The “run-up” period before retirement is probably the most important financial segment of your life. This phase, generally a few years to a decade before retirement is fraught with danger as missteps during this time have long lasting implications. Here are the four primary questions that you should ask yourself before you fully retire.

1. How much income will you need? You should have a realistic idea of the amount of monthly income you will need to sustain your lifestyle. Don’t assume that this future amount will be substantially different than it is before you retire. What would cause this amount to be less? more?

A common belief among many people in this life stage is that monthly expenses will be lower because of  substituting a smaller home for their existing larger home. This actually  is rare. Yes, many people do  downsize…in living space but not in price. Don’t let this common trap ensnare you.

2. Including income from Social Security and pensions (if any), what are your sources for producing this monthly income? How much will you need from your investments? Are your investments likely to sustain you to age 95 or beyond?

With increasing longevities, solving the retirement income question has become more difficult. Combine longer lifespans with the silent culprit of inflation and you have an even more difficult task.

Many clients have heard of the “4% Withdrawal Rule”. The research paper behind the 4% Rule was published in the late 1990’s by three professors at Trinity University in Texas (one of them, Philip Cooley was at USC in the mid 70’s-80’s). Their work mainly was aimed at determining a rate of withdrawal that could be set, fixed and   forgotten. While 4% might be a starting place, for most people, a more dynamic approach is recommended. That is, in good market years, you can withdraw more and in not so good years, you should withdraw less.

3.  Where will you retire? Where will you live? Many times when we ask couples where they plan to retire, we get two different answers. The immutable laws of physics don’t allow us to occupy but one place at a time. Choosing the “place” of retirement is crucial to being able to reasonably forecast your future financial needs.

4.  What would you be willing to change? What are your negotiables? Yes, this is where the nasty concept of tradeoffs comes into play. Relatively few individuals in the “run-up” phase prior to retirement are well prepared financially or emotionally for the myriad of challenges of retirement. In most cases, trade-offs will need to be made along the way. Consider what matters most and conversely what you might be willing to negotiate.

Financial life is where your life and your money come together. Financial life is always…more than numbers. Ready for a real conversation?

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