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Financial Independence

Celebrating the July 4th holiday and America’s independence always gets me thinking about personal financial independence and freedom. Especially as many of us work toward the American dream of a comfortable retirement. 

Speaking of retirement, you may notice a new income projection shown in the quarterly statements you receive from your employer-sponsored 401(k) plan. Known as the Lifetime Income Disclosure, this estimates the monthly payments to you and/or your spouse after you retire. The idea is that, just as you can look at your Social Security statement and determine the best time to take that benefit, you can now look at your retirement statement and have the same knowledge of what your income will look like at the age you decide to retire. 

Sounds easy, straightforward and simple, right? (I know you’re laughing…). I’m not saying that an estimate of what you can expect during your retirement shouldn’t be included. However, this is a long way from truly informing investors about how this will actually apply in the real world of retirement dollars. 

The calculations used to determine this number are based on generalizations about how long you’ll live. Depending on how long you actually live, things could look very different! And with current inflation numbers being what they are, that could significantly eat into your future buying power as well. Like all data, it’s garbage in/garbage out. 

We can have a conversation with you about how that number should be interpreted in terms of how it fits into your overall plan, but keep in mind that there are many variables. If the number looks low, please don’t freak out and think you’ll never be able to retire. Come talk to us first so we can look at how this number could change, and how you’ll actually use these funds in retirement. These calculations aren’t necessarily accurate as to how you’ll use the income in your unique life situation, as your retirement income will likely come from a multitude of sources. 

Please let us help you decipher this! Every person is different. Very few clients spread their nest egg out evenly over each year of retirement. Most retirees spend their money in a horseshoe fashion – they spend more at the beginning when they’re active & traveling/hosting guests, then they spend less as they slow down, and then spend more when they advance in age and need increased medical care. 

This reminds me – in a few weeks, I’ll be heading to Maryland with my extended family to celebrate my Great Aunt Sunny turning 100 years old. I can tell you that when she first retired, her initial retirement plan showed her living to age 100. (And yes, I do plan to ask her about this!) In addition to celebrating with her, I’m looking forward to interviewing her about all of the changes – in the world and in her finances – from when she first retired until now, and how her planned retirement expenses have panned out over the first 40 years of her retirement – she’s still going, after all! She doesn’t drive anymore, but she does still enjoy life on her farm. 

I’m hoping to glean some pearls of wisdom (and perhaps a few laughs) that I can share with you about how Great Aunt Sunny has faced the challenges and experiences as a retiree. I don’t know for sure, but I doubt she thought her retirement income would actually have to last 40 years! 

Until then, enjoy the long weekend celebrating our freedom, and as always, let us know if there’s anyone you think could benefit from working with our team as they strive for financial independence. First meetings are always complimentary. 

Article by David Smyth, Senior Partner at Family Financial Partners — a financial services firm in Lexington, Kentucky.

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