Ten Key Ingredients to Form a Retirement Plan

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Ten Key Ingredients to Form a Retirement Plan

When a client is working with their advisor on their retirement plan, it is very likely that they not only have personal goals and dreams, but also a minimum level of expectations from their financial planner. Heck, the truth is, a client shouldn't have just a minimum level of expectations, they should have specific things from a retirement plan that they DEMAND!

With life expectancies being greater than ever, retirement could likely be the longest phase of their life. It is imperative that there be a plan in place that is well equipped not only to spend and enjoy your retirement years, but also to help avoid the mistake of "living too long". If you have any doubt that retirement planning needs to be an essential part of a financial planner's practice going forward, take a look at these statistics:

Nearly 80 Millionbaby boomers are approaching or entering retirement.

By the year 2020, these baby boomers will control approximately two-thirds of the financial assets in the U.S.

75% of investors switch or add investment professionals within 15 years of retirement because they doubt the professional who got them to retirement knows how to get them through retirement.*

68% of investors surveyed between ages 55 and 70 consolidated their assets as a result of completing a retirement income plan; an additional 19%said they would like to consolidate.**

What do these facts tell us? Retirement planning is not only a huge opportunity for financial professionals, but it is also a huge challenge!


Retirement planning is an extremely sophisticated process. Retirees should not attempt this on their own. In addition to the risk of outliving their assets, you have other money predators to stay away from such as taxes, inflation, stock market and interest rate volatility, health care, and social security revisions. Therefore, the point of this article is to review the "10 Key Ingredients" to a successful retirement plan that every planner should focus on, and every client should DEMAND:


Growth Potential - You want your money to grow. However, the real reason why you should want your assets to grow is not to become enormously wealthy, but to help you keep pace with things like inflation, taxes, planned obsolescence, technology changes, rising healthcare costs, long-term care, etc. Every retiree comments they do not want to spend their principal, but would rather live off the income generated from their principal. Therefore, if you want your income to keep pace with inflation, then you should demand a well-diversified and well-balanced portfolio to allow you to keep pace with your changing lifestyle over the long term.

Safety Provisions - Clearly, the two biggest financial fears most investors and retirees have are losing money and running out of money. These fears are not only understandable, but also the most critical! "90% our job is avoiding large losses". Simultaneously taking income from your retirement assets and suffering significant losses in the portfolio can be extremely devastating...and also dramatically increase the probability of running out of money. Therefore, every client should demand a retirement plan that contains clear strategies to poptentially help them guard against suffering large investment losses and outliving your income.

Tax Efficiencies - Everyone's least favorite uncle is a man named "Uncle Sam". No one truly enjoys paying taxes...whether an ordinary income tax, capital gains tax, or tax on dividends and/or interest. John D. Rockefeller once said; "The fastest way to accumulate wealth is to make sure you never pay tax on income you don't use." That may be one of the most brilliant statements I've heard, aside from Einstein's theory on compound earnings. Therefore, a successful retirement plan should entail two pieces. First, money should grow with as little (or no) tax consequences as possible. Second, income should be received in the most tax-efficient way that is legally possible. The truth is we cannot beat the unbeatable opponent (the IRS). However, this is where working closely with qualified CPA's is a key component.

Income We Cannot Outlive - With the explosion of baby boomers and the improvements in modern medicine, today's life expectancies are greater than ever. When Social Security was enacted in 1931, the average life expectancy for a male was approximately 59 years...and yet Social Security didn't start paying benefits until age 62 with full benefits at 65! Today the average male's average life expectancy is approximately 85 years...so you can see why we are having such a tremendous battle with Social Security benefits. Many studies show that by the year 2030, more than 2/3 of the people alive (in the U.S) will be over the age of 60! Therefore, the message here is that retirement plans today should have an outlook consisting of a minimum of 30 years.**


Income Growth Potential - In order for your income to grow, a retiree's assets must grow at a rate that exceeds the withdrawal rate. This means that investing a portion in the stock market plays a vital role in retirement planning. Many think they can accomplish adequate retirement income by simply investing in bonds and CD's, but that is usually not the answer. For example, when considering investing in bond's or CD's, and factoring in inflation and taxes, using these income-producing investments may not accomplish the growth you need over the long haul (especially considering the fact that interest rates over the past decade have been historically low). This is where the demand for professional money management plays a key role in a financial planner's retirement strategy.

Maintain Control - A successful retirement plan should be able to provide the income needed for the entire duration of your golden years. In the old days, this could only be accomplished through an annuity. The huge downsides to these "old school" annuities were that the retiree would give up the two most important things...control and access to the money. In other words, an annuity would pay a fixed income for life, but there would no longer be access to or control of these monies. Not a good option! In a retirement plan, clients should demand total control over assets, both during accumulation and distribution, so that they can choose how and where to invest or spend these hard-earned monies.

Maintain Access - Similar to the previous demand for control, clients should demand access to money in the event of need. Although every retirement plan should include setting some monies aside for unexpected events or emergencies, sometimes life brings about severe changes for which no retirement plan is prepared.
Because there are so many moving parts in typical retirement lives such as health, interest rates, taxes, inflation, health care costs, long-term care needs, etc., clients need to be certain money is not "locked up" in the event access is needed.


Full Transfer to Beneficiaries - Another common theme is the importance of leaving a legacy. At a bare minimum, every retirement plan should demand that there is a method in place to help whatever money is not spent pass efficiently on to children, family, loved ones or charities.

Professional Supervision - Retirement should be one big vacation, where one gets to enjoy things such as traveling, dining out, buying nice things, gifting or spending money with families, donating, etc. The very last thing clients should be focusing on in retirement is worrying over money and the financial plan. In every important aspect of our lives, there are professionals who are passionate about taking care of us. Therefore, clients should demand to enjoy retirement, and leave the worries about finances to the professionals.


Consolidation - When clients retire, the last thing they want to do is receive multiple statements from many different companies. In my opinion, a retirement plan should adopt a philosophy of "putting all your eggs in one basket". However, first be sure you know as much as possible about that basket. Then, make sure someone is watching over it very closely. Having your finances consolidated in retirement may help create easier management of your financial life.

*McKinsey, 2006
**Fidelity Advisor 2006 Survey of Investors at Retirement