I was thinking about this question while reading an article a client sent to me.  You can find the write-up here, and it’s a helpful “countdown to retirement” with many tips to consider as you approach retirement.  As I looked through the list and thought about covering these issues with our own clients over the years, the question came to mind: what is the most important financial planning step you can take to feel great about your retirement plan?

It’s really a tough question since there are a lot of important issues to consider when “taking the leap” away from a career that you’ve had for so many years.  Topics such as health insurance, do you have enough saved, are you invested properly, Social Security timing and others are obviously important to explore.  There’s also the softer part of the equation: how will you spend and enjoy your time?  Should you still work?  How will you miss the social aspect of working and contributing?

But if I were forced to answer, what would I say is the most important question?  That’s when I realized it’s the one that I have been recommending most lately when helping someone plan for retirement.  It’s this simple question: how much do you need to live on (and how sure are you of that?)?   We’re talking about today’s living expenses.  And to begin with, it’s only today’s expenses since any good plan should account for contingencies and cost-of-living adjustments for the future.  But you have to first start with today.

When going here in the conversation, I’ve learned to not ask for a budget.  Most people don’t have one; and if I’m honest, I’m not regularly running my family’s numbers down to the penny each month either.  But without a doubt, this was one of the most important exercises that I went through years ago when I transitioned to a “fee-only” business here at Waypoint. As a self-employed business owner, I needed to measure and be confident in how much my family needed.  This was my “dry run” at retirement so to speak, and at age forty gave me a whole new appreciation for helping clients go through this retirement planning process.

So where can you start?  We’ll often recommend looking back over your bank and credit card statements for the last 3, 6, or ideally 12 months.  This doesn’t have to be perfect, but record the amounts each month.  How much did you spend each month?  What surprised you?  What were the high amounts, and the low amounts?  From here, we can build a plan that has sufficient cash on the sideline in the event of a surprise.  And it’s really only from here that we can start to dream forward and plan for “what-if” scenarios so you can have as much confidence as possible that you’ll be okay in retirement.

So again, there are so many issues to think through with planning for your retirement.  But without a doubt, the old saying “you can’t manage it if you don’t measure it” holds true for knowing what your basic needs are and having a retirement plan you (and we) can be confident in.  And if we can help you with getting started with your plan, feel free to contact us.

Posted by:

Pete Dixon, CFP®

Partner and Advisor