“Optimal” Retirement Planning Strategies

“Optimal” Retirement Planning Strategies

I read articles regularly that discuss optimal portfolio withdrawal strategies.  I think these articles are great but are probably best kept in the academic world.  In other words, they should not be given to clients.  I have a friend that was forwarded one of these articles by an advisor as the basis for their retirement planning decisions and asked for my thoughts.  Don’t get me wrong, it’s great that this advisor is staying up to date on the latest research, but I think there are two serious problems with it.  

1. This particular retirement withdrawal strategy is only optimal for the previous years tested.  Thirty years from now, the optimal numbers will be something different.

2. This will shock everyone, but when it comes to retirement planning, we are all just guessing. 

We don’t know what the future holds in terms of various market returns to know whether a certain allocation or withdrawal strategy is optimal.  And we don’t know what is going to occur in a client’s life that will inevitably require changes.

Telling a client (or even implying) that there IS an optimal allocation or withdrawal strategy exhibits far too much certainty for my comfort.   I’m not sure any advisor should speak of any retirement planning decision with the level of surety required to call something optimal.  Regardless of time spent planning, it’s still just a guess.  This is primarily due to the fact that retirement planning is an iterative process.

While any individual day doesn’t seem to move too quickly, our lives change at an alarming rate.  Our health changes.  Friends and family members pass away.  New family members are added via new grandbabies and marriages. The markets change.  Large unplanned expenditures pop up from time to time. Your wishes for what you’d like to accomplish with your money changes as your perspectives change. 

If planning were a set it and forget it activity, I’d be out of a job. Anyone that thinks that retirement planning is a static, one-time decision or that there is one “optimal” plan that is known in advance is sorely mistaken.  Retirement planning is a moving target and has too many variables that are impossible to know.

I prefer to get the big rocks in place and adjust a client’s financial plan as time goes on. Pairing essential expenses with guaranteed incomes and discretionary spending with portfolio income.  Building a two bucket income strategy that a client can actually understand and stick with.  Ensuring clients have a Social Security strategy that reduces overall income risk to the family while accounting for income immediately upon retirement.  Establishing a Medicare strategy that accounts for a client’s retirement lifestyle. And quite a few more.

The point is that I want strategies for clients that account for the ebbs and flows of life.  Nothing is exact.  But because of what the industry has encouraged them to expect, they often anticipate a 50-page “optimal” financial plan. 

I’ve come to think that this 50-page “optimal” plan is not for the client but for the financial advisor’s peace of mind that they provided a deliverable that a client can touch and feel.  Maybe there is perceived value there.  “Boy, it sure looks like this advisor has done a lot of work for me.”

I could print out 50 or 100-page plans all day every day but the volume of paper doesn’t make it valuable.  I personally prefer various Excel spreadsheets that I’ve designed specifically to serve my retired clients illustrating various pieces of their plan.  I routinely offer clients a 50-page plan out of a financial planning software program to ensure that clients are comfortable with our strategy.  This is mainly for me wondering if the ream of paper will make them feel any more warm and fuzzy.  I haven’t had anyone take me up on it yet.

I think it comes down to the fact that clients inherently know that retirement planning is all a guess.  It’s an educated guess that takes into account everything going on in a client’s life at that moment, but still a guess nonetheless.  Maybe people prefer the word estimate – I’m not really sure, but I tend to call it like I see it. 

The best part about retirement planning being an iterative process is that it allows me the opportunity to be a significant part of a client’s life.  I love being a part of the family.  Whether that’s sharing in the feeling of a child/grandchild graduating from college or helping a client fund the renovation of their home to allow for easier handicapped access.  The fact that retirement planning isn’t a one-time decision allows me to become part of their lives and that is special.  

My only point here is that “optimal” retirement decisions are only known through the rearview mirror.  True retirement planning is a series of well thought out, ongoing decisions that takes into account everything that is going on in a client’s life as it’s happening.  Assuming it’s anything other than that is probably a recipe for disappointment.

What I’ve Been Reading

The R Word (thereformedbroker.com) – The best piece about yield curves I’ve seen since the media market hysteria has started.

Leaving an IRA to a Loved One?  How to Avoid a Tax Bomb (CNBC) – “Failing to correctly structure your trust could accelerate the liquidation of your IRA, resulting in a massive taxable distribution.”

6 Social Security Changes to Expect in 2019 (investopedia.com)

Accepting Alzheimer’s, One Lost Memory at a Time (nytimes.com) – A really touching story on accepting a diagnosis.

Exercise Wins: Fit Seniors Can Have Hearts That Look 30 Years Younger (npr.org) – “In fact, people in their 70s who have been exercising regularly for decades seem to have put a brake on the aging process, maintaining the heart, lung and muscle fitness of healthy people at least 30 years younger.”

The Reason Many Ultrarich People Aren’t Satisfied With Their Wealth (theatlantic.com) – “But at a certain level of wealth, the next million isn’t going to suddenly revolutionize their lifestyle. What drives people, once they’ve reached that point, to keep pursuing more?”

Voyager 2 Bids Adieu To The Heliosphere, Entering Interstellar Space (npr.org) – “The moment they were waiting for arrived early last month, when Voyager 2 left what’s known as the heliosphere — the vast bubble of plasma and particles generated by the sun and stirred in solar winds. This bubble ends at a boundary called the heliopause, where the sun’s magnetic field peters out and solar winds give way to interstellar space.”

How to Spot This Year’s Spectacular Geminids Meteor Shower (smithsonianmag.com) – “A beautiful celestial display is due to take place starting on the night of December 13”

Thanks for reading!
Ashby Daniels

Disclaimer: Any opinions are those of Ashby Daniels and not necessarily those of Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is
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