Retirement planning helps us answer two critically important questions:

  1. How much do I need to save / can I spend each year (for pre-retirees), or, for retirees, what level of outflows can my portfolio sustain over my lifetime?
  2. How should my portfolio be invested in order to maximize my probability of success / minimize my probability of having to reduce spending in retirement due to circumstances outside my control (e.g. market returns).

Without thoughtful financial projections, it’s very difficult to answer these questions accurately and make informed decisions. This is why the Financial Plan is the first thing I work through with new clients. The Plan serves as the blueprint for each household’s financial future.

Sometimes folks expect this process to be limiting when in fact it’s quite freeing!

For example, if we’re flying blind without having completed this intensive exercise we are not making informed decisions. This may cause us to have a bit of guilt whenever we spend money. Or, if it’s not guilt we’re feeling, it is at least uncertainty such as “Can I really afford to do this?” That uncertainty or guilt makes it difficult to enjoy the moment always living with a tinge of anxiety.

When we build the Financial Plan we target a level of saving (for pre-retirees). As long as we’re hitting those savings targets, which are usually automated through automatic payroll deductions / monthly transfers, then the rest of it is guilt-free spending!

If we know we’re on track to hit our savings targets we remove the uncertainty or guilt from other discretionary spending (vacations, dinners, cars, gifting, etc…) freeing us to fully enjoy those precious moments.

In the case of retirees, we identify sustainable outflows. As long as we stay within that we’ve removed a lot of uncertainty and anxiety about our financial future.

But this planning process is never complete. Each year the projections are updated because things obviously change year-to-year (e.g. market returns are variable, illness strikes, inflation). This helps us to proactively make adjustments as necessary.

By taking a proactive approach any adjustments, if any are needed at all, are much more minor than if we were to set and forget the plan for long periods at a time.

The process is extremely freeing and comforting. The goal is to remove financial anxiety, remove time and energy wasted worrying about day-to-day market behavior, and provide the freedom to enjoy your wealth.

Explore Part 2: Sustainable Spending

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