Approaching the Retirement Runway . . . What’s Your Risk Budget and Your Process?

Approaching the Retirement Runway . . . What’s Your Risk Budget and Your Process?

For many of the important things we undertake in life, the most difficult and worrisome parts come at the end.  I find that planning for retirement very often falls into this category. I hear it from folks all the time. You don’t have to spend a career helping people plan for your retirement to know the most troubling thoughts we have about retirement are often in the final years prior to retirement.

Along the same lines, clients of mine who are military, commercial, and recreational pilots have told me that the majority of aviation accidents occur during attempts to land the plane. Last Thursday I was in a Zoom meeting with a client of mine who is a commercial pilot, let’s call him Jim.  He is a pretty neat guy.  Jim graduated from the U.S. Naval Academy and had a stellar career before retiring and moving into the commercial space.  I asked him about it, and he said this is because the landing is the most technically complex and least forgiving part of piloting a plane. He said, “Jeff, it’s the one thing you need to get right 100% of the time. We do our last checklist and have to be at maximum awareness.”   He also said, “There only three things that don’t matter when you are flying a plane – the runway behind you, the altitude above you, and fuel left in the tank.”

Hmmm . . . Jim got me thinking.

I got thinking about how retirement is not unlike landing a plane after a long trip. Despite a lifetime of hard work and planning, many of us remain anxious about whether we will “safely land” in retirement. During my career, I’ve helped many folks approach and cross that retirement threshold.  There is always a lot of joy and optimism that they can now pursue long neglected hobbies, take dream trips, or dive into volunteer work. But they also worry because for some it means they lose a big part of their identity that their career represented. A whole new set of highs and lows greet us at retirement.  All of the emotional aspects are tightly interwoven with answering some key financial questions.  When can I retire? Do I have enough money to retire? Will my money last in retirement?

So, I thought with our time together this week we’d tackle these questions and take a look at the challenges facing retirees as they approach the retirement runway.

Nowadays, coming to peace with when you should retire has certainly gotten a bit more difficult. The days of lifetime careers with one company and corporate pensions are fading from the American economic landscape . . . quickly.  Longer life expectancies and the associated health care and long-term care costs are changing the calculations for planning retirement. Each new generation seems to be looking at a longer retirement. While this sounds great, it comes with both financial and emotional costs. When I see people successfully retire, they’ve done both the financial and the emotional planning necessary. They have activities and goals in retirement to look forward to beyond sleeping in and limitless free time. And when it comes to the financial aspect, they have to be focused on what they can control.

These days, one of the biggest financial worry for almost everyone nearing retirement is will they have enough money to successfully retire. There are some big questions that may need to be answered, including things like paying off mortgages, selling personal businesses, and deciding when to take social security. I will tell you though, one thing that doesn’t change from their career years is the need to have a thorough budget.  One of the most difficult things to accept in retirement is that you will no longer be receiving a regular paycheck from your employer.  Because of this, it’s critically important in retirement to look at your budget in terms of fixed income like social security, pensions, and annuities versus your investment portfolio. Someone preparing to retire needs to assess if their fixed income in retirement is going to cover their basic living expenses.  If at all possible, you want to do your best to manage systematic distributions from your investment accounts that fluctuate in significant value. 

I find that one of the biggest mistakes in pre-retirement is making hard assumptions such as investment return on your portfolio or a set rate of inflation.  These are things you cannot control and if your assumptions aren’t met, the plan becomes flawed.  Remember, the only things you have control over when dealing with the financial markets is risk and process, anything else is folly.  When approaching, entering, or currently in retirement, an assessment must be made, and downside risk mitigation strategies must be implemented into  your retirement system to increase control. You see, downside risk mitigation incorporates things like variable investment return, fluctuating inflation, understanding the correlation between risk and process, or an unexpected event. Unexpected events include both external events, such as the pandemic and personal events like health or care issues.

Even in retirement we need to continue plans for protecting our savings and investing, as well as addressing insurance needs for medical care and our survivors.  If we have these things in place, it goes a long way towards giving us peace of mind when it comes to a spouse, significant other, or special needs child that may outlive us.  Often one member of a couple has taken on the primary role of handling the family finances. For them, a big part of planning is ensuring that the surviving spouse or significant other can successfully continue the retirement plan.  This includes making sure they are educated on the basic plan and have a relationship with and trust in the financial advisor who has helped develop and implement the plan.  

These are just a few of the crucial considerations as we glide into retirement. The journey might be a long time coming, but the final steps and checklist as we approach to a “safe landing” maybe some of the most important we take.  So, folks, as you navigate through your retirement runway, what is your risk budget and what is your process?  If you don’t know, well, it’s time to figure that out.

As always – be vigilant and stay alert, because you deserve more.

Merry Christmas to all!!

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, Mansfield & Southlake, TX. Jeff can be reached at jeff@cutterfinancialgroup.com.

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