If you look at our website—and please do! I quite like it—you’ll see that we ask “Are you a woman in your early to mid career in tech?” That’s the demographic we target.
So, why, one might reasonably ask, would I pursue a professional designation focused on retirement income: the Retirement Income Certified Professional® designation?
Please note that the RICP® designation consists of three courses that you can reasonably complete over the course of a year. (It took me a couple months longer. Thanks, cancer treatments!) Needless to say, there was a lot of information in it. This blog post is not a representative sample of what is taught. It’s simply what stands out most to me after completing all the courses.
[Technically speaking, as of the publication date of this blog, I don’t officially have the RICP designation. I have passed all the exams and nothing is left for me to do, there’s just a “schedule” to these things. I should have it confirmed by The American College during the third week of March. Boy won’t I have egg on my face if they decide for some reason to withhold it from me!]
Three Reasons I Got the RICP®
Aside from a general desire to always be learning more (the A-student never dies!), getting better at my craft, etc., there were three reasons that prompted me to get this particular designation:
Eventually our clients will be retired. I want to be prepared well in advance.
I’ve worked with one of my clients since two weeks after I launched my firm eight years ago. And many other clients whom I’ve been working with for almost that long. It’s, well, beautiful and satisfying to be in such a meaningful relationship with someone over years and many twists and turns of life.
I genuinely hope that these clients will stay with me, that I will continue to earn their trust, for the next decade and more.
This means that, eventually, these young clients will be not-so-young clients, and, more accurately, clients who are approaching or in retirement. I’d much rather know what kind of planning is required for that stage of life well before it happens.
I want our clients to arrive at the cusp of retirement in as strong a position as possible.
I started my financial planning career in the position of paraplanner (basically, entry-level, collecting and entering data) at two fee-only RIAs (Registered Investment Adviser…the term used for the firm; the person providing the advice to you, like me, is the IAR, Investment Adviser Representative…no really, it’s that stupidly similar).
Both firms were both pretty traditional in their practice, in that that they worked with people close to or in retirement. They did good work for their clients, but one thing that bothered me about the overall situation was the tacit message to prospective new clients: “I sure hope you’ve been making the right financial choices for the last 20+ years. Because if not, we can’t help you/we won’t work with you.” Basically, if you didn’t arrive at their doorstep, asking for financial help, without a big investment portfolio already saved up, they couldn’t help you.
Having run my own firm for eight years now, I no longer have any criticism of the business decision to work only with clients who had a big enough portfolio. But, especially as a 34-ish-year-old at the time, I thought, My, wouldn’t it be nice if a financial adviser could help people when they’re younger, so they could arrive at the doorstep of retirement better prepared? Instead of just leaving that to the individual people to hopefully figure out or luck into on their own?
That’s a big reason why, when I launched Flow, I targeted working with early to mid career women in tech. I could “get at” people when they still had plenty of years to do the right thing in their finances.
Getting the RICP education has given me even more clarity about the best things to have in place as you approach retirement. If I know what position my clients should ideally be in as they near retirement, I can guide my clients even more effectively towards that time in their lives.
Many Clients Are Already Financially Independent, If Not “Retired.” I Want to Help Them Even More.
We work with younger folks in tech, and several of them have become financially independent way earlier than the usual 65. We might not call them “retired,” but there’s a lot of overlap between these younger folks and the more traditionally aged, retired 65 year old:
- how to turn an investment portfolio into a stream of income that ideally lasts their whole lives
- how to manage their spending—on needs and wants—to so that their wealth lasts, but also so they can enjoy it
- how to acquire health insurance without spending a fortune
- more time to think about purpose and fulfillment (instead of having your time and mental energy taken up by your job)
My Biggest Takeaways from the RICP Education
My biggest single takeaway from all the education is that the best plan leading into retirement is:
Have lots of money and be in good health.
It’s glib and simplistic…and if you take a moment to think about it, you can probably easily think of some practical, realistic ways you can maximize the chances of having lots of money and good health when you retire.
What are my other takeaways?
There are So Many Risks, of Unknown Timing and Unknown Size.
The way the RICP education is organized validated my “framework” for financial planning: manage risk then plan for opportunities. I use that organization with our younger clients. The RICP starts its education by enumerating the 18(!!) risks that affect retirees, and then shows all the products and techniques for managing each of those risks.
The fundamental challenge in retirement is that you have risks of unknown size and timing. How long will you live? What health problems will you have? For how long? When? What will the stock market do?
The 18 that the RICP education enumerates include longevity risk, health expense risk, interest rate risk, and, of course, 15 more.
Retirees lack the biggest tool that younger folks have to help deal with risks as they arise: the ability to go earn more money. When you retire, you’ve got what you’ve got, and you gotta Make This Money Last. (I’m generalizing; some people continue to work and earn in retirement.)
The need to address so many risks, and the many techniques and products available to do so, makes retirement planning complex in a way that’s totally different from the complexity in planning for younger folks (which I find centers more around life and career changes and complicated compensation).
I found myself struggling a bit to appreciate the good and uplifting aspects of retirement and our older years (like the wisdom and self-knowledge that comes with age, and increased control over our time). I tend to be risk-centric, and got a little overwhelmed by how many there are!
Health Insurance Looms Large
Health insurance, I know, looms large for everyone, of all ages. But all of our clients who are employed have access to a small selection of health insurance plans through their employers, and it’s usually quite inexpensive.
Medicare starts at age 65 and You Would Not Believe how many choices there are (Medicare Advantage or Medigap + Medicare Part D? Which MA plan? Which Medigap plan?), and how many enrollment deadlines there are, and if you don’t obey them you’ll pay a penalty for the rest of your life.
If you retire before age 65…well, that is a struggle I’m already familiar with (both personally and with clients who are taking sabbaticals or who are financially independent and not working).
Delaying Retirement Is Powerful.
This part of the syllabus blew me away. It said that delaying retirement by three to six months—during which time you’re continuing to earn and not withdrawing from your retirement portfolio—has the same impact as saving 1% more every year for 30 years. (Financial adviser and writer Nick Maggiulli wrote up his analysis of this assertion.) Of course, the longer you keep working, the more dramatic the reduction of your need to save earlier in life.
This really got me thinking, for both myself and my clients, about “How can we arrange our work life so that we will enjoy working longer?” instead of “How do we earn and save as much as we can now?”
The More Years You Spend Saving, The Less You Have to Save Each Year.
Wade Pfau’s research into safe savings rates shows us that if you save over 40 years, you need only save 9% of your income each year. Over 30 years? You need to save 16.7% per year. Over 20 years, you need to save 36% per year.
His research indicates that your savings rate and the number of years you save matter much more than the number of years you spend in retirement, living on your portfolio. Quite the mental switcheroo! Takeaway? Want an easier, more confident retirement? Save earlier and oftener.
You Might Be Forced to Retire Before You Plan to.
Forty percent of people are forced to retire before their planned retirement date, because of their own health, to take care of a loved one, or layoffs, to name a few reasons. If you had been relying on working longer for income and saving purposes, then you’ll be forced into reducing your retirement lifestyle.
So, save save save because you never know when you’ll stop being able to.
Even if Premature for My Clients, This Information is Really Powerful for My Clients’ Parents.
Even if it’s too early for many of my clients to care about these things directly, many of them have parents or other older loved ones for whom this information is very relevant right now.
While we already ask clients if they have loved ones they are responsible for, I want to renew my focus on this. Have you spoken with your parents about long-term care planning? Have your parents made the decision about when to claim Social Security? Do your parents have their own financial adviser? Do they have appropriate caregivers?
Being Married Helps Maximize Your Social Security.
If you’re a high-income or high-wealth person, your biggest source of retirement income will likely be your own retirement portfolio. Social security, while it will likely be a smaller part of your retirement income, is still a very important part. (It’s inflation-adjusted, guaranteed income. If you try to buy that sort of income through an annuity, you will quickly see how expensive it is to obtain.)
I bring this up because I notice a lot of people choosing to not get married to their committed partners. If you’re not married to someone, you have no right to their Social Security benefits. I have written about the (legal and financial) implications of this choice before, and I was reminded of how powerful it is to have two Social Security records to choose from in retirement.
(As I said in that blog post, let me reiterate: I am not trying to make a moral or cultural point. Just a financial one.)
You’ve Never Been Retired Before. How Can You Be Expected to Know What You Want it to Look Like?
The RICP program talked a lot about the non-financial aspects of retirement. How retirement is this empty bucket and you have to choose what to fill it with. How almost no one entering retirement has any idea what their retirement is going to be like.
So, not only should you prepare financially (save save save, invest invest invest), but you should also prepare:
- Work-wise: Is there other work you want to do in retirement? Can you experiment with it now?
- Socially: Can you start building a social group before you retire?
- Activity-wise: Can you experiment with some hobbies before you retire?
- Health-wise: Establish some healthy habits earlier in life.
For younger folks, taking a sabbatical or two could help you prepare. Take six months or a year where you get to be “retired” and figure out how to use your time in the most fulfilling way possible. Michael Kitces, thought leader and all around famous dude in my profession, wrote a blog post about the “3 Types Of Retirement And Their Very Different Savings Strategies,” one of which involves repeated sabbaticals (mini-retirements) throughout your working life.
How Planning for Younger Clients Differs from Planning for Clients in or near Retirement
As I already mentioned, my start in this career was at firms that worked with the traditional “nearing or in retirement” older clients.
At a very high level, planning for retirement is the same as planning for earlier stages of life:
- Get clear on what life you want to have.
- Assess what resources you have (time, energy, money).
- Choose how to deploy those resources to build and support that life.
- Review regularly.
But much of what I learned at those firms (as good as it was for those firms’ clients), I had to toss to the side when I started working with clients in earlier phases of their lives and careers. The differences between planning for younger, working-age clients and retirees are many and profound.
(I should note that I’ve never practiced financial planning for retirees, so if you work with retirees and think I’m totally missing the boat, lemme know!)
Younger Clients’ Lives Are Constantly in Upheaval.
When you’re in your 20s through 40s, you’re getting married, having babies, moving, buying homes, changing jobs, getting laid off, taking sabbaticals, going back to school, changing careers, becoming a stay-at-home parent, re-entering the workforce, and so on. So. Much. Uncertainty.
The idea of planning 30 years (with any kind of specificity) into the future? Kinda ridiculous.
Younger Clients Can Still Earn More Money.
When it comes to financial planning, one of the biggest differences is that younger clients can usually earn more money if necessary. That’s their most powerful (and it IS powerful) tool.
Retirees, maybe they can go back to work, but we can’t rely on it. The money they have is, generally, all the money they’ll ever have. We need to manage risks so that it doesn’t run out.
Older People Are Happier.
The RICP also discussed studies showing that older people are happier. (I can totes see that. I no longer have to work and save, and my children are up and out, and I can do an hour-long yoga practice every day, and I no longer care what other people think of me? Hell yes!) I’m not yet sure how this affects how I plan with younger people, but I’m sure it’s handy to keep in mind.
The Risks Are Different.
Managing risks is core to all financial planning. Many of the risks for young people are the same as for retirees. For example, we all need a power of attorney in place, so that, if we become incapacitated, someone we want has the authority to make decisions for us. We all need adequate health insurance so that a health incident won’t bankrupt us.
Risks for younger people are differently largely in that young people still need to build wealth. Anything that threatens that ability is a huge risk (the risk gets smaller, the more wealth—relative to your lifestyle expenses, of course—you have). What can threaten that? Death and disability mostly. I suppose also upheaval in careers, due to temporary or long-term downturns in the career or industry they work in.
Investing Changes.
When you’re “accumulating” (adding to your savings), investing can be so simple it’s simplistic. Hell, the same target-date in each account is probably fine! Just keep adding to it and letting it grow (over a long time).
When you are in “decumulation” (you need to live off your savings), the goal is entirely different. It’s no longer Number Get Bigger. It’s “how do I turn this Pot of Money into a steady stream of income that will last the rest of my life?” It’s not really that you need to invest in different stocks or funds. It requires a completely different mindset.
You could:
- Continue to have a single, balanced, low cost, broadly diversified portfolio and simply withdraw a certain percentage of it every year. There are many different ways of determining what the highest safe percentage is. (known as the “systematic withdrawal” approach)
- Have different “buckets” of money (in practice, different accounts), one of which is cash (for the short term), bonds or other conservative investments (for the mid-term), and more stock-heavy (for the long term). (known as, hey hey, the “bucket” approach)
- Buy annuities with some of your money, to provide you with enough monthly income for the rest of your life to cover your needs. The rest you can invest more aggressively in the stock market. (known as the “income floor” approach)
- Take a reverse mortgage to either provide you with a regular income, or just to draw on when your investments have lost value so that you don’t have to “sell low” from your investments. (known as, um…reverse mortgages…no fancy label here)
- Invest in guaranteed-value products (fixed-term income annuities, individual bonds, CDs, etc.) for the next 5-10 years to provide the amount of money you think you will need each of those years, and invest the rest in various growth-y/volatile assets. (known as “asset dedication”)
I understood and can appreciate the value of all the different strategies…except maybe the one that used whole life insurance and had a lot of trademarked terms.
What Are Some of the Best Things to Do in the Lead Up to Retirement?
One of my goals in taking these courses was to help my clients arrive at the cusp of retirement better prepared for it. So, what do I think younger people should do now, well in advance of retirement?
Figure out some things that make you happy or fulfilled
Practice incorporating those things into your life. The earlier you start, the better. Why wait for only the last few decades of your life to live a life that is truly yours?
Think about what kind of part-time work you might like to do.
Part-time work can give you, yes, money, but also structure, socializing, meaning, intellectual stimulation, and, if you’re like my uncle who retired with a very nice pension but still chose to go work at the golf course 5 days a week, physical activity.
Save and invest plenty of money.
(I probably sound a bit Chicken Little at this point.)
If you want to get tactical: Look for Roth conversion opportunities.
Roth conversions can save you a lot of taxes over the course of your lifetime. In retirement planning, we usually talk about Roth conversions in the years after you retire but before you take Social Security, because these are low-income and low-tax-rate years (the kind of years you want for Roth conversions). But you might—and probably will—have such years throughout your life (sabbatical, layoff, return to school, family leave, start a business).
Protect Yourself
All those risks I mentioned—however high level—above, that face younger folks? Protect yourself against them. The right insurance policy. The right estate planning documents. Enough of a cash cushion.
Reflect on your legacy.
The RICP program talked about how, especially as we near the end of our lives, we spend more time trying to understand our life’s legacy. Some amount of wisdom and self-knowledge, I believe, is available only through the process of aging; it can’t be rushed.
But imagine how much more powerful this effort to understand your legacy would be if you thought about it throughout your life? Especially when you still have a chance to shape it?
Do you want to work with a planner who wants you to live your best life now, and who also wants Future Retired You to be happy and financially secure? Please reach out and schedule a free consultation or send us an email.
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