In Perspectives

For our purposes, Capital Adequacy is a very simple concept to understand: will I have enough money to meet my lifestyle expenses?  On a smaller scale, you have been doing this math your entire working career.  It is maybe what had stopped you from a lavish Caribbean vacation when you were a young family, living on one income.  It helped you feel good about your decision to finally purchase that boat you have been dreaming of for decades.  So, what is so daunting about this concept when you are considering retirement?  Now you will be transitioning to a fixed income of social security and whatever you or your company has saved for you, you do not know how long you will live, and unexpected expenses could arise at any time.  I have seen many articles with the rule of thumb being that in retirement you will need about 80% of your current income, however, what kind of lifestyle does that include?  What if you plan to travel frequently in retirement?  What if you plan to spend your free time volunteering at a local non-profit?  Rule of thumbs are great as a starting point but fall apart quickly when you start to apply it to each person’s unique situation.

The most accurate, but sometimes daunting, way of figuring out what you need in the future is to do a deep dive into your current income and expenses.  This might seem like an exercise in budgeting and, in a not-so-hidden way, it is.  Look at each expense and contemplate if it will be impacted by retirement.  Using my previous examples, if you did not have the time to travel while working but that is valuable to you in retirement, you will need to increase your budget in retirement for: travel, lodging, dining out, entertainment, and pet care.  If volunteering in retirement is your passion, you might see a slight decrease in gasoline expenses, depending on distance and frequency, professional clothing expenses, and dining out.  However, if it were me and I were to volunteer at the Humane Society, I would need to increase my budget for pet food and veterinary care as I would be sure to adopt another pet or two, or three…

If you are not one to budget and doing a deep dive into your expenses just isn’t your thing, there is another approach that relies on readily available information and academic research to determine if you are on track for a secure retirement.  Various studies have shown that a retiree can consistently withdraw between 3% and 5% of a properly invested portfolio’s beginning balance over a typical retirement timeframe without exhausting the portfolio.  Combining these research results with just a little thought about your current income and anticipated retirement expenses, we can do a pretty simple assessment of how prepared you are for retirement using the model demonstrated below.

Working Income                                                                                     $80,000
Minus:  Payroll Taxes                                                $ (6,120)
Annual Retirement Savings                                     $ (8,000)
              Work Expenses (Commute, clothing)       $ (3,000)
Other Reductions                                                      $ (5,000)              $(24,120)
Add:     Healthcare Costs                                          $ 10,000
Travel & Entertainment                                           $   5,000              $15,000
Total Spending in Retirement                                                              $70,880
Guaranteed Retirement Income (e.g – Pension)                              ($25,000)
Annual Need to be Met from Retirement Savings:                          $45,880

Capital Requirement (Annual Need / 4%)                                          $1,147,000

The above example relies on a constant 4% portfolio withdrawal rate, although, some may find a more conservative withdrawal rate more appealing, while others would prefer the additional risk that comes with a higher withdrawal rate.  Legacy Trust can help you consider the pros and cons of each strategy, while also providing insight on how your expenses may change and adjustments to the implementation strategy vary your withdrawal rates based on market conditions and personal needs.

Retirement looks different for each person because each person has their own values.  It is important to start planning as early as possible so begin going past the just-daydreaming about retirement and think about which expenses will change and what you need to do now to make your dream a reality.  I hear some (metaphorical) people in the back asking, “what about the people that are already retired?  Is our future set in stone?”  Absolutely not!  You can go through the same budgeting exercise and can adjust for the things you value.  I know retirement can be intimidating but that is one of the many reasons financial professionals exist.  Please utilize the expertise of your advisor for help understanding how much you (yes, you as a unique individual) really need in retirement.  The financial professionals at Legacy Trust are always here for you; please do not hesitate to reach out to us at (616) 454-2852 or info@legacygr.com.

Danielle Parmenter, CFP
Wealth Planning & Client Service Associate

Legacy Trust and Your Right to Financial Privacy

At Legacy Trust we have established policies and practices that respect the financial privacy of all individuals who use our trust company. We believe it is critical to comply with the laws and regulations designed to secure your financial privacy. Your relationship with us as our client is very important to us, and we want you to understand our policies and practices about handling your information.

This Policy applies to you – This Policy applies to our relationships with individual clients who inquire about or obtain products or services from us for personal, family and household purposes.

Strict security measures – We take the security of information very seriously. We have established security standards and procedures to prevent access to client information. We maintain physical, electronic and procedural safeguards to guard client information.

Limited employee access – We have established procedures to limit employee access to information to only those employees with a business reason for accessing such information. We educate our employees about the importance of confidentiality and client privacy. We take appropriate disciplinary measures to enforce employee responsibilities regarding client information.

Why we collect information – We collect information about you to:

  • accurately identify you;
  • protect and administer your records, accounts and funds;
  • help us design or improve our products and services;
  • understand your financial needs;
  • save you time when you apply for new products and services; offer you quality products and services; and comply with certain laws and regulations;

We collect information – We collect and maintain your personal information so that we can provide investment management and other services to you. The types and categories of information that we collect and maintain about you include:

  • Information we receive from you to open an account or provide investment advice or other services to you (such as your home address, social security number, telephone, financial information and investment objectives).
  • Information that we generate to service your account or from our transactions with you (such as account statements and other financial information).
  • Information on your transactions with nonaffiliated third parties.

We have established procedures so that the financial information we collect is accurate, current and complete. We are committed to work with you to promptly correct any inaccurate information.

Our selective sharing of information – In order for us to provide investment management and other services to you, we do disclose your personal information in very limited instances, which include:

  • Disclosures to nonaffiliated companies as permitted by law, including those who help us service your account (such as providing account information to brokers and custodians).
  • Other limited disclosures as permitted by law, for example, required reports to government entities.

We do not share your information with third parties for marketing purposes. We do not sell your information.

Former clients – If you end your relationship with us, we will continue to adhere to the privacy policies and practices described in this notice.

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USA PATRIOT Act

Important Information About Procedures For Opening A New Account

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account.

What this means for you: When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

We apologize for any inconvenience this may cause; however, federal law prohibits us from waiving these requirements.

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