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Your Bank > Education and Advice > CNB University

Planning for a Successful Retirement

J Terwilliger 2014
James P. Terwilliger, PhD, CFP® is Senior Vice President - Financial Planning Officer and can be reached at JTerwilliger@CNBank.com or (585) 419-0670 x50630.

Think back 40 or 50 years.

Formulating personal and career goals often led to thoughts about training, education, career, family, community … How to best prepare oneself to achieve these goals?

Yet, how many folks give as much thought to planning for retirement as they did to planning for their young adult and mid-life years, realizing that the retirement time horizon can be equally as long as the time horizon for one’s working years – 30 or more years?

A successful retirement does not just happen. It requires just as much time, energy, and preparation to make that second half of life as happy and rewarding as the first half.

Today, we’ll focus on some key finance-related factors that must be included in any retirement plan. In past articles, we have touched on some of the softer social factors.

First, retirement planning should start at the beginning of a working career, now that guaranteed pensions are a thing of the past for most folks, particularly those who work in the private sector.

Good financial habits developed and practiced during one’s working years provide a good foundation to build on. They include paying yourself first, living below your means, restricting borrowing to your home mortgage, paying off credit card balances monthly, protecting your family through insurance, and keeping wills and beneficiary designations up to date.

When approaching retirement, more formal planning is necessary. Some of the key success factors to consider include:

Flexible retirement date.

Sure, maybe you’d like to stop working at age 60 or 62 or 65 or whatever. But what if an early date results in a retirement standard of living that is below what you want. Is it worth it?

In a past article, I demonstrated the leverage that can be achieved for each year that retirement is delayed. There are 3-4 factors that all interact positively to amplify the benefits of waiting. The net outcome is to boost retirement income and associated standard of living by a significant amount.

Second career, part-time work.

Who says retirement has to be a single, stop-work event? More and more folks are finding that a phased “retirement” better suits their personal and financial lives. This seems to go hand-in-hand with the new reality that is replacing the old work-for-40-years-and-retire-with-a-gold-watch model.

Optimal Social Security claiming strategy.

Most folks are surprised to learn that it is possible for spouses to sequence benefits in a way that can result in 10s to 100s of thousands of additional Social Security dollars flowing into the household over a retirement lifetime.

Others are surprised to learn that it is possible to do the same based on a divorced or deceased spouse’s work record.

Don’t look to Social Security to map out these options for you. Their job is to administer benefits and answer questions. If you don’t know what questions to ask, you most likely will not learn what your optimal pathway might be. Only a knowledgeable advisor should be consulted.

Solid, understandable investment strategy.

Retirees need to have a thoughtful, disciplined investment strategy governing all their accounts – tax-deferred, taxable, and tax-free. The strategy must be understandable. If folks cannot summarize their strategy in one or two sentences, chances are they do not know what they are doing or what their advisor is doing. Neither is a good idea.

A key factor here is to have adequate exposure to stocks. We typically recommend somewhere in the 60% range in order to keep the portfolio and its distributions ahead of inflation. Remember, we are talking about a 30-year-or-so timeframe.

A related success factor deals with ongoing distributions from the investment portfolio needed to supplement other retirement income. The distribution strategy must be designed and managed to ensure that the retiree and spouse do not outlive their money.

Sustainable spending strategy.

Spending dictates standard of living. It must be planned. Household spending is funded by regular household income plus regular distributions from the nest egg. All must be in balance to be sustainable.

A spending plan generally is not static. It must be adjusted as life happens. Health care costs, new car purchases, once-in-a-lifetime trip – all provide challenges to keeping the cash flow in balance. But working at it and making changes when necessary are key to managing this aspect of retirement successfully.

Planning for and managing retirement is a big deal. It is best not done alone. Partnering with a trusted financial advisor is always advised. Sooner, rather than later, is also advised.

This material is provided for general information purposes only and is not a recommendation or solicitation to buy or sell any particular security, product or service. Past performance is not indicative of future investment results. Any investment involves potential risk, including potential loss of capital. Before making any investment decision, please consult your legal, tax and financial advisors. Non-deposit investment products are not bank deposits and are not insured or guaranteed by Canandaigua National Bank & Trust, or any federal or state government or agency and are subject to investment risks, including possible loss of principal amount invested.