A Keen Wealth Case Study: Can We Retire Comfortably at 65?

Last week, I discussed how Keen Wealth's comprehensive planning process might assess a multi-million-dollar nest egg. I think these hypotheticals, including some back-of-the-napkin math, are useful in illustrating how retirement planning can work, and also the limits of focusing exclusively on your numbers.

However, in the Keen Wealth offices, we don't work with hypotheticals. We work with real people, their real savings, their hopes, dreams, worries, and goals for the future.

Every day, we help hardworking folks navigate complex financial issues that touch every part of their lives. We're honored that our clients have entrusted us with the responsibility of managing assets they've spent decades earning, and we want them to feel confident about their path to retirement.

On today's show, we explore the Keen Wealth Advantage in action as we help a couple answer one of life's most important questions: Can we retire?

1. Meet "Judy and Joe"

Judy and Joe are a 62-year-old married couple who are hoping to retire at age 65 and live off an after-tax income of $12,000 per month. Their budget includes monthly mortgage payments ($1,500), travel, estimated Medicare premiums, and charitable giving.

• Assets: $2 million in investable assets. $1.5 million is in Judy's pre-tax 401(k), with the remaining $500,000 in certificates of deposit (CDs), including a recent $300,000 inheritance.
• Home: They own a house valued at $750,000 with a $200,000 mortgage (approximately $550,000 in equity) at a low 3.5% interest rate.
• Additional Retirement Income: Joe will receive a pension of $4,000 per month. The pension does not feature a cost-of-living adjustment (COLA).
• Social Security Benefits: At age 65, Judy will receive $3,362 per month and Joe will receive $2,803.

2. Putting the Plan Together

First, kudos to Judy and Joe for the amount of thought they put into their retirement budget. Many soon-to-be retirees overlook the costs of health care. And if you don't make concrete plans to realize goals like travel, those goals tend to get pushed into a "someday" that may or may not come.

Perhaps just as importantly, Judy and Joe have given themselves a three-year runway to retirement. That gives them and Keen Wealth time to plan some advantageous strategies, including:

• Creating Budget Buckets: This allows us to fine tune allocations to adjust for inflation and the couple's needs. For example, health care expenses inflate at approximately double the rate of other expenses. And it's likely that Judy and Joe's travel schedule will slow down as they age.
• Sequencing Accounts: Given how low their fixed mortgage rate is, my team concluded that paying off their home wouldn't be the best use of Judy and Joe's CDs. Instead, they can live off this after-tax money, Social Security, and Joe's pension early in retirement while their other accounts continue to grow. They might even be able to delay taking Social Security until or after their full retirement ages, which would increase those benefits as well.
• Roth Conversions: While they're living largely off their CDs, Judy and Joe will be in a low tax bracket. This creates a window for rolling over funds from Judy's 401(k) into a Roth IRA at a lower tax rate. Funds in the Roth will grow tax-free, and future withdrawals will be tax-free as well.
• Assess Lifetime Tax Liability: My team projected that this combination of strategies would likely save Judy and Joe $180,000 or more in taxes over the rest of their lives.

3. Stress Tests and Simulations

Once my team has a plan in order, we can run it through computer simulations that stress test the plan in a wide variety of scenarios. Typically, we start with conservative projections based on historical data and then move on to projections that assume various rates of market volatility.

For example, what happens if the markets are down the first year of Judy and Joe's retirement? How will their plan cope if the markets stay down for three years? Five years?

If the markets are up, how will that affect Judy and Joe's tax liability? Will we need to resequence their withdrawal strategy?

At the end of these simulations, our process assigns a probability of success. Between 75% and 90% is the optimal range. But if a plan scores lower that doesn't mean it's going to fail. It just means there's a higher chance that we will need to make adjustments to the plan throughout retirement to avoid worst-case scenarios, such as running out of money.

After thorough analysis, my team concluded the Judy and Joe's plan to retire at 65 had a 98% chance of success. That means we're confident this couple has the assets and the flexibility they need to meet unexpected challenges, achieve their goals, and thrive in retirement.

Redesign Your Retirement

A comprehensive financial plan can only be as good as the data that you provide your financial advisor.

One of the reasons that Judy and Joe were able to arrive at a plan with such a high probability of success is that Keen Wealth builds real relationships with folks so that they feel comfortable sharing not just their numbers but their personal goals for retirement as well. I believe that extra level of comfort builds confidence in the plan and makes it easier for folks to come to us when life happens. My advisors are skilled at having difficult conversations about an unexpected job loss or tough health diagnosis, as well as planning for joys like a new grandbaby.

When you visit Keen Wealth, bring the data and the details that are most important to your retirement and let’s start working on your personalized plan.

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About Bill

Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

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