Simple Finances®

Do You Worry About Outliving Your Money?

If you are like many pre-retirees and retirees, you worry about outliving your money.  Known as longevity risk, outliving your money is a common fear.  And studies prove it!  In January 2020, Allianz did an online study of 1000 adults aged 25 and over.  The study was to learn about the retirement readiness and concerns of Americans.  The sample included pre-retirees (10+ years from retirement), near retirees (within 10 years of retirement), and retirees.

For 60% of non-retirees, their number one fear was outliving their money.

In September of 2023, The TransAmerica Center for Retirement Studies surveyed 4650 adults.  The sample included 2546 age 50+ adults. These adults were employed, self-employed, or unemployed but actively looking for work.  The sample also included 2104 non-working retired adults.  The results showed a combined 77% of the sample size reported outliving their money as their greatest risk (45% of age 50+ and 32% of retirees).   These studies show the importance of a retirement plan that allows retirees to live the lifestyle of their choosing and not outlive their money.

Risks in Retirement

While most common, longevity risk is one of many risks pre-retirees and retirees face.  Consider these other risks to your retirement:

Investment Risk

Poor investment performance, market crashes, sequence of returns, and violating sustainable withdrawal rate rules can lead to reduced retirement savings which may impact income and lifestyle.

Health and Long-Term Care Risk

Unexpected health issues or the need for long-term care can drain your retirement savings

Inflation and Taxes

Inflation chips away at your buying power and taxes continue to increase.  Both of these may reduce your retirement income and savings.

Unforeseen Emergencies

Unexpected events such as a roof leak, car repairs, or family emergencies occur often and when least expected.  Emergencies can lead to financial strain, especially when you are on a fixed income or have little savings in retirement.

Understanding and planning for these risks is important for a comfortable and healthy retirement. Diversifying strategies and seeking professional financial advice are commonplace for retirement planning.  But these remedies often present challenges to traditional retirement planning.

Retirement Planning Challenges

The challenge many pre-retirees and retirees face when working with a financial planner or advisor is the cookie cutter approach to planning.  Many planners and advisors use standard software to create retirement plans for their clients.  And most standardized financial planning programs produce beautiful graphs and projected outcomes using the industry standard sustainable rate of 3% to 4%.  And while the plan looks impressive, it doesn’t always meet the individual needs of each client.

In our experience, each client is unique.  And the one size fits all retirement plan is outdated.  To better serve our clients, we made a list of the important features we  needed in a financial planning program.  Then we shopped around to find a commercial program that fit our needs.  To our disappointment, we couldn’t find one. So, Shaw created his own retirement planning program, the Simple Finances® app.

How Does Simple Finances® Help?

The Simple Finances® app is much more than a financial planning and retirement calculator.  The Simple Finances® app analyzes client financial data, risk tolerance, and current assets to produce a longevity risk score known as the RRM Score® (Retirement Risk Mitigation Score).  Then the Simple Finances® app uses the client’s current score to create scenarios that aim to improve it.  If the client’s before RRM Score® is in the green zone, no recommendations are made other than to continue to monitor your score every 3 months.  But if the before RRM Score® is in the yellow or red zone, the Simple Finances® app produces recommendations to improve your retirement plan.  And the recommendation to monitor your score every 3 months remains the same because life changes can impact your score.

While the RRM® Score strives to improve your retirement plan, the Simple Finances® app does much more!  Consider these features of using the Simple Finances® app:

Risk Tolerance Analysis

Risk tolerance is the comfort level of risking money in an investment.  Because it is personal, it is important to know each client’s risk tolerance level when creating a retirement plan.  Some Financial Advisors use an arbitrary range to measure risk tolerance from conservative to aggressive.  But the Simple Finances® app uses objective measures covering many factors to accurately identify each client’s risk tolerance level.

Valuable Reports

The Simple Finances® app produces valuable reports you can use.  These reports include Personal Income and Balance Sheets.  Simple Finances® also provides Income Details so you can see income from all sources as well as costs from expenses, taxes, inflation, and required minimum distributions (RMD) if applicable.

Suitability Analysis

Financial Advisors are required to follow regulations to identify suitable products for clients.  These standards aim to ensure Financial Advisors protect their clients from loss by recommending only suitable products that fit each client’s unique situation.  The Simple Finances® app incorporates these suitability and other standards in its analysis for each client.

Tax Consideration

For many, taxes may be the single largest line item in their budget.  And while you cannot avoid paying taxes, you can use tax efficient strategies to help ensure you pay no more than is required.  The Simple Finances® app estimates your current effective tax rate in its analysis.  And since 87.3% of filers use the standard deduction, Simple Finances® does as well (most recent IRS stats as of 2018). Excluding taxes or inaccurately counting them would produce an incorrect financial plan.

The Simple Finances application® is a proprietary financial planning and retirement calculator and planning tool aimed to help pre-retirees and retirees understand their risk of outliving their money in a simple score known as the RRM Score® (Risk Retirement Mitigation Score).  Visit the Simple Finances® app page to see a hypothetical case study and before and after analysis.

Whether you are thinking about when to retire or you are already retired, the Simple Finances® application can help!  To use the Simple Finances® application for your retirement planning or to receive additional information, call us today at 219-650-4050, ext. 103 or use this contact form.

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