“Despite the good withdrawal rate, I still fear some catastrophic situation and imagine sitting on the curb as a bag lady! That, of course, requires a therapist--not a financial planner, eh?”
(This blogpost appeared four years ago, but it bears repeating.)
The above quote comes directly from a client, let’s call her Mary (not her real name) responding to an article I emailed her about the 4% withdrawal rule in retirement.
Imagine you just left your job/business/practice for the last time after an illustrious career of 42 years. Today was your last official day of working for money and tomorrow, as the saying goes, is the first day of the rest of your life.
A week has gone by since your last day of work. You’ve been super busy, you’re still waking up at 6:30 a.m., still following a tight to-do schedule, so the sense that you’re no longer working hasn’t really sunk in yet.
Imagine you’ve been following a customized financial plan diligently for the past 10+ years. I say 10+ years and not 20 or 30 years, because truth be told, in my experience as a financial planner specializing in retirement planning, most people don’t buckle down and take retirement planning seriously until they’re about 10 years away from this major milestone in life.
Now imagine the number, the number that’s been in your head, in your dreams, the number you’ve known about and thought about, the number that represents your financial independence, your financial freedom from ever having to work another day for money has been reached. Now what?
It’s the million dollar question and also one of the hardest questions to answer before you retire: When is enough, enough?
If you asked me that question back when I was a young and ambitious entrepreneur, striving yet never arriving, my answer most likely would have been never. You could never have 'enough'. Back then, I was a true believer that the sky’s the limit when it comes to earning money. More income meant more toys to buy, and anyway, how could one ever have enough?
You’ve made it to the ‘finish line’. You’re financially independent and retirement beckons. You’ve diligently saved for decades, and now retirement is no longer a fantasy - it’s as real as it gets.
Now, instead of adding to your savings, you enter the phase of your life where you begin withdrawing from your savings. You keep telling yourself you have enough money saved up to live the retirement lifestyle you imagined.
According to the AARP, 10,000 baby boomers are turning 65 every single day, and this is expected to continue into the 2030s. This means that nearly seven baby boomers are turning 65 every minute.”
If you’re a few years away from retirement, the day will soon come, when after a lifetime of squirreling away money and delaying gratification, the ‘distribution phase’ of your financial life will begin.
For years I’ve witnessed how we give too much of our power away when we visit our Doctor’s office. Instead of asking why they recommend we do x or y, we blithely follow whatever recommendation is made. After all, they’re the one with MD next to their name, so who are we to question their instructions?
With the political news, or should I call it the political storm-y brewing in DC, we might recall that it was only a few months ago that talk of a trade war with China and potential tariffs on steel and aluminum created dizzying volatility in the stock market.
It’s often one of the most common mistakes investors make. By that I mean, letting the amount of capital gains tax owed on the sale of your asset, whether that’s a stock, bond, real estate or business, dominate your decision process.
It’s never easy to pay taxes, especially a 20% capital gains tax. So instead of diversifying your overall investment portfolio and not concentrating too much of your net-worth in say one stock for example, you let it ride.
Soon, five, ten, twenty+ years goes by and now this asset that has strongly increased in value and makes up close to 50% of your total investment portfolio. You know having too many eggs in one basket is risky, you know and have seen and read enough about the importance of diversification and maintaining a well balanced portfolio, yet still, even with that self-awareness, you’re allowing the tax tail to wag the dog.
The dictionary would define 'legacy' as:
a gift or a bequest that is handed down, endowed or conveyed from one person to another. It is something descendible one comes into possession of that is transmitted, inherited or received from a predecessor.
A financial planner would define legacy simply as:
"the amount of inheritance you plan to leave to your heirs and or charities/organizations upon your passing.