Thinking like an engineer means you plan for retirement differently.
Hi, I’m David!
As a former engineer at Lockheed Martin, SpaceX, Raytheon and other aerospace and defense companies, I understand what individuals with an engineering mindset are looking for when they’re planning for retirement.
As a fiduciary financial planner at Wise Wealth, my mission is to answer all your retirement questions, even the ones you don’t know to ask.
If you’re like me, you probably:
Challenge assumptions.
Like data & transparency (i.e. “where’s my spreadsheet?”).
Want to see “how it’s made”.
Care as much about the process as the product.
Take time to evaluate future risks.
Examine the full problem and want to see a holistic action plan.
Ready to Engineer Your Retirement?
What Is Engineering My Retirement Plan?
When I worked as an engineer to design aircrafts, I followed a fairly defined process, some of the highlights were:
Understanding Engineering Principles (i.e. thrust, drag, acceleration).
Defining Goals or Desired Outcomes. (flight time, weight, speed, etc.)
Planning for Risks & Constraints (software, weight, obstructions, etc.).
Integration (Is the flight computer talking to the engines?).
Developing the product / plan (test article, prototype, etc.).
Execute A Flight Test (Get the bird in the sky!).
Evaluate flight test, Incorporate lessons learned and test again.
Similar to designing aircrafts, when you’re engineering your retirement plan, I’ll guide you through our retirement planning process:
Understanding The 5 Principles of Retirement Planning.
Clarifying Your Goals And What Retirement Looks Like To You.
Planning For Your Retirement Risks.
Ensuring Forward Looking Tax-efficient Integration Across Your Income Sources.
Developing A Simple, Effective Retirement Plan.
Execution, It’s Time To Put Your Retirement Plan Into Action.
Evaluate How Your Retirement Plan Is Going And Incorporate Lessons Learned.
5 Principles To Engineer Your Retirement Plan
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No Investment Decisions Outside The Context Of Your Plan
There is a place for almost every investment, and every investment can be put into places where it should not be. Proper investment placement will depend in large part upon the context of your plan.
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The Plan Determines The Products
Generally speaking, there are three types of products: bank, brokerage and insurance products. The plan determines the products you need, and will vary based on the purpose, whether it’s for liquidity, income or growth.
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Don’t Let Your Portfolio Take A HIT (Health care, Inflation, and Taxes)
Three of the biggest risks that people in retirement need to address are health care, inflation and taxes. As people live longer, we must make sure that health care, taxes & the ever-increasing cost of living will not begin to erode the quality of your lifestyle, and your portfolio should grow sufficiently to keep pace.
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Protect The Income, Grow The Rest
In retirement, your income should not be exposed to risk, and your assets should be safeguarded to produce your desired income. You may find the reassurance that you have gained from securing your income will give you the freedom to invest more aggressively for growth.
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Financial Peace Comes From Having A Plan
Engineering Your Retirement Plan gives you the opportunity for financial peace. No product, investment, asset allocation or risk profile can provide that for you. Financial peace comes from knowing that you have anticipated and done your best to manage all the risks that may face you in retirement.
Clarifying Your Goals And What Retirement Looks Like To You.
Retirement Goals Are Typically Divided Into Living Expenses & Lifestyle Expenses
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Living Expenses
Living expenses are all the expenses you have to meet your basic necessities, such as food, water, gas, electricity, mortgage, etc.
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Lifestyle Expenses
Your lifestyle expenses are everything over and above your living expenses, such as memberships, travel, etc.
Retirement Risks
While everyone’s retirement risks may vary, there are common risks among all retirees.
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Longevity Risk
It’s no secret that we are living longer. Longevity risk is the risk that you may outlive your money. Longevity is also seen as the risk multiplier, because every year you live longer, all of the other retirement risks become greater.
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Health Care
As people are living longer in retirement, health care becomes a pressing concern for many. According to Fidelity, an average retired couple age 65 may need approximately $300,000 saved (after tax) to cover health care expenses in retirement. *This does not include Long Term Care.
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Taxes
While you are working, you’ve likely been putting money into pre-tax retirement accounts (401(k), IRA etc.) and enjoying the income tax break those contributions afford. As you approach retirement, though, many retirees wrongfully assume that their income & tax liability in retirement will be lower. Before retirement, designing a tax-effective income plan, incorporating Required Minimum Distributions, Social Security & Medicare premiums, may help reduce your future tax liability.
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Stock Market Volatility
During your working years (accumulation phase), the volatility of the stock market likely wasn’t a concern because you didn’t need your portfolios to produce income. Now that you enter the distribution phase of retirement, however, the sequence of your returns in the market will have a profound impact on your retirement, and could mean the difference between a sizeable nest egg or running out of money.
4 Strategies to Engineer Your Retirement Plan
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A Holistic Income Strategy
During the accumulation phase of investing, you’re generally focused on Return On Investment (ROI), during the distribution phase of investing, there is a paradigm shift to Reliability of Income (ROI).
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A Market Readiness Strategy
During your working years, while your contributing to your retirement accounts (401(k), IRA etc.), you’re focused on growth in the market. As you get closer to retirement, pre-retirees focus on opportunities that protect their income, eliminating the sequence of returns risk.
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A Forward Looking Tax Planning Strategy
While you are working, you’ve likely been putting money into pre-tax retirement accounts (401(k), IRA etc.) and enjoying the income tax break those contributions afford. As you approach retirement, though, many retirees wrongfully assume that their income & tax liability in retirement will be lower. Before retirement, designing a tax-effective income plan, incorporating Required Minimum Distributions, Social Security & Medicare premiums, may help reduce your future tax liability.
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An Estate Planning Strategy
As your career and life progresses, you might find family changes take place, such as having children, or taking care of a loved on. When life goes in to transition, money goes in to motion. During your later years, it’s equally important to plan for those unfortunate events, and how you or your family will be protected, and how your assets will pass down to the next generation or causes you care about.
3 Buckets To Engineer Your Retirement Plan
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Liquid Bucket
The money in your liquid bucket should be enough to cover emergency reserves and known purchases/expenses within the first few years of retirement.
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Income Bucket
The assets in your income bucket needs to produce a steady income throughout retirement. As such, you should use the least amount of assets necessary to produce the guaranteed level of income that you need/want.
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Growth Bucket
The remainder of your assets are in the Growth Bucket, and should be invested so that you take the least amount of risk to generate the rate of return for your long term goals.
2 Keys To Successfully Engineer Your Retirement Plan
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Time
Time, not timing, is what matters. When deciding to invest in anything, it’s crucial to understand your time horizon. For example, if you invest in the stock market with a short time horizon, you might be disappointed in the returns. So your investment decisions should take your time horizon into account.
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Discipline
As with most investments, there are times when you question if what you’re invested in is right for you. Even though markets may move up or down, stay disciplined in your approach, and only make changes if your plan dictates a change.
1 Page Plan To Engineer Your Retirement
Now that you know the guiding principles to engineer a retirement plan, it’s time to put it all together. Everyone deserves to make an educated and informed decision regarding their retirement plan. The most effective way to engineer your retirement plan is to develop a one page plan that:
Addresses all of your concerns (longevity, health care, inflation, stock market volatility, taxes etc.)
Develops a tax-efficient retirement income.
Provides action oriented guidance on your investment strategy.
Details a forward looking tax planning strategy to reduce future tax liability.
Ready to Engineer Your Retirement Plan?
We have simple and defined 3 step process to Engineer Your Retirement Plan:
Step 1: Schedule a Complimentary Discovery Call
During the call, we will discuss any questions you have about your retirement plan and how David and his team might best be able to serve you. As you approach retirement, the decisions you need to make can appear intimidating and endless. The aim of our team is to simplify this decision making process as much as possible.
Step 2: One Page, Actionable Retirement Plan
At the end of the discovery call, you will have one simple decision to make: "Does it make sense for David to create a free one page retirement plan for me?"
Step 3: Implement The Plan
After you have your retirement plan in hand, you only have one additional decision to make:
Should I implement this plan myself? OR Should I hire David & his team?
That's it!
Looking forward to our call!
David Sandhu