lutz logo
lutz logo
  • Services
  • News & Insights
  • About
  • Client Portal
Search
  • Services
  • Accounting
  • Consulting
  • Financial
  • M&A
  • Talent
  • Tech
  • Accounting Services
Services
  • Audit & Assurance
  • Employee Benefit Plans
  • Client Advisory Services
  • Outsourced Accounting
  • Tax
  • State & Local Tax
View All
Industries
  • Agribusiness
  • Construction
  • Family Office
  • Healthcare
  • Manufacturing & Distribution
  • Nonprofit
View All
News & Insights
Website Featured Content Images-2
Blog
Are You Prepared? Financial Access Checklist for Spouses

Share this checklist with your spouse to assure you each have access to manage important financial tasks independently.

Read More
  • Consulting Services
Services
  • Business Valuation
  • Healthcare Consulting
  • Internal Control Assessment
  • Litigation Support & Forensic
  • Risk Assessment
View All
Resources
Website Featured Content Images (1)-1
Guide
What is a Comprehensive Risk Assessment?

To start managing your business's risk, you will need to conduct a comprehensive risk assessment.

Read More
Business Insights
Website Featured Content Images (2)-1
Blog
Top 3 Financial KPIs Every Business Owner Should Track

Key Performance Indicators (KPIs) can help illustrate your business’s financial health and show whether your business will turn a profit.

Read More
  • Financial Services
Services
  • Financial Planning
  • Investment Advisory
  • Retirement Plan Services
  • Pooled Employer 401(k) Plan
View All
Resources
  • Lutz Financial Blog
  • Our Team
  • Client Portal
  • Charles Schwab Login
  • TD Ameritrade Login
Contact Us
NEWS & INSIGHTS
Website Featured Content Images
MARKET COMMENTARY
Financial Market Updates

Want to receive financial market updates straight to your inbox? Sign up below!

Subscribe
  • M&A Services
Services
  • Sell-Side Representation
  • Transaction Advisory
  • Exit Planning
View All
Resources
Website Featured Content Images (3)
Ebook
7 Factors to Consider Before Selling Your Business

We give you exclusive insights on the business sale transaction process to help you answer seven important questions.

Read More
Business Insights
Website Featured Content Images (5)
Blog
Key Items to Review During Financial Due Diligence
The due diligence phase is critical for a Buyer to better understand the Target’s business operations and the overall quality of the financial information.
Read More
  • Talent Services
Services
  • Search & Staffing
  • Outsourced HR
  • HR Strategy & Coaching
  • HR Consulting
View All
Candidate Resources
  • Job Seeker Process
  • Current Opportunities
  • Lutz Internships
Contact Us
News & Insights
Website Featured Content Images-3
Blog
5 Benefits of Using Gallup's StrengthsFinder in Your Company

Gallup’s StrengthsFinder assessment can help you identify the strengths of the people working in your teams.

Read More
  • Tech Services
Services
  • Data Analytics & Insights
  • Outsourced IT
  • Technology Strategy
  • Software Consulting
View All
Resources
Website Featured Content Images (1)-2
Guide
Introducing Data Analytics into Your Business

Integrating data analytics into your business can help your revenue grow, the organization mitigate risk, or gain insight into your business operations.

Read More
Business Insights
Website Featured Content Images (2)-2
Blog
17 Tech Tips & Tricks

We’ve listed 17 shortcuts and hacks that will help you use tech to your advantage and make your daily life a little easier.

Read More
Business Insights
BLOG
Explore Topics

Get the latest news and insights on relevant topics that matter most to you.

View All
Webinars & Events
Events
Register Today

Register for an upcoming event or access our library of on-demand recordings.

View All
Lutz Talk Business
PODCAST
Tune In

Subscribe today for entrepreneurially spirited episodes of witty commentary for young professionals.

View All
Resources
EBOOKS & GUIDES
Download Now

Take a deep dive into challenging business topics with these free educational resources. 

View All
  • News & Insights
  • Business Insights
  • Webinars & Events
  • Lutz Talk Business
  • Resources
Business Insights
BLOG
Explore Topics

Get the latest news and insights on relevant topics that matter most to you.

View All
  • About
About

Lutz is a business solutions firm for people seeking a partner to help energize and heighten economic and organizational success.

Our Company
Our Team
Offices
Careers
Internships
Contact Us
  • Contact
Client Portal

Log in to your relevant client portal to access your account, upload documents, or make a payment.

Make a Payment
Accounting Client Portal
Financial Client Portal
Charles Schwab Login
TD Ameritrade Login
Send Files Securely
Contact Us
  • Financial Planning

Will I Outlive My Assets?

Joe Hefflinger, JD, CFP®, CAP®, Investment Advisor, Principal
January 29, 2019
Will I Outlive My Assets?

Running out of money is often cited as the biggest fear of retirees. Most investment and financial advice has traditionally been focused on the accumulation phase (growing assets before retirement). But, with the elimination of traditional pension plans and increased life expectancies, retirees are now finding that the distribution phase (spending down assets in retirement) is far more complex and requires a skill-set that they may not possess. This blog will provide a couple brief pointers on how to review your financial situation and investment allocation so that you don’t spend your retirement worrying about outliving your assets.

 

How much can I spend each year in retirement?

The best way to answer this is to perform a comprehensive retirement cash flow analysis. By modeling out detailed projections, you can analyze how your income and expenses will affect your retirement nest egg over time. This will include a review of your balance sheet, sources of annual income, tax features and how much you plan on spending each year. It is important to work with an experienced advisor who uses a high-quality planning software that can model out different scenarios so that you can see how modifying various assumptions can impact your financial picture.

Keep the following points in mind to ensure an accurate review of your financial situation:

  • Understand the timing and length of your retirement (estimate of retirement date and how long you will live) – longevity is one of the biggest stresses on retirement funds
  • Prepare an estimated budget of your annual expenses (don’t just wing this, if this is way off it can materially impact the analysis)
  • Quantify your sources of income (Social Security, rental income, farm income, pension, part-time employment, required minimum distribution (RMD) income, etc.)
  • Get a good estimate of what your healthcare and potential long-term care expenses will be[i]
  • Have a conservative assumption for taxes and inflation
  • Set a realistic growth rate for your investments based on your overall asset allocation (more on this to come below)

The cash flow analysis will help you find out if a level of annual spend is sustainable based on your balance sheet and the underlying assumptions (the key is to be realistic but conservative). It's important to update this analysis periodically as you progress through retirement to account for any changes in your situation and to confirm your plan remains on track.

 

How do I determine my investment allocation in retirement?

As mentioned above, it’s important to use a reasonable investment growth rate when modeling out your retirement cash flow. What's “reasonable” depends in part on what your investment allocation will be in retirement (i.e., your ratio of stocks vs. bonds/cash). But, how do you go about determining what that allocation should be? While there are lots of personal factors to consider and several different methodologies to use to answer that question, the approach we like to use is what I will call the “3 bucket model.” 

 

Three Bucket Allocation Model

In the bucket approach, you start out by estimating what your annual retirement “shortfall” will be (meaning by how much do your annual retirement expenses exceed your annual retirement net income). You then try to fill Bucket 1 with one year of this shortfall in a money market account. Next, you try to fill Bucket 2 with 7-10 years (or more) of this shortfall amount in a diversified fixed income (bond) portfolio. Lastly, fill Bucket 3 with the remainder of the portfolio in a diversified stock/bond mix. How aggressively Bucket 3 is allocated depends on how large the overall portfolio is and what the primary goal of the investor is (i.e., either protecting the corpus to provide a bigger spending cushion for the investor or growing the pot in an attempt to leave a larger amount for heirs or charity).

What this 3 bucket approach accomplishes is theoretically not having any funds you plan on needing in the next 7-10 years in the stock market. It also helps to avoid having to sell stocks at an inopportune time. If the stock market pulls back (as it inevitably will at various points during your retirement), you can pull any funds needed for living expenses from Bucket 1 or Bucket 2 and allow your stocks in Bucket 3 time to recover. 

If you are in retirement and can’t fill a 7-10 year bucket with conservative bonds, you may either need to be more aggressive with your investments then is ideal or you may need to reduce your annual spend. An illustrative example of this 3 bucket approach is set forth below.

 

Allocation Buckets

 

As you approach and enter retirement, managing your finances becomes much more complex. Determining how much you can safely spend each year and how to allocate your investments are just a couple of the many critical financial decisions you will face in retirement. Make sure you work with your financial advisor to put together a plan that meets your needs. If you don’t feel that your current advisor is providing adequate guidance in these areas, find one that will. Feel free to contact us for more information on this topic or to schedule a meeting to discuss your situation further.

 

 

[1] See https://www.lutz.us/planning-health-care-costs-retirement/ and https://pressroom.vanguard.com/nonindexed/Research-Planning-for-healthcare-costs-in-retirement_061918.pdf for more information on how to estimate healthcare and long-term care costs in retirement.

 

Important Disclosure Information
Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Lutz Financial.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Lutz Financial is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.  A copy of the Lutz Financial’s current written disclosure statement discussing our advisory services and fees is available upon request.
  • Achiever, Learner, Competition, Arranger, Focus

Joe Hefflinger, JD, CFP®, CAP®

Investment Advisor, Principal
Joe Hefflinger is an Investment Advisor and Principal at Lutz Financial. With 15+ years of relevant experience, he specializes in comprehensive financial planning and investment advisory services for professionals, business owners, and retirees. He lives in Omaha, NE, with his wife Kim, and daughters Lily and Jolie.

402.827.2300

jhefflinger@lutzfinancial.com

Connect on LinkedIn

Recent News & Insights

Accounting
Lutz adds Baker and Reinholz
Lutz, a Nebraska-based business solutions firm, recently added Trystin Baker and Andrew ...
Read More
Tech
Lutz Tech adds Agraz and Gasper
Lutz, a Nebraska-based business solutions firm, recently added German Agraz and Adam Gasper to ...
Read More
Accounting
Nebraska + Iowa Enact Pass-Through Entity Tax Laws
Iowa and Nebraska enacted Pass-Through Entity Tax (PTET) legislation during the 2023 ...
Read More
Market Commentary
A Few Large Growth Stocks Have Driven the Market in 2023 + Market Update
Story of the Week A Few Large Growth Stocks Have Driven the Market in 2023 After an incredibly ...
Read More
module-bg-desktop module-bg-mobile

Let’s get you where you want to go.

We work to simplify complexities, help make critical business decisions, and confidently focus on the things that are truly important to you. We embrace your business as our own to spark the right solutions and help you thrive.
Contact Us
Lutz-Logo-white
  • Services
    • Accounting
    • Consulting
    • Financial
    • M&A
    • Talent
    • Tech
  • About
    • Our Company
    • Our Team
    • Offices
    • Careers
    • Internships
    • Current Opportunities
  • Client Portal
    • Make a Payment
    • Accounting Client Portal
    • Financial Client Portal
    • Send Files Securely
    Submit RFP
TOLL-FREE: 866.577.0780 | © Lutz & company, PC 2023 | Privacy Policy
Follow us on Facebook Follow us on LinkedIn Follow us on Twitter Follow us on Instagram Follow us on Facebook