The Seven Steps to Discovering a Great Retirement

Well, we may have a new contender for “best retirement book”!

For years I have recommended How Much Money Do I Need to Retire? as my top retirement book. It’s an awesome book and one of the handful that I’ve ever read 3+ times.

The book made my list of the only five money books anyone needs to read — it’s that good. Plus I know the author personally. He’s a very intelligent guy and I trust what he says 100%.

That said, there’s a new and equally awesome book on retirement out now called Your Complete Guide to a Successful & Secure Retirement that is giving the other book a run for its money!

I heard the book’s author, Larry Swedroe, on a podcast (can’t remember which one) and he is pretty impressive. He started dropping truth-bombs all over the place and then had the nerve to back them up with statistics! Imagine that!

One of the things I like about the book is that it deals with not only the financial issues of retirement, but all the others too — especially the emotional aspects, which are more significant than you might imagine.

So I contacted the book’s publisher and they graciously allowed me to share an excerpt from the book today.

As I’ve started my retirement interviews and we’re all seeing what happens from starting to think of retirement to being retired several years, one question keeps popping up from the non-retired crowd: how will I know when I’m ready to retire?

That’s what today’s excerpt will address.

It covers an area the author calls “discovery”, something done prior to retirement to make sure you’ve thought through and planned for the various issues. He describes it as follows:

It (the discovery process described below) is the foundation to a well-thought-out and documented financial and life road map.

It will provide you with a systematic process to develop a well-thought-out plan that incorporates your road map, providing the greatest likelihood of achieving your goals, rather than a hodge-podge of investments, insurance policies, and often useless documents.

If this is all you would ever get from this book, it’s worth reading for this section alone.

But this only covers pages 22 through 27. There are still over 200 other pages that are equally amazing — so imagine the value in this book!

Anyway, I’m going to share the excerpt, then come back with my thoughts on it as well as a few other highlights from the book.

Enjoy this from author Larry Swedroe…

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The Seven Steps of Discovery

A well-thought-out process for Discovery includes a thorough review of the following seven topics relating to your family’s:

• Values
• Goals
• Relationships
• Financial assets and liabilities
• Advisors
• Process
• Personal interests

The Discovery process, while designed to be conducted with a wealth management professional, can successfully be completed with a spouse, partner, or trusted friend.

Doing it on your own will take some planning as well as requiring the other party to have skills at reflective listening and probing for more answers to their questions. They should never provide the answer to the question they are asking — even if it is your partner or your spouse.

A recording device can be helpful to professionals and non-professionals alike. This will enable the questioner to focus on your answers and think about the next question without having to write down each response.

There are never wrong answers to Discovery questions. Spouses or partners may disagree with their respective answers. That is perfectly alright.

Another helpful practice is to recognize that one spouse or partner may be more engaged than the other. The questioner should be alert to this situation and be sure to direct questions so that each participant contributes responses to the questions.

We will now explore each of the above seven areas.

1. Values

Values are qualitative thoughts and include what is truly important to you about money and finances. When thinking about values, it’s important to drill deep into each initial thought that you may have.

For example, when you think about what is important about money to you, your first response could be financial security. When you think further about what is specifically important about financial security and why it is important, you might say it is making sure your family feels financially secure. Or, perhaps you may say you want to maintain your current lifestyle through retirement.

Keep thinking about each successive answer and follow up with the thought of whether there’s anything else that’s more important than your last thought.

In his book, The Seven Stages of Money Maturity, George Kinder, considered by many to be the “father of life planning” suggests asking the following questions:

• Imagine that you are financially secure, that you have enough money to take care of your needs, now and in the future. How would you live your life? What would you do with the money? Would you change anything? Let yourself go. Do not hold back your dreams. Describe a life that is complete, that is richly yours.
• You visit your doctor who tells you that you have five to 10 years left to live. The good part is that you won’t ever feel sick. The bad news is that you will have no notice of the moment of your death. What will you do in the time you have remaining to live? Will you change your life, and how will you do it?
• Your doctor shocks you with the news that you have only one day left to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What dreams will be left unfulfilled? What do I wish I had finished or had been? What do I wish I had done? What did I miss?

Answering these questions will help you discover what makes you unique, what you long for, and what should be reflected in your planning.

2. Goals

Goals are more quantitative and tangible than values.

Goals typically would be financial objectives that you want to achieve to support your lifestyle during retirement. Goals might include being able to spend a certain amount of money for travel, or paying for your grandchildren’s education, or providing a specific legacy for your family, or care for another, or to support your societal values.

Goals should be quantifiable, actionable, and measurable. They should be date specific whenever possible.

You do not need to worry about how you will accomplish your goals at the time you do Discovery. That will be developed as you, or your professional wealth advisor, create your plan.

Questions you should consider include:

• What would you like your investments to achieve?
• When would you like to retire?
• What is your current income?
• What is its source?
• How stable is your income?
• What income do you need in retirement to fund the lifestyle you want?
• Where would you like to be when you are 50, 60, 70, 80, 90?
• How do you save or set aside money to invest? How is that likely to change in the next three years?
• Are you interested in leaving a legacy? If so, to whom and how much?
• What do you want to do for your children, parents, siblings, other relatives, friends, and society?

3. Relationships

Relationships are about those who are most important to you and your family.

These include your loved ones, close family members, a special charity or institution (perhaps an alma mater), or even a very special pet. These are those whom you could want to do something for, or perhaps they may want to do something special for you.

List their names, their relationship to you, and if a person or people, their dates of birth.

Consider asking the following questions:

• What are your important family member relationships?”
• Do you expect to support any family members or to receive an inheritance?
• Are there charities, institutions or organizations you currently, or will want to, support?

4. Financial Assets

Financial assets are the dollar values of your assets and your liabilities, including your expected Social Security and other pension benefits.

You should prepare a personal financial statement or engage the services of a wealth advisor or CPA to help you prepare this important document.

This is necessary for you to determine where you are today in relationship to your being able to live a lifetime in the lifestyle that you wish, with a very low probability of outliving your assets.

You should gather documents such as:

• Income tax returns.
• Brokerage statements.
• Mortgage statements.
• 401(k) plan statements.
• Insurance policy contracts for life, health, disability, property and casualty, and long-term care.
• Bank account statements.
• Estate documents such as wills, trusts, powers of attorney and health-care directives.
• Business documents such as buy-sell contracts.

In addition, ask the following:

• What assets do you own?
• What assets does your spouse own?
• What assets are jointly owned?
• What assets are held in trusts?
• Describe your retirement plan.
• What life insurance do you have? Describe its type, face value, cash value, and ownership structure.
• What property — including real estate, art and jewelry — do you have?
• What new assets do you expect to receive (such as stock options or proceeds from sale of business)?

5. Advisors

It is important to think about the advisors that are currently in your life.

Typically, they would include your CPA, your private client attorney, and insurance professional.

Identify what you currently like and value about working with each of these professionals.

Next, think about what shortcomings may exist. What would the ideal advisor look like to you?

Specific questions include:

• Do you have an investment advisor or financial planner? How do you feel about the relationship?
• Do you have an attorney? How do you feel about the relationship?
• Do you have a tax professional? How do you feel about the relationship?
• Do you have a life insurance agent? How do you feel about the relationship?

6. Process

When you think about process, you want to focus primarily on how involved you will want to be if you choose to work with a wealth management professional.

How often will you want to meet or be updated on your plan? Do you prefer to be contacted by email or phone? Do you prefer meetings in person or through technology such as Skype or GoToMeeting? Are there any concerns about your other advisors?

More specifically you might focus on the following questions:

• How involved do you like to be in the investing process?
• What is the best way to contact you?
• How often would you prefer to meet with an advisor?
• Are there any specific issues an advisor should be sensitive to related to your financial confidentiality?

7. Personal Interests

Personal interests include your hobbies.

What sports do you participate in or follow? What are your leisure activities? Are there charities or philanthropic involvements? Do you have religious or spiritual goals and activities that you are currently engaged in, or would be interested in pursuing, either personally or professionally? Are there areas where you want to spend more of your post-retirement time — perhaps trying to make a difference in ways other than donating your money?

Be sure to ask these questions:

• What are your hobbies?
• Describe an ideal weekend.
• Do you volunteer at or donate to area organizations?
• Do you want to travel, and if so how often and to where?

The Family Profile

Once you and your spouse or partner have completed the answers to all of the Discovery questions, you should prepare an organized systematic list of your answers.

Buckingham Strategic Wealth creates a one-page family profile that summarizes all the basic information. You can do the same using a software product known as mind mapping. An often-used product is MindJet. See the example in Appendix A of a Family Profile created using a mind map process.

The mind map will enable you to capture all that you learned in Discovery, review the content, and easily update it as your life and finances change. It is also an essential tool to use when working with your professionals in creating and maintaining a financial plan, doing income tax and estate planning, considering risk protection strategies and developing charitable giving strategies. It should be a living, breathing document and reviewed each time there is a life change or event.

Summary

The Discovery process facilitates the crucial conversations that are necessary to develop an actionable and meaningful retirement life plan. Upon completion of the initial Discovery process, you will be well positioned to develop both your investment plan and strategies that ensure your plan is enhanced through customized income tax minimization, the prudent transfer of wealth to family members or charity, and protection from creditors and predators.

With that said, Discovery should not be thought of as having a single meeting and then you are done. Instead, it should be considered a lifelong process. The reason is that the assumptions we build plans on — our goals, values and important relationships — often change.

Thus, Discovery should be thought of as an ongoing process so that we make sure that the answers to the key questions have not changed in a way that would lead to altering plans.

Remember, as we discussed in the first chapter, having a successful life in retirement is more than about just financial issues.

The next chapter moves on to addressing the investment issues you will face, beginning with the all-important asset allocation decision.

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Lots of great stuff here, right?

A few thoughts from me:

• I like how comprehensive this is — and that it deals with both emotional and financial issues.
• The questions they suggest discussing are gold IMO. Just talking through these with your significant other will be so, so valuable.
• I also appreciate the note that this isn’t a one-and-done process. Things do change and as a result your answers/plans could possibly change. It’s best to revisit your ideas/plans/thoughts on a regular basis to make sure they are still valid given your current preferences.

In addition to the above, here are a few other tidbits I especially liked about the book:

• It lists what they call the “Four Horsemen of the Retirement Apocalypse” as 1) historically high equity valuations, 2) historically low bond yields, 3)increasing longevity, and 4) the risks of long-term care. They suggest that the failure of the government to fully fund Social Security is a fifth one that could be looming.
• They name nine retirement planning errors to avoid.
• Chapter 1 deals with all the non-financial issues of retirement — like giving up work, finding new purpose in life, etc. Very good stuff to consider before you take the plunge.
• They list 10 key elements of a fulfilling retirement. Very insightful.
• They detail four retirement planning tools (I would call them exercises) including 1) the bucket list, 2) start/stop/continue, 3)find the magic, and 4) visualizing your ideal day.
• They list four questions you need to answer “yes” to in order to be ready to retire.

These are all from Chapter 1 alone! Just think of all the other valuable content in the other 19 chapters!

I’m not going to go through all the highlights of those chapters or this post would be 20 pages long. But I do want to call your attention to a couple other issues they bring up:

• In chapter three they talk about what happens if things go poorly financially in retirement and they make a great case for having what I call margins of safety.
• In chapter 5 they explain why the 4% rule should be more like the 3% rule. This alone could save many people financial issues in retirement.

As you can tell, I loved the book! Has anyone else read it? If so, what are your thoughts?