Retirement Is Simple

A comfortable retirement can be boiled down to one deceptively simple question: how much cash flow do you need for the rest of your life? The math looks easy — until inflation, taxes, health care, and emergencies enter the picture. In this video, Jonathon Taylor walks through how to rein in the variables you can and can’t control, and how a diversified, tax-aware plan turns savings into income that lasts.

Video transcript

Jonathon Taylor here for Patriot Asset Advisors. I’ve got a little thing about retirement I want to put out to folks. A comfortable retirement can be reduced to one simple question: how much cash flow do you need for the rest of your life? How simple is that? So do the math — here’s what I spend every year, multiplied by so many years, equals what I need. Right? Well, we all know it doesn’t work like that. Let’s make a short list of why: inflation, taxes, health care, emergencies. These are just a few of the things that can disrupt your plan.

So what does a person do? You plan for what you know, and for what others before us have discovered. Some of those unknowns can at least be anticipated: your cost of living will increase, most of us believe taxes will change, and in your golden years your health will change — and so will the cost of your care. The variables we face in planning for retirement are many, and mainly out of our control. So we plan for the main areas that reduce your retirement cash flow: inflation, taxes, health care, and independence.

Managing inflation with asset allocation

If your dollar doesn’t grow faster than inflation, the erosion of buying power reduces its value — and that’s a control within your reach. You don’t want to lose your dollar, but watching inflation erode it won’t serve your retirement lifestyle either. A diverse portfolio that smooths out the ups and downs of economic cycles can add peace of mind to a reliable cash flow. Every portfolio needs a solid foundation — the base of your net worth. Nothing very exciting happens here; these holdings don’t change much in value, but they’re consistent in what they produce: interest and predictable cash flow. Next is the working section of your portfolio, which produces value through interest, income, dividends, and price appreciation, with modest risk. Finally, a portion assumes more risk without harming your cash flow and lifestyle. Generally, in any market cycle, one or more of these groups is beating inflation and keeping pace with purchasing power. That’s the process of making a sum of money last a lifetime.

Building a tax strategy

If you don’t have a well-thought-out tax plan, the government has a plan for you — and you won’t be happy with it. Work with a professional to develop a tax strategy. Over 30 or more years in retirement, thousands can be saved with a good one. Which account do you withdraw from, and when? Those are just a couple of the questions you need answered. A tax expert will help you take advantage of every part of the tax code to keep more dollars in your account. Remember the old saying: it’s not what you make, but what you keep.

Planning for health care and long-term care

The concern that’s grown is aging and the escalating cost of health care. Health insurance costs and coverage won’t improve; Medicare and supplement insurance increase every year, and the cost of care is growing faster than inflation. So what do we do? One option today is insurance — the industry has designed life policies with a rider that will pay you a monthly amount for a certain period when you qualify for long-term care. Staying in your home is the most comfortable and affordable option, but in-home help can easily cost $5,000 a month, and a care facility with a semi-private room can run about $10,000 a month, depending on your area. And remember, when you realize you need insurance, it can sometimes be too late. Some of us are fortunate to have friends and family who will help provide care when needed.

There’s no one answer that works for everyone. A financial plan is custom to your lifestyle — no two people are alike, and we all have different dreams for the future. The best plans are versatile, flexible, and forgiving. I always like to end this topic with a quote from the famous boxer Mike Tyson: “Everyone has a plan until you get punched in the mouth.” Life throws some pretty hard punches, so make sure your plan can take a punch or two.