case.
Tim and Jennifer's Retirement Scenario Tim and Jennifer were a 60-year-old couple seeking retirement guidance. They had diligently saved, but their initial plan was to work until 67, aiming for a 100% probability of success. Their financial assets included Tim's 403(b) with $190,000, Jennifer's 401(k) with $505,000, a Roth IRA with $58,000, some cash, a joint investment account, and a home with a mortgage.
Their retirement goals were as follows:
➡ $8,000 per month for core living expenses. ➡ An additional $10,000 per year for travel, but only for about ten years. ➡ All of this income needed to be after tax.
Their combined incomes included Tim's $76,000 per year as a teacher and Jennifer's $160,000 per year as an HR director. Tim also had Social Security and a pension benefit, while Jennifer's income came primarily from her job and her 401(k) contributions.
Traditional Retirement Planning with a 100% Probability of Success Tim and Jennifer's initial financial plan projected their portfolio value growing to $5.3 million by retirement. This plan had a 100% probability of success, which many would consider ideal.
Achieving a 100% probability of success meant having an excessive buffer or margin in their plan. While a financial buffer is essential, the question arises: what are they planning to do with those extra resources?
Retiring with a huge surplus in the bank may not align with their real goals. Their aim isn't to amass a fortune for the sake of it. Instead, they should focus on the experiences they want to have during retirement, like spending more time with aging parents, enjoying travel, or making a difference through charitable giving.
Optimizing Retirement for a Fulfilling Life We proposed a new perspective for Tim and Jennifer. Rather than sticking to their original plan of retiring at 67, they could consider retiring sooner, even as early as 62. This would allow them to enjoy their retirement while they are still healthy, energetic, and have time to spend with loved ones. This approach also opens up the possibility of adjusting their financial plan to better align with their real goals.
Balancing Probability of Success with Life Goals Tim and Jennifer's case demonstrates that you don't necessarily need a 100% probability of success. The key is to balance this probability with the severity of failure in your financial plan. In their case, having strong Social Security, a pension, and the equity in their home as backup resources made it more acceptable to consider a lower probability of success.
The crucial takeaway from this case is that retirement planning is not just about maximizing the terminal value of your portfolio. It's about optimizing your life and making the most of your resources to live a meaningful and fulfilling retirement.
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⏱Timestamps:⏱ 0:00 0:58 Example 3:22 What we looked at first 5:16 Income and expenses 7:59 Probability of success 10:31 What else can we do? 14:27 What is a good probability of success? 16:48 Takeaways 18:47 Outro
