You may have said it before: "I think I need a financial plan." But if we're being honest, you probably don't want a stack of reports, a folder full of charts or an overly complex retirement strategy.
What you really want is what you believe that financial plan will give you:
- Peace of mind
- Confidence you won't run out of money
- Reassurance you're not missing something important
- Freedom to enjoy your retirement without second-guessing yourself
And that's perfectly reasonable. Because the retirement stage of life isn't just about money — it's about making the most of the time and relationships you care most about.
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Therefore, you first need to know specifically what you want out of your retirement years and why before you can devise a plan that provides the cash flow necessary to satisfy those goals.
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The disconnect sometimes is that people don't really know all the things they want in retirement, or they don't know what those wants will cost.
Having only a vague idea of what your retirement will look like leads to a scattershot approach to planning that leaves you hoping you have enough rather than knowing.
For most people, living a full retirement means a sizable amount of money has to come from savings. Without having insight into what's important to them in retirement, they're chasing a blurry number.
'I need more income' — but why and for what?
Here's a story reflecting the importance of knowing your why and for what when building a retirement plan.
A couple came in for a planning meeting. They were both recently retired and had done a solid job saving over the years.
"We want about $160,000 a year in income," the husband said.
On paper, their expenses didn't require that much money annually. So, I asked, "That's a healthy amount. What would that let you do that you can't do now?"
They looked at each other and smiled. Then the wife said, "Our son and his family live out West. We want to spend the winters near them and maybe rent a place that fits all of us for the holidays. We want to create memories, not just survive retirement."
That was it. They had drilled down to an emotional level when thinking about a specific part of their retirement needs. They weren't asking just for income. They were asking for something priceless: family time.
That's a meaningful personal goal that, when realized, brings peace, happiness and great memories.
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Planning to have enough money to do such emotional and meaningful things requires taking a deep dive into what a retiree values most.
Key questions to ask yourself (or an adviser should ask you):
- What would you do if you had unlimited resources?
- Who are the people you want to spend more time with?
- What do you worry about when you think about the future?
- What does peace of mind mean to you?
- What would make you feel truly confident in this next chapter of life?
The answers to those questions are worth more than any spreadsheet. The most important answers usually come after the second or third question, not the first. That's when the real planning begins.
A holistic retirement plan covers five key areas
While it is important to establish your "whys" and "whats" to begin the blueprint of your retirement plan, the following five areas are essential.
Your desires are likely connected to these five aspects:
Income planning. Deciding when and how to draw Social Security, how to take your pension and when to tap your retirement accounts. Knowing how to craft a withdrawal strategy designed to provide reliable income and minimize tax surprises.
Investment planning. Retirement isn't about beating the market. It's about managing investment risk, volatility and sequence of return risk.
Tax planning. A CPA can file your taxes, but proactive tax planning often requires a team that looks ahead. Should you do Roth conversions? How can you minimize RMD taxes?
Health care planning. Medicare has penalties, deadlines and confusing options. Add long-term care needs, like assisted living or nursing home stays (which Medicare doesn't cover), and the picture gets murky.
Legacy planning. Wills are just the start. Coordinating trusts, beneficiaries, charitable giving and tax-efficient transfers sometimes requires legal and financial expertise.
As you can tell, some of these key areas can be complicated. Working with a trusted financial adviser to help you navigate the details and make sure your strategies are implemented accurately can be one of the best ways to gain confidence in your plan.
But remember: The best financial plans aren't just about money, and they're not just about having more.
Rather, a solid financial plan is tailored to help you live the retirement you've earned and the retirement you want — with clarity, confidence and purpose.
Dan Dunkin contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
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