Money: Among our 10 Elements of Retirement Success

Maybe money can’t buy happiness, but it can be a significant factor in deciding which doors are open to you in retirement and which are closed. In our experience, smart money management is one of our 10 elements of retirement success. This article aims to help you assess your approach to money in retirement and set some meaningful goals.

As wealth managers, money is central to most of our client conversations. There is a lifelong continuum that involves making money, saving money, investing money and ultimately using money to finance a full life, a comfortable retirement and, very often, a philanthropic and multigenerational legacy at the end of life.

There is too much to be said on the topic of money for one short article, but we will highlight three broad facets of money in retirement that we believe are fundamental: cash flow, taxes and risk.

Cash flow in retirement

In our view, you need a plan to sustain your cash flow from the day you retire until the end of your life, and if you get this wrong, few other aspects of your plan will really matter. Get it right, and you can have an income that is both steady and sufficient.

In our experience, a sufficient income is one that covers all your needs, including essentials like housing, utilities and healthcare, plus lifestyle desires such as being able to travel or buy things you want, and also extraordinary expenses, like when a major appliance needs to be replaced or when it’s time to fulfill an item on your bucket list.

Finally, we believe that a good source of cash flow will grow along with the cost of living so that you can maintain your lifestyle over time.

Taxes in retirement

Taxes are layered throughout your financial plan because they can diminish your cash flow, erode your assets and eat into your estate. Failure to manage your taxes efficiently can have unintended ripple effects, such as pushing you into higher tax brackets, triggering surtaxes or affecting your government benefits.

Therefore, we believe it’s important to work with your wealth and tax advisors to seek tax-efficient sources of income, protect your assets from taxation where possible and map out an estate plan that can maximize the after-tax value of your gifts to loved ones and charity.

Risk in retirement

We see risk as a multidimensional issue. One dimension is the risk in your investment portfolio. Are you taking enough risk that you can expect a rate of return that supports your cash flow needs and helps you keep up with the cost of living while at the same time not taking excessive or unnecessary risk?

Sometimes, more affluent retirees don’t realize that they are taking more risk than they really need in order to sustain their cash flow needs. To figure out the amount of risk and return that is best for your individual situation, we suggest doing some careful financial planning with your advisor.

When it comes to money, you may not know for sure where you stand. One simple test is to ask yourself, “Do I have a financial plan that gives me comfort regarding my financial situation?” If you don’t have a plan in place, we’d suggest that starting to work on one is an effective way to move from being uncertain about cash flow, taxes and risk to knowing whether you are on the right track.

Here’s a quick exercise that you may find helpful:

1. Write down your current satisfaction with your money management on a scale of 1 to 10
2. Now write down what you would like that score to be one year from now
3. Finally, write down the top three things you can do to raise your score

One way to gain confidence about money in retirement is to work with a professional to create and maintain a financial plan.

Continue to explore each element of retirement success:

1. Work
2. Family
3. Home
4. Growth
5. Leisure
6. Social
7. Giving
8. Money
9. Aging
10. Health

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