You may have felt prepared, but then realized that your approach was wrong. No one wants to feel that way, particularly when planning for retirement. This blog will explore an example of a client, a married couple named Tim and Jennifer, who were originally on the right track with traditional retirement planning. We helped them realize that retirement is more than maximizing the value of your portfolio. We’ll dive in to this case study and see what could have been done differently.
A New Perspective on Retirement Planning
The traditional retirement plan is often based on achieving 100% financial success. This may not be the most effective way to spend your golden years. Focus on enjoying your retirement to the maximum. Let’s examine Tim and Jennifer to illustrate the shift in mindset.
Tim’s and Jennifer’s Retirement Scenario
Tim and Jennifer, a couple of 60 years old, were looking for retirement advice. The couple had saved diligently, but initially planned to continue working until they were 67 years old, hoping for 100% success. They had a Roth IRA of $58,000 and a Roth IRA worth $190,000. Their assets also included a 403(b), which contained the sums of $505,000 from Jennifer’s 401 (k) as well as some cash.
They had retirement goals that included:
Core living costs of $8,000 per monthly
A travel allowance of $10,000 per annum, for a period not exceeding ten years.
This income must be all after taxes.
Tim earned $76,000 per annum as a teacher, and Jennifer made $160,000 as HR Director. Tim had a Social Security benefit and pension, and Jennifer’s main source of income was her job and contributions to her 401 (k).
A Traditional Retirement Plan with 100% Success Probability
Tim and Jennifer’s first financial plan predicted that their portfolio would grow to $5.3million by the time they retire. Many would find this plan ideal, as it had a 100 percent success rate. How true is it?
To achieve a 100 percent probability of success, they needed a plan with hefty margins or buffers. A financial buffer may be essential but the real question is: What are you going to do with these extra resources?
Retirement with an enormous surplus may not be in line with the real objectives of these people. They don’t want to accumulate a fortune just for fun. They should instead focus on what they would like to do in retirement. This could be spending more time together with their aging parents or traveling.
Optimizing retirement for a fulfilling life
Tim and Jennifer were given a fresh perspective. Instead of sticking with their plan to retire at 67 years old, they might consider retiring earlier, perhaps as soon as 62. They could enjoy retirement when they’re still young, healthy and energetic. This allows them to adjust their financial plans in order to align their goals with what they really want.
This case teaches us that planning for retirement is more than just maximizing your portfolio’s value at the end. This is about maximizing your life to enjoy a fulfilling and meaningful retirement.
How to balance the probability of success with life goals
The case of Tim and Jennifer shows that you do not need to have a 100 percent probability of success. It is important to consider the consequences of failure when calculating your probability. They were able to accept a low probability of success because they had a strong Social Security and pension as well as equity in their house.
The story of Tim and Jennifer is a great reminder to focus retirement planning on your experiences in life, rather than just your finances. Do not focus on 100% success at the expense of missing opportunities or experiences. Enjoy your retirement and maximize your wealth, time and energy. The true measurement of retirement success isn’t the amount of money in your account, but rather the quality of life you have lived.
