Although the idea of financial planning is now well accepted, planners still face a number of hurdles.

To begin with, few people actually have plans, but even many of those who do have a plan don’t understand and connect it to their everyday life. This is particularly evident when it comes to retirement planning.

Much of this can be chalked up to either misinformation or too many differing viewpoints. For example, some sources advise that a person needs to be able to cover a certain percentage of his or her pre-retirement expenses to make it through in one piece. Others say a specific sum of money is required to feel secure.
But this type of non-personalized, broad-brush approach just isn’t helpful. Instead, we need to look at retirement planning, and how we can make the process more personalized and understandable to clients, so they start to engage in and connect with the process.

To that end, the following questions are the basis of the retirement planning discussion.

Can I retire?

All plans want to answer yes to this. Financial plans include client-controlled inputs (reflected in their budgets, spending plans, any part-time work they might perform in retirement, etc.), along with conservative assumptions (market returns, inflation, etc.) to develop an acceptable plan.

When can I retire?

The age clients can retire at should be a major focus of a retirement plan. This is an assumption that can be varied to determine an acceptable plan. It might well include retiring and working part-time for a few years.

What lifestyle can I support?

The reality is there are several stages of retirement, all with their own unique expense makeup. So a better question to ask is, “What lifestyles can I support?”

Clients want to know what they can afford to do in an active stage without compromising their financial security in later stages, when they might experience significant health costs.

And make no mistake: These health costs need to be budgeted for. This is perhaps more important than the retirement age question, as it lets clients see how they’ll live and survive, and it connects them to their plan.

I recently heard an expert on the radio suggesting retirees minimize their expenditures in the early stages of retirement so they won’t run out of money later on. I don’t think this is very helpful. People work hard for many years and deserve to enjoy their retirement to the fullest and spend as much money as they can justify on travel, entertainment and other discretionary items while they have the health to enjoy them.

How long will my money last?

This is the bottom line and the acid test. With all the conservative inputs and assumptions, monies should last clients into their late nineties.

Plan variables

Budgets and projected expenses change when planning for the four very different and distinct stages of retirement.

For clarification, these stages include: An active stage, which could be characterized by high levels of travel (see lines 51 to 53 in the “Post-retirement worksheet,”), recreation and sport activities; entertainment ; and other activity-based discretionary expenses. When these expenses are laid out for a client, he or she is better able to plan or budget for specific expenses, and can more easily identify with and really see what his or her retirement lifestyle will be like.

A less active stage, which includes lower levels of activity-based expenses, less travelling, less entertaining, etc.