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A Plan for This Next Week and the Next 8,000 Days.

My wife accomplishes a seemingly simple task every week in what I now consider record time. She sits down, looks at our calendar, and plans out the meals for the week. She uses this plan to create a grocery list. Early in our marriage, I was sometimes tasked with grocery shopping. I would take the list, go to the store, and come back with “most” of the items on the list and some “additional” items that I felt were important such as cookies or capers. For many Americans, planning for retirement is much more daunting than simply shopping for the week’s groceries. However, there are some important lessons to be learned.

Make sure you have the essentials covered, and then plan for everything else. My first mistake as a grocery shopper was that I started by looking for things I was familiar with instead of items on the list. I focused on less important items and ignored items crucial to the plan. The most essential part of any financial plan should be an estimate of your annual costs to stay alive. This estimate should include the cost of necessities like food and shelter. You’ll also want to consider the costs of items such as hobbies, travel, or holiday presents. Any plan would also be incomplete without having a plan to pay for non-recurring significant out-of-pocket expenses such as a new car or replacing a roof. Every plan should consider the unique stages of retirement and how consumption patterns may change as the retiree ages. Next week we will closely examine each of these categories and legacy giving to see how retirees may accurately estimate these costs.

The financial plan must also include an assessment of risks that exist in retirement. Some of these risks may have been previously addressed. However, many financial risks are unique to retirement. For instance, a young family may be primarily concerned with the financial impact of sudden death in their family. However, as people age, they may be more concerned with living too long instead of dying too soon. It is essential to identify all known risks and establish a plan to address those risks as retirees age. We outlined many of those risks last year here.

The weekly grocery plan does not include items for one meal but rather a plan for the entire week. It accounts for things like eating out, or kids not being home for every meal. We have different items available for breakfast than we do for lunch or dinner. A retirement plan should account for every year of future expenses. For instance, year five is likely to look different than year 20. Each year may look somewhat similar to the adjacent years but likely will look significantly different from what came 10 or 15 years earlier. Each year will probably have different sources of funding for the expenses. For instance, a retiree may work part-time in their early retirement, claim their Social Security benefit at age 70 and then have a longevity contract that pays for additional expenses beginning at age 85. Another prospective retiree might choose to work full time for an additional three years but then claim their Social Security benefit immediately. Of course, each person is unique, so the examples and permutations are endless.

Finally, I learned from my wife that having a shopping list is only step one. Groceries must be purchased, but then meals must be prepared. We also need someone to set the table. When we finally sit down to eat, the community there is a community that has come together to prepare and enjoy our meal. In the same way, having a financial plan without having a team to work with you through all that needs to be done can feel daunting. You may discover that you must diversify your income streams for tax reasons beginning at age 72. You probably would like someone to help you figure out how to do that! The point is that the community you take into retirement is likely as important as the financial plan itself.

Michael French

Author: Michael French, Senior Vice President of Investments