The Quickstart Guide to Planning for Retirement

The secret to retiring comfortably? There is none. And anyone telling you otherwise most likely doesn’t have your best interest in mind.

Step 1

Despite what many financial pundits would have you believe, the methodologies for creating a successful retirement plan aren’t mysterious. The investment strategies we favor are practical, well-researched, and based on analysis conducted by some of the brightest minds from the likes of Harvard, Dartmouth and The University of Chicago.

Confusion about investing comes from either ignoring the long-term data, being too reactive to current events or chasing false promises of unrealistic returns (which, unfortunately, happens quite often). Combining sensible investment strategies with a strong savings plan and sound retirement planning strategies offers retirees the best chance of achieving their goals.

In this guide, we'll summarize the key components of how to begin preparing for retirement. While reading its contents will in no way make you an expert, it is our hope you will feel much more confident in the retirement planning process moving forward.


How to Strategize a Good Retirement Plan

Step 1:

Partner with Trustworthy Advisors

First things first: Every goal requires a plan. The larger the goal, the more detailed your plan of action will need to be. For example, say you're running your first marathon. Would you just wing it? Running a little bit every day, hoping you’ll feel adequately prepared to run 26.2 miles the day of the race? Probably not! That actually sounds quite terrifying.

Most likely, you would consult with an expert—someone who lives and breathes running. Someone who could advise you on exactly how to train, potential pitfalls to watch for, and ideal progress benchmarks to measure so you’ll feel relaxed the day of the race.

Planning for retirement is no different. Your first step involves partnering with an experienced advisor who can work with you to create a customized plan. Since no two individuals are exactly alike, it is unlikely the plan that works for your neighbor will work for you.

A good advisor will seek to understand your unique goals and temperament before making any recommendations. While there are plenty of criteria to evaluate when choosing an advisor (we’ll review this in more detail toward the end of the guide), here’s what to prioritize:

1. Clear Communication: The best advisors don’t confuse their clients with industry jargon. They listen carefully, speak candidly, and explain complex concepts with ease. They also won't limit their communication to quarterly reports and will remain easily accessible to answer any questions that arise.

2. Fiduciary Responsibility: Did you know that about 75 percent of financial advisors maintain no fiduciary responsibility toward their clients? That means they are NOT required by law to act within your best interest at all times. A lot of investors are shocked when they first hear this, but it’s simply the reality of how many large investment firms are structured.

3. Personal Connection: Finally, choose an advisor who shares similar values, interests, and priorities as yourself. Put simply, you should feel comfortable calling up your advisor and asking them for advice on a wide range of topics. You want this to be a lifelong relationship, so choose wisely.

Step 2:

Commit to An Investment Approach Backed By Evidence

Have you ever heard the expression “Don’t reinvent the wheel?” Well, the same philosophy could be applied to modern investing. The documented historical returns contain much useful information – though past performance is never a guarantee of future returns, studying it can provide a more comprehensive framework for future decision-making.

If you’re assuming everyone must be following the data, you would be mistaken. Retail investors commonly chase “hot returns” in spite of contrary evidence. The sad part is trying to beat the market with original stock picks rarely ends well. There’s just too much data against the practice for future retirees to justify such gambles. Which is why we recommend a pragmatic and research-driven approach:

Practice Evidence-Based Investing

Evidence-Based Investing (EBI) is the practice of making investment decisions based on more than 90 years of market, academic and peer-reviewed research. Though no one can predict the market's movements, there is some confidence in what can be achieved by analyzing what has and has not worked in the past (nationally and globally).

Conversely, EBI can be thought of as investing with what the markets give, instead of trying to outsmart it. Other components of EBI include:

  • Keeping expenses low and making tax efficient decisions;
  • Ignoring the fads and following the evidence, while strategically balancing risks; and
  • Regularly monitoring and evaluating investment selections to ensure you’re on track.
  • Staying diversified to lessen risks of over-exposure to a handful or stocks, sectors or countries

Practice Portfolio Diversification

Practicing portfolio diversification begins with understanding Modern Portfolio Theory. MPT is the key to maximizing return without taking more risk than need be. Introduced in the early 1950s by Noble-Prize winning economist Harry Markowitz, the mathematical framework assembles portfolio assets in such a way that allows potentially profitable risk-taking without compromising the volatility of a portfolio as a whole.

The key is buying non-correlated assets that don't move in tandem. One may move up, while the other one stays in place. By structuring your portfolio in this manner, you'll reduce volatility while still receiving the benefit of returns.

Step 3:

Clarify Your Retirement Goals

Once you've chosen your advisor and committed to an evidence-based approach, you're ready to begin clarifying your goals. While everyone can (in theory) make the same moves and get the same results, those results won't work for everyone. The steps you take will depend on your answers to the following:

When do you want to retire? In 10 years? 20 years?

How long will your retirement last? We know, it's a strange question to try and answer.

What do you want to do during your retirement? Start a second business, practice philanthropic giving, travel?

Do you want to leave a legacy behind? Giving to others is wonderful, but requires special planning.

None of these questions are easy to answer, but they are important for determining a). The specific investments and savings options that will be right for you and b). The amount of risk you will need to consider taking in order to achieve your goals.

People often say “I don’t want to risk money in the markets,” without realizing they are already taking a risk by NOT being invested in the markets – since stock markets have historically proven to grow faster than inflation over time.

For reaching long-term goals, the potential benefits of smartly investing in the long-term growth of stocks far outweigh the potential pitfalls. Keep your money in cash and you'll avoid volatility risks but lose purchasing power over time. Money sitting in a bank account historically has not outpaced inflation.

Conversely, keep too much in high-risk/high-return stocks and you might not be able to sleep at night! The right advisor can help you determine the perfect plan to match your future goals and comfort level.

Step 4:

Accurate Expense Estimation

Once you’ve identified your goals, you’re ready to begin looking at how much money they will require. Most savings goals will fall into 3 distinct categories: Personal goals, living expenses, and healthcare expenses. Let's review what you'll need to evaluate for each category:

Personal Goals: What do you actually want to do in retirement? While some individuals have life-long dreams they "can't wait" to tackle during retirement, many aren't really sure what they want to do. Take more vacations? Learn a new language? Ride that bike that's been sitting in the garage? While you may or may not know exactly what you want to do, it's important to begin thinking about it. Obviously, starting a tech company will require more money than vacationing in Mexico once a year.

Living Expenses: How much does it cost for you to live? Which of your current expenses will continue into your retirement? Food, utilities, and other basic expenses must all be carefully considered. Most people have a tendency to underestimate how much money they require. Depending on your financial situation and projected timeline, you may decide to downsize or move to a more affordable location. The bottom-line: Do your research and don't be afraid to weigh a few different scenarios.

Healthcare Expenses: How will your healthcare costs change post-retirement? Will your company health care plan still cover you in retirement? Will Medicare be enough or will you need to supplement it? Are your prescriptions covered by Medicare? Will you invest in long-term care insurance? How much should you ultimately put aside for healthcare costs? Again, none of these questions are easy to answer. But a trusted advisor can help you.

While a simple Google search will find many retirement expense calculators online that can give you a rough idea of what you will need, their abilities are limited. Large out of pocket costs for coinsurance, private nursing, and experimental procedures are not always factored. Additionally, many calculators integrate Long-Term Care insurance, whether you have it or not. Always rely on your own math with the help of an experienced advisor.

Step 5:

Maximize Savings for Retirement

Your savings are "the bread and butter" of your retirement plan. They are what provide you with the cash necessary to make investments in the first place, and their liquidity is what will supply your income throughout retirement. While Social Security is great, it won't be enough to support the continuation of a comparable lifestyle.

The dizzying amount of books, blogs, and apps continually being released on the topic of savings make it seem like rocket science, but the reality is actually quite simple. Saving is not spending money. And the longer you save, the more you'll have. And the more you have, the more you'll be able to do. With that said, everyone should be taking advantage of their company's retirement and 401k's maximum matching contributions (if applicable).

But, if you are a business owner, there a few special savings plans you should consider:

Cash-Balance Pension Plans: This plan has a high limit that allows you to put away a large amount in a year. Depending on the structure of the company, there’s the possibility of putting this in place and funding it with up to $245,000 in one year. This would be most beneficial for those who have small, profitable businesses.

Defined Benefit Plans: Defined Benefit Plans are a type of retirement plan where the benefit is defined, not the contribution. The benefit is usually a monthly benefit defined by a formula based on the employee's length of service, salary, age at retirement and other factors. Potentially large amounts can be contributed on behalf of the employee but benefit amounts are subject to limits.

SEP-IRA: SEP-IRA or Simplified Employee Pension (SEP) is a type of IRA designed for companies or self-employed individuals. It has higher contribution limits than Individual IRAs, but less complexity and costs compared to defined benefit plans.

Note: Note, while these plans can provide business owners with a substantial amount of retirement assets in a short amount of time, they are also highly complex. Partner with a financial advisor who can walk you through the options and introduce you to the appropriate professionals for information and for executing a plan.

Step 6:

Identify Your Primary Focal Point

Depending on where you are in your career, retirement may be 5, 10 or 20 years away. Whatever phase you are in will dictate your primary focal point. Identify your category below to find out more about yours.

20 Years Away (or more) — What Should I Be Focusing On?

  • Saving as much money as you comfortably can (and possibly more than what's comfortable).
  • Putting a good investment strategy into motion.
  • Paying off any credit card or remaining student debt.
  • Finding a financial advisor who can grow with you.

10 Years Away — What Should I Be Focusing On?

  • Revisiting your retirement goals and realigning investment strategies with those goals.
  • Thinking about where you want to retire (and how much it will cost).
  • Accurately monitoring and assessing living expenses.
  • Evaluating the purchase of long-term care insurance.
  • Obtaining an estimate of your Social Security benefits.
  • Obtaining an estimate of your pension plan (if applicable).
  • Setting a "time-framed goal" and trying on lifestyles.

5 Years Away — What Should I Be Focusing On?

  • Actively revisiting all of the aforementioned points from the "10 Year Mark"
  • Determining if you need to fill in any savings gaps or reevaluate timeframes.
  • Paying off your mortgage (if you haven't done so already).
  • Create a plan for healthcare during retirement.

Right Now - What Should I Be Focusing On?

  • Once you hit retirement, you should have a financial model that is annually reviewed by a financial advisor. The goal: Ensure you stay within a safe range of predicted outcomes and adjust accordingly.



Experience the peace of mind that comes from knowing, not hoping.