Every once in a while, we come across an article in the retirement-focused press that contains what we believe to be reasonably good financial advice for retirees or near-retirees. And by good retirement financial advice, we mean, of course, advice that is reasonably consistent with what we advocate in this website. As you can probably guess from our prior posts, these “good advice” articles generally don’t advocate using the 4% Rule or any other SWP to withdraw amounts from your savings.
We were pleasantly surprised when we recently read How to protect yourself from financial ruin in retirement by Mia Taylor. Her title is a little misleading, as you can fairly easily protect yourself from financial ruin in retirement by simply underspending. Instead, Ms. Taylor sets forth 25 fairly solid tips for retirees and near retirees to consider when managing their finances in retirement. She presents a nice checklist that ticks most of the important financial planning boxes, in our opinion.
In this post, we will briefly summarize some of these twenty-five tips and add a few of our thoughts to them. While some of Ms. Taylor’s financial tips are analogous to the guidance we all hear today to prevent contacting and spreading the Covid-19 virus (wear a mask, wash your hands frequently, don’t touch your face, stay at least 6 feet apart, etc.), it probably won’t hurt you to scroll though all 25.
Some of Ms. Taylor’s financial Planning Tips for Retirees and Near Retirees (by her chart number)
6. Budget—Helping you develop a robust spending budget in retirement is a huge part of what we do here at How Much Can I Afford to Spend in Retirement. Click here if you want to read a summary of the Actuarial Approach and our Recommended Seven Step Planning Process. Our recommended process of developing a spending budget and revisiting it annually is consistent with many of the planning tips highlighted by Ms. Taylor (and therefore not specifically discussed by us in this post).
7. Maintain a six-month emergency fund—Our Actuarial Budget Calculators (ABCs) ask you to input estimates of expected and unexpected non-recurring expenses, like emergency expenses, long-term care expenses, bequest motives, etc. It is important to recognize that not all of your expenses in retirement will be recurring expenses.
11. Expect to live longer—The default lifetime planning periods in our ABCs are derived from mortality experience for healthy, non-smokers and a 25% probability of survival. We encourage you to use the default assumptions, at least for determining floor portfolios and budgets for future essential expenses. You may want to use less conservative lifetime planning assumptions for determining upside portfolios and budgets for future discretionary expenses.
15. Have proper health insurance in place—In addition to health insurance, you should decide how much life insurance, long-term care insurance, home and auto insurance or other insurance you need in order to protect the assets you may need to fund your retirement.
18. Find a trusted advisor—We believe it is important that individuals and couples crunch their own retirement numbers. While financial advisors can and do certainly add value when it comes to managing your finances in retirement, as we said in our post of January 31, 2020, “you should understand that you, as your family’s CEO and CFO, are ultimately responsible when it comes to investing and spending your family’s assets during retirement.”
20. Separate your retirement funds into two distribution strategies—This tip (and several other related tips, like numbers 13, 21 and 22) is consistent with our recommendation to establish floor and upside portfolios designed to fund future essential and discretionary expenses, with different investment (and possibly spending) strategies applicable to each portfolio.
25. Be flexible—The Actuarial Approach is a process that relies on an annual valuation to keep spending on track and consistent with ever-changing goals. It is not a set-and-forget projection with a 93.7% probability of success. If future investment returns are less than expected, for example, you may have to reduce some of your discretionary spending.
Summary
We encourage you to scroll through Ms. Taylor’s 25 slides. Most of these tips will seem like common sense suggestions to you, but several are quite insightful. We hope they will be helpful in your financial planning.
Ken and Bobbie wish our U.S. readers a happy and healthy
Thanksgiving, and we hope that our three Canadian readers already had a
good one.
