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Steps That Should Occur in a Proper Retirement Planning Process

The Goal of Retirement Planning

The goal of retirement planning is to develop an optimal strategy to convert retirement assets into sustainable income for however long the retiree lives while not overspending or underspending so the retiree can live a life of maximum contentment and happiness and free from regret and fear. Following a proper retirement planning process will give retirees the best chance to achieve this goal.

It may surprise you there is no universal, generally accepted way of conducting retirement planning.  The quality of the retirement planning process, deliverables, and experience can vary significantly from one financial advisor to another. Unfortunately, this is a case of buyer beware. Fortunately, you will know and be ready with what to expect from a quality advisor and retirement planning process.      

Looking Back at Retirement Planning

Retirement planning is still a relatively new field within wealth management.  Especially in the area of generating retirement income.  The wealth management industry traditionally focused only on accumulating assets without applying further thought to the differences that happen after retirement. As a result, advisors in the industry often think of retirement planning in an overly simplistic way that usually consists of employing some form of the following steps: 

  1. Ask you for your goals, usually expressed as a withdrawal rate on your investment portfolio.
  2. Ask you to fill out a questionnaire to measure your risk tolerance, most likely relating to only one of the five risks retirees face -- investment risk.
  3. Based on the results in steps 1 and 2 above, they would recommend some asset allocation mix of stocks and bonds (say 40% stocks and 60% bonds, for instance).
  4. They would then run a Monte Carlo analysis programmed with some unknown set of assumptions, based on an impressive-sounding 10,000 simulations, and then print out some 50-page report full of data that would show you that you have an xx% chance of succeeding.

Thankfully, retirement planning has come a long way in a short time. However, it is unfortunate that far too many advisors still follow some form of this woefully inadequate process and call it retirement planning.  There are a number of potential reasons why many financial advisors have failed to progress.  For more on those reasons, refer to Thrive Retirement Specialist's Guide to Choosing a Financial Advisor.

A Proper Retirement Planning Process

A proper retirement planning process still involves some of the steps and tools above but is FAR MORE comprehensive and ongoing. Further, it focuses on the individual and their vision of what an ideal retirement looks like rather than on the investment portfolio. Following is a summary of the steps you should see in a proper retirement planning process:

1). Assessment of Authentic Goals

Here, your advisor should seek to go beyond the simply stated goal of "I want/need x% from my portfolio" to uncover your authentic goals. Your authentic goals are your real motivating goals based on your values and ideal vision of retirement. Your values and ideal vision of retirement will drive your actions in retirement anyway, not your stated goal. Retirement planning done well allows you to transform your values and ideal retirement vision into financial goals so a retirement plan can be constructed that is congruent with and supportive of these values and your vision for retirement. 

2). Assessment of Willingness and Ability to Accept Risk

The very act of retiring subjects a retiree to four other unique risks aside from simply investment risk, which is traditionally the only risk considered. Those other four risks are 1). spending risk, 2). sequence-of-returns risk, 3). purchase power risk, and 4). longevity risk. You should take the time to understand your feelings toward all of these risks to which you will be subjected. A proper retirement plan will seek to manage the risks to which you feel averse to a level you find palatable so that you can feel at ease, thereby increasing the probability of staying on course with the plan. Two dimensions of risk evaluation must be measured: risk tolerance and risk capacity. A retiree's risk tolerance is their willingness to accept the risk, whereas a retiree's risk capacity is their ability to accept the risk. Additionally, any emotional constraints should be explored and evaluated here as well.  See Thrive Retirement Specialists' Insight entitled "Evaluating the Big Five RetirementTM Risks" for more on this topic.

3). Evaluation of All Retirement Assets

A retiree often has far more assets available to them than simply their investment portfolio when it comes to meeting retirement goals. Taking full stock of all a retiree's income sources and assets can allow for a better-constructed retirement plan as certain assets and income tools are better suited for different goals. An advisor should look beyond just the traditional financial assets to take stock of all available assets that could be considered and utilized, including those under the category of 1). Human Capital, 2). Real Estate and Home Equity, 3). Financial Assets, 4). Insurance, and 5). Social Capital.  See Thrive Retirement Specialists' Insight entitled "Using ALL Retirement Assets to Maximize Your Outcome" for more on this topic.

4). Development of Retirement Spending Plan

Your retirement spending plan is a detailed estimate of how you will spend money in retirement to support your goals and ideal retirement vision. It is this plan that will allow you to evaluate trade-offs now and as you progress through retirement. The intent should not be to hold you accountable for spending exactly as your plan dictates at a detailed level; rather, it should be to make sure you consider everything to ensure you have enough retirement assets and a strategy to meet bottom-line spending needs. All expenses should be calculated monthly and annually, labeled as fixed or variable, and placed under one of four categories: 1). Essential, 2). Discretionary, 3). Contingent, and 4). Legacy.  See Thrive Retirement Specialists' Insight entitled "How to Create a Retirement Spending Plan" for more on this topic.

5). Connection of Retirement Assets to the Retirement Spending Plan

First, your advisor should consider how each retirement asset from your list could become income and then categorize the asset under one of three category types of income: 1). Reliable Income, 2). Investment-Based Income, or 3). Reserve Income.  The objective then becomes flushing out the details for how each retirement asset income type can combine with available tools and tactics in a way that most effectively funds your retirement spending plan goals while not exceeding your willingness and ability to accept risk.  

6). Development of a Sustainable Spending Strategy

The development of a sustainable spending plan is achieved when the trade-offs and determinations made in step five have been tested to show that all spending can be funded by plan assets within a "suitable" probability of success over your chosen planning horizon. The probability of success is measured using Monte Carlo simulation analysis, and what is deemed "suitable" is based on unique personal circumstances. As part of this test, an initial withdrawal rate must be determined, and a stock-bond asset allocation mix must be selected for the investment-based assets portfolio.  See Thrive Retirement Specialists' Insight entitled "Dynamic Withdrawal Rules -- Higher Withdrawals With Less Risk" for more on this topic.

7). Development of an Investment Portfolio for Investment-Based Assets

For Investment-based assets to be an effective source of retirement income, the investments must be structured and managed properly. Much value can be gained or lost at this step. Having a firm understanding of your advisor's investment philosophy and portfolio construction is critical. The difference in investment fees between an advisor practicing an active investment philosophy versus one employing a passive investment approach simply trying to match the market's returns using low-cost index funds can be 1.00% to 2.00% or more. This is a material cost differential, especially given the volume of overwhelming evidence that shows active investment strategies are rarely worth the extra investments expense. And this is before taking into consideration the high potential cost of not having a maximally diversified portfolio. Investment management and portfolio construction matter a great deal.  See Thrive Retirement Specialists' Insight entitled "Total Cost of Investing -- The Easiest of Retirement Optimization Strategies" for more on this topic.  

8). Execution and Establishment of Intervals for Plan Update and Review 

While it is a lot of work to get to this final stage of completing an initial retirement plan, it is just the start of your retirement journey. Life will begin to happen, and variables will change. Some can be controlled, such as lifestyle goals and investment expenses, and some cannot, such as health changes, actual market returns, tax code changes, and the realization of unplanned contingencies. It is important your advisor meet formally with you on an annual or semi-annual basis to update these variables that feed into your plan so small corrective steps can be made in real-time. Sometimes that may mean you can work with more, and sometimes that may mean having to work with less necessitating further trade-off decisions. Still, at least problems will not be allowed to compound and lead to the need to make potentially disruptive lifestyle changes later in retirement.

Do Not Sacrifice Quality of Life While Living

As you can see, a proper retirement planning process is far more comprehensive and ongoing than what is traditionally being done in the name of retirement planning.  The traditional route taken by most financial advisors has, in essence, led retirees to believe they have to fund essential expenses, discretionary expenses, contingent expenses, and legacy gift expenses all from the same single source, the investment portfolio. The investment portfolio is also often the only tool that is looked at to manage a retiree's risk, which is why investment risk is predominantly the only risk they consider and attempt to manage through the asset allocation decision.  This has led retirees, especially those with higher risk aversions, to place too much emphasis on being overly conservative on their sustainable spending strategy decision. This has had the unfortunate unintended consequence of many retirees sacrificing quality of life while healthy and living only to pass, leaving a much larger than planned legacy.  

Advisors following a proper retirement planning process should be agnostic and consider every tool and tactic available to a retiree. This should include layering in other income sources or risk management tools to provide alternative retirement funding methods that help to de-risk the retirement from an over-reliance on the investment portfolio. The greater the reliance on a market-based investment portfolio, the greater the retiree's exposure to sequence-of-returns and longevity risk. Only focusing on the investment portfolio will not lead to optimal outcomes.  

If you would like to learn more about these steps, please see Thrive Retirement Specialist's whitepaper entitled "Guide to a Proper Retirement Planning Process." Additionally, if you have any questions, we would love to speak with you. Please feel free to reach out. 


About Thrive Retirement Specialists

Thrive Retirement Specialists is a retirement planning specialist dedicated to delivering a more thoughtful and strategic approach to retirement planning for those nearing or in retirement. We are a fee-only Registered Investment Advisor (RIA) offering a single, flat-fee service entitled ThriveRetireTM that goes far beyond what has traditionally been known as retirement planning.  ThriveRetire™ is an engaging ongoing eight-step retirement planning process and investment management service that seeks to identify all risks, assets, tools, and tactics to develop an optimal retirement plan designed to support your ideal retirement lifestyle and goals to the fullest extent possible.  With every interaction, we seek to inform and serve, so our clients can safely trust their ThriveRetire™ plan and process leaving each client with the confidence and peace of mind to live a vibrant and full life through retirement.  

About Anthony Watson, CFA, CFP®

Prior to founding Thrive Retirement Specialists, Tony spent eight years serving as the Chief Investment Officer of a firm where he provided advice and investment management services to over 600 individuals representing at the time over $1.5 billion of investments. Before this, Tony served as Vice President at J.P. Morgan Private Bank where he advised high- and ultra-high net worth individuals on all matters of wealth including investments, portfolio construction, portfolio management and retirement planning.

Tony lives in Dearborn, Michigan with his wife Dawn and daughters Emma and Anna.


  • BBA in Finance, Walsh College
  • MBA, University of Michigan, Ross School of Business


  • Chartered Financial Analyst (CFA)
  • Certified Financial Planner (CFP®)

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