PLANNING for retirement can feel extremely overwhelming if you don’t have the right information.
To make this process a little easier, a certified financial planner shares videos about retirement, investing, and financial planning to YouTube.
FINANCIAL UNCERTAINTY
James Conole (@RootFP), a certified financial planner, or CFP, recently posted a video offering guidance for those planning for retirement.
In the video, he first established that the principles and process he uses to determine portfolio allocation remains the same regardless of how much money you have in your portfolio.
Conole proceeded to describe more details about the couple and portfolio that he will be discussing.
The example he gave is Todd, age 66, and Katie, age 63, who have a net worth of $4.1 million and came to Conole for financial guidance.
The couple had been good at investing, saving, and keeping their costs low, but realized that just growing a bigger portfolio didn’t automatically alleviate some of their financial concerns and uncertainty as they prepared for retirement.
Although they were comfortable with their portfolio and wanted to retire at their current age, they were ultimately uncertain with their financial decisions.
They felt as if they didn’t know what they didn’t know, realizing that any problems or improper investment allocations could potentially be magnified because their portfolio is larger.
THE FINANCIAL SITUATION
Conole laid out the couple’s projected retirement expenses.
The couple projected their core monthly expenses during retirement to be $8,500, or $102,000 per year.
They would also have monthly healthcare expenses – around $10,000 per year after Medicare for the couple.
An estimated $60,000 per person per year would be needed in their last two years of life for in-home care.
Todd and Katie also wanted to allocate $20,000 per year towards travel.
Todd is projected to receive $3,400 per month in social security and Katie will receive $825, eventually collecting her spousal benefit.
START WITH A FOUNDATION
After establishing the couple’s financial situation, Conole explained why you should never start with your portfolio, but rather start with a foundation.
He encouraged his viewers to ask themselves questions like what are your goals? What are we trying to accomplish? What other income sources do you have?
By starting with an understanding of your foundation, then that will flow into an understanding of how your portfolio should be allocated to best support this.
CALCULATING NET FLOW
He then determined how much money would need to be pulled from their portfolio to pay for their expenses.
Conole compared the couple’s income flow from social security payments to their expenses.
Their expenses included their core, healthcare, long-term care, and travel expenses, as well as their mortgage, property taxes, and insurance costs.
Conole calculated the couple’s “net flow” by subtracting their income flow from their total expenses, which is how much money per retirement year will need to come out of their portfolio.
The number of course changes per year – for example, the mortgage being paid off and Katie being placed on Medicare would lower the net flow.
MAXIMIZING TAX EFFICIENCY
After determining the net flow, Conole next focused on which of the couple’s investment accounts made the most sense to pull from.
The couple had joint accounts, IRAs, and Roth IRAs, so Conole questioned where to pull from in order to maximize the couple’s tax efficiency.
He suggested pulling from taxable accounts to keep their income lower and free up room to do Roth conversions or some other tax strategy.
The YouTuber noted that the couple had heavy investments in the S&P 500, which varies vastly per year depending on the economy.
“It’s not just enough to say ‘Hey, these are wonderful investments.’ It’s important to know if these investments fit the objective of this particular account as it relates to your overall financial strategy.”
Regarding the couple in question, Conole suggested that they focus on allocation strategy, ensuring that each investment served a specific role.
The CFP also advised making conservative investments for the initial retirement years and curating a well-diversified portfolio for stability.
He suggested shifting from predominantly large US stocks to an 80-20 portfolio, with 80% of the portfolio invested in lower-risk assets and 20% invested in higher-risk assets.
“By aligning investments with goals, addressing income streams, and strategically diversifying, we aimed to ensure they could enjoy a secure and fulfilling retirement,” said Conole.
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