Retirement Planning From a CFP® Professional: 6 Keys to a Happy and Successful Retirement
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
sometimes I feel like I've lived through my 60s and 70s thousands of times sitting with people in retirement or those that are entering retirement we come across a lot of the same fears negative thoughts and feelings that really hold people back from having a happier retirement now we try to address those through retirement strategy and implementing plans but in today's video instead of talking about strategy I want to talk to you about how we look at retirement so you can hopefully look at retirement through a different lens and I believe this will help you have a happier retirement foreign [Music] Happy Gilmore recently and there's this place that he goes to and he calls it his happy place and if you remember the movie the lead actress she's sitting there by like a fountain of beer with pictures and Happy's grandmothers there and it's just his happy place and this helps Happy Gilmore putt a little bit better to find your happy place in retirement I want you to shift your focus away from simply trying to maximize return in retirement it's not about growing Your Nest Egg anymore what we want to do is have an acceptable level of risk something that when the market goes down we can still stay invested we can stay committed to that plan but at the same time for that level of risk we have an expected return that can help make sure that you don't run out of money and generate enough growth to provide the income that you need to maintain your standard of living so here is one of the tools that we use to help understand your willingness to take risk so risk tolerance really has two components it has a capacity component meaning given a certain level of income that you desire from your portfolio can your portfolio withstand a certain level of risk and still provide that income so that's what we call risk capacity but then you have your willingness to stay invested in a down market so when we look here this is a standard 60 40 portfolio 600 000 stocks 400 000 in bonds has a risk number on a scale of 1 to 99 of 54.
now in isolation that means absolutely nothing to you but when we start to break it down into percentages and also or I should say more importantly dollars over a six month period your standard 60 40 portfolio has the potential to lose a hundred thousand dollars with a million invested this is a statistical quantitative analysis of volatility of this portfolio going back many years now over a 12-month period that means you could lose two hundred and twelve thousand dollars mathematically speaking is that a comfortable level of risk for you if you have a million dollars it's not for me to answer that's for you to answer that's your willingness to take risk so over a 12-month period mathematically you should expect to lose at some point in time up to twenty percent you could lose more of course this is a 95 probability or what we call two standard deviations but we have what we want to achieve here is a more optimal level of risk for an expected return so we have asymmetry here where the possible upside mathematically speaking is 15.92 percent over a six month period so we do have some asymmetry here but when we look a little bit deeper the annual range midpoint is 5.27 so this would be the expected return kind of moving forward with a two percent dividend this GPA this is a pretty cool feature of this software it's designed to help you understand what we call risk adjusted returns and this is this concept is kind of what I'm talking about here they've developed this GPA and a 4.3 would be most Optimum now not every portfolio that fits your particular needs is going to be a 4.3 we're not necessarily trying to achieve that but the higher we can get to that it means we have more expected return for the For Less risk so the question really becomes are you comfortable with this range of expected outcome if not this is too aggressive of a portfolio for you but instead of just focusing on like most people do the upside we need to focus more on this downside in having a plan that is optimized or having an investment strategy that's optimized for your happy place number two I want you to start to look at all of your investment choices in retirement for what they actually are now this is much different than in the accumulation phase in the retirement phase your financial investments all the various choices out there they're really nothing more than tools tools that are used to accomplish a certain objective similar to ingredients in a recipe if you have too much sugar or too much salt or not enough herbs or spices is it may not come out the way you want it to taste we want to use the appropriate tools to accomplish the objectives that you have in retirement stocks for example they aren't used to accumulate anymore stocks are designed to help keep you ahead of inflation so you can generate income that lasts as long as you do now in the accumulation phase that's exactly what stocks are designed to do they're designed to give you the best opportunity historically speaking to accumulate a larger and larger Nest Egg of course that assumes that you save enough money but in retirement you are no longer accumulating you are Distributing so stocks are used to help keep you ahead of inflation now the downside to stocks you could lose a lot of money especially if you get too aggressive or if you invest in things that don't perform well now does that make stocks bad because you could lose a whole bunch of money no they're just a tool and once you understand how to use that tool in conjunction with other tools now you can actually construct whatever project that you're building or have a retirement plan that provides you the income you need to maintain your standard of living the number three key for a happier retirement I want you to accept that you're in the distribution phase don't expect your accounts to continue to grow each and every single year this may seem like common sense but in reality and in practice it's much harder for many people to do now you've seen your accounts hopefully grow grow grow you've been putting money in the market has performed well over most years in the past even when the market performed poorly you are still putting money into your 401k getting that match hopefully saving money elsewhere now that you're in the retirement phase you're putting a lot of stress on your portfolio through distributions now I'm not saying your accounts can't still continue to accumulate especially if we have consecutive years in the market that that does really really well but what I'm saying is don't expect it you are in the distribution phase that means you're probably taking three percent four percent five percent out when we have years where the market is also down your portfolio is down you're digging a bigger hole than you were in the accumulation phase that means that hole is harder and harder to climb out of this is why the allocation of your Investments is so important and not taking too much risk you don't want to dig such a big hole that you can never get out but at the same time you need a certain level of risk to achieve a return that can give you a Secure Retirement so mentally let's not look at our accounts every single year and say oh man they're not going up they're not increasing in value I'm going to run out I need to stop spending my money now actually if you look at it appropriately you should not expect your accounts to continue to appreciate every single year in retirement that very May well happen but if it doesn't if you're just staying level or even going down a little bit it's okay you just need to have a plan monitor your progress with respect to your goals and stay on top of it number four I want you to understand the value of secure income in retirement the more secure income you have the less you have to withdraw from your portfolio and the less emotionally you're impacted by the stock market ups and downs by political goings on by economic slow Downs if you don't have to withdraw large percentages from your Investments because you're living on passive income from Real Estate from Social Security from annuities from a pension but the point is the more income you have coming in from multiple different places that is independent of the stock market going up typically the happier you'll be in retirement also I don't want you to underestimate the power of Social Security as part of your overall retirement income plan now I hear a lot of people making comments on some of the Social Security videos that we do and also just day to day having conversations with clients that Social Security seems to be an extremely underestimated part of retirement many people want to take it early and that may be the case maybe it makes sense for you to take it early but if a husband and wife have combined Social Security of 60 000 a year and you live let's say 25 years that's 600 000 1.2 1.5 million dollars of retirement income and for many of you watch watching this your Social Security is going to be a lot more than sixty thousand dollars per year so we're talking anywhere from one million to possibly over three million dollars of retirement income for a married couple for someone who's single Social Security you can just basically cut that in half so it's a significant part don't underestimate the power of secure sources of income in retirement and also don't underestimate how valuable deferring Social Security could potentially be if you're going to live past age 80 81 or so number five I would like you to stop looking at short-term outcomes whether your portfolio is up or down whether you pull too much out whether you had an unforeseen expense and you had to spend x amount of dollars I'd like you to start looking at these short-term outcomes of things that happen to you or decisions that you've made as nothing more than bumps in the road don't get too high don't get too low retirement is a very long and windy and arduous Journey this is why it's so important to have a plan and stay connected to that because when you have visibility into the future and you're looking at things not in the short term lens but over a 20 25 30 year time frame you can see a lot of times how actually unimportant these short-term events are so don't get too high don't get too low understand that these are bumps in the road in the short term but if you have a plan these bumps in the road have been accounted for next time the Market's down and your portfolio is down 10 or 12 or 15 or more say you know what I have a plan I expected this to happen this is not a surprise and retirement is a very long journey this is nothing more than a bump in the road the number six key to a happier retirement and I know this is going to be virtually impossible for many of you watching but the number six key probably the number one is to not look at your accounts more than once a month I would prefer it once a quarter so I know some of you right now are saying Troy that's impossible I look at it every single day I need to know what my stocks are doing what my accounts are doing how am I ever going to know if I'm going to be okay well there are numerous studies on this I encourage you to look some of them up the more frequently you look at your accounts typically the worst performance you'll have over long periods of time but the person who looks at it every single day over a long period of time I think it's 25 or 30 years averages somewhere around two to three percent per year the person who looks at it once a month averages somewhere around four to five the person who looks at it once a year averages somewhere around six to seven and the person who never looks at it has averaged around 10 or 11 percent and it makes sense because we are emotional beings when we see that something isn't going right we want to Tinker we want to make adjustments this typically leads to holding on to bad Investments maybe a little bit too long or getting rid of good Investments that just haven't really had the Catalyst that maybe you were expecting and selling them too soon or we're selling our winners and cutting our losers without giving them a chance to really perform well whatever the situation may be Studies have proven this over and over again the more frequently you look at your portfolio the worse you should expect to do so instead of discussing strategy and execution in today's video hopefully today's content helps shift your perspective just a little bit with the goal of helping you to have a happier retirement [Music] foreign [Music]
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