As a Federal Government employee, you may be eligible for an inflation adjusted pension as well as other retirement benefits. The pension and benefits are typically superior to those available in the private sector, but the end goal in planning for retirement is the same: making sure you have enough money in retirement to live comfortably.
Let’s go through an example of how we can help you put together a plan that allows you to understand your options as you work towards retirement and help you remain on track to retire.
The Case Study
To walk you through an example of what it’s like to work with Minerva, we’ll follow John and Diane. They are a married couple and both work for the Federal Government. They also have three grown children, but not all are completely financially independent. John and Diane are 55 and want to retire when they’re 60. With five years to go, they want to make sure their finances are in order.
Like many pre-retirees, John and Diane realize that there are a lot of things to consider before retirement:
- Can they maintain their current lifestyle?
- How will they pay for healthcare costs?
- Will they be able to pursue hobbies and bucket-list items now that they’ll have more time?
- And most importantly, do they have enough money to last their lifetime?
These are key questions and they want to avoid mistakes, so they’ve decided to reach out for help. We’ll help John and Diane understand their options, make sure their goals are being met, and help them stay on track.
Step 1: Understand Your Goals and Priorities
Financial planning is a very personal process. Naturally, every couple has a unique list of priorities and vision of what their life will look like during retirement. It makes sense to map out your financial goals and understand what you want your unique retirement to look like.
The first thing we’ll ask John and Diane is what is most important to them over the long term. They may want to travel more or live debt free. Although their children are grown, they may still need to provide some help or they may want to provide their children the push needed to live completely independently.
What are their priorities? Healthcare might be a particular concern due to pre-existing conditions. They might want to leave a legacy for their kids or grandkids, so they’ll need to plan for that.
Once we understand their longer-term goals, we’ll focus on the short term to understand what they want to accomplish in the next two to five years. They’ve already mentioned that they want to retire in five years, so we’ll focus on setting up their finances in a way that allows them to retire comfortably and on time.
Understanding John and Diane’s must-haves is key in setting up a framework that will help them achieve their goals.
Step 2: Retirement Check-Up
John and Diane’s biggest and most immediate priority is retiring in 5 years, so we’ll need to ensure they have a plan to make it happen. Steps in the retirement ready checklist include:
- Detailing lifestyle goals and ambitions, such as downsizing, traveling, or possibly working part-time.
- Identifying key ages, including the age each would like to retire and their expected longevity.
- Filling in the gaps if our analysis shows that their current savings will fall a little short. We’ll work with John and Diane to identify additional cash flow so they can increase savings and further, we’ll determine the vehicles to use for those savings
- Planning for healthcare needs by including likely costs for Medicare, FEHB benefits, or some combination of the two.
- Estimating taxes for retirement and identifying strategies to reduce taxes over the course of retirement.
- Reviewing other insurance, including long-term care insurance and life insurance to determine if coverage is appropriate.
- Analyzing the current asset allocation as well as investments used to build the allocation to ensure John and Diane’s investment approach aligns with their plan needs.
Like a health check-up at the doctor’s office, a thorough review of their current finances gives us a solid foundation to build on. It can also instill John and Diane with confidence that they can retire soon and show them how their plan may need to change.
Step 3: Create A Current Cash Flow Plan to Support Their Goals
One thing that’s often overlooked during working years is cash flow. When income is coming in and salary increases occur periodically, it’s easy to pay less attention to spending. As you approach retirement, understanding what you’re spending is key, so we’ll work with John and Diane to build a sustainable retirement budget.
One of the biggest expenditures for most people is debt payments and John and Diane are no exception. They currently have a mortgage and two auto loans, but cash flow leading up to retirement may allow them to pay that off.
They also regularly help their children. Instead of cutting them off completely, we’ll work with them to find a sustainable path to financial independence for their kids. Barring that, we’ll look at how much they could afford to provide their kids in retirement.
This type of exercise serves two purposes – it requires gathering necessary data (how much you need to live on) and it helps you build the discipline of tracking your spending. Knowing how much money you have coming in and what it’s being spent on will help you remain within the targets set in your financial plan. And as your spending becomes predictable, it is possible to build a withdrawal strategy that meets your needs in the most tax efficient way.
Step 4: Design an Estate Plan
John and Diane’s children are one of their top priorities. They want to be able to support them, but they don’t want that support to jeopardize the retirement they’ve spent decades working towards. While they have a plan in place to provide support during retirement, they also want to leave a legacy.
The legacy might entail setting up a trust for their grandchildren’s education or leaving a large amount to charity. Regardless of how they want to be remembered, putting together a retirement plan offers the chance to plan for the very long-term as well.
Step 5: Ongoing Maintenance
Even the most detailed plans need regular maintenance. With Minerva, John and Diane can expect us to check in regularly and make sure they are staying on track. Whatever happens, our primary aim is to make sure that their plan is comprehensive and provides a viable path to the retirement they envision.
Do you need help putting together your plan, too? Schedule a free consultation to get started.